The financial services industry has little to fear from the re-election of a Howard Liberal Government, notwithstanding the fact that the Minister for Financial Services, Joe Hockey, can reel off a list of priorities to which he would turn his attention after November 10.
There is the completion of the Financial Services Reform task, the question of the prudential regulation of superannuation, the General Insurance Reform Bill and a review of the Trade Practices Act.
He’s even canvassing another look at superannuation, acknowledging that the super surcharge is ‘a bad tax’, albeit one the Government was forced to impose because of the budget black hole he says it inherited from its Australian Labor Party predecessors.
But what Hockey is fundamentally promising is stability and certainty. It is the stability he believes is necessary to bed down the changes contained in the Financial Services Reform Bill (FSRB), legislation he sees as one of the Howard Government’s most important achievements.
He proudly points out that the FSRB resulted in one of the most significant transfers of powers from the States to the Commonwealth since the transfer of taxing powers during the 1940s.
“It was one of our most significant achievements but, amongst all our achievements, it has probably received least recognition,” Hockey says.
The Minister believes that from the base provided by the FSRB the financial services sector will grow from being an industry into a profession and, in turn, may look towards generating export income for Australia.
In truth, there is little that differentiates the Coalition and Australian Labor Party approaches to the financial services industry. But Hockey makes clear the most discernible difference, the Government’s approach to the power and funding of the regulatory bodies, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
Where Labor says it would act to increase the power and funding of both bodies, Hockey believes their powers are adequate and their funding sufficient. Indeed, Hockey is scathing of the ALP’s entire policy approach.
“The ALP doesn’t understand the financial services industry. It is fair to say they would have butchered the Financial Services Reform Bill,” he says.
When asked what he believes are the priorities if the Howard Government is returned to office Hockey says, “The bedding down of the FSRB”.
The Minister believes the industry has enough on its plate in dealing with the new privacy guidelines and tax changes without being asked to consider changes that go beyond what is contained in the FSRB.
He says that was the reason he acted to ensure the legislation was put to bed before the Parliament rose.
“We wanted to create certainty for the industry. It might have taken another 18 months if we hadn’t got it through. Now, of course we’ve created time for ASIC to put the various regimes in place and to prepare its practice notes and so on,” Hockey says.
“I just think we need to give some certainty to business.”
Hockey says that the FSRB has not only resulted in a massive reduction in regulation but has created a regime that is future consistent. By this he means the legislation will hold good regardless of any advances in technology that might occur.
“Under the FSRB we’ve created a regime under which practitioners require one licence and under which they operate within a single conduct and disclosure regime no matter how widely business is distributed. That represents a massive reduction in regulation,” he says.
Yet if Hockey is looking to create an environment of certainty for the financial services sector he acknowledges that a number of processes are already in train that will engender fundamental change across a range of areas from general insurance through to auditing and the prudential regulation of superannuation funds.
Using the example of the general insurance sector he believes rationalisation will occur given it is already acknowledged that between 14 and 16 smaller players in that industry will not meet the capital adequacy requirements.
“They’re faced with a choice. They can merge, acquire or close their doors,” he says.
This attitude may sound tough, but Hockey says neither he nor the Government is in the business of accepting that the Government or taxpayers should be acting to alter this scenario.
“Business has to be allowed to succeed and it has to be allowed to fail. If you seek to alter that then you’ll end up with systemic problems where the industry is being artificially supported,” he says.
To those who argue that the Government should have acted to prevent the collapse of major insurance companies, he points to the terrorist attacks on New York and Washington on September 11 and asks the critics to consider the consequences.
“If the market was today trying to prop up a failing insurance company you can imagine what the industry would be like today in terms of insurance and reinsurance. The Government shouldn’t be in the business of propping up badly-run businesses,” Hockey says.
The Government’s approach to superannuation seems likely to generate considerable heat in a post-election environment, particularly among the union-elected directors of industry funds.
While Hockey was not giving away too many specifics, he was making clear that the Government would be looking at a number of recommendations emerging from the review of the prudential supervision of superannuation including tougher disclosure provisions, the holding of Annual General Meetings, transparency and mechanisms to facilitate the removal of directors and investment managers.
The objective, he says, was to make superannuation a safer proposition and the best way to achieve this was to encourage and maintain a culture of saving.
On the vexed issue of the superannuation surcharge, Hockey acknowledged that it was “widely regarded as a complicated tax”.
“But people need to understand that the reason we have it is that Labor left us with a massive budget black hole. It is a bad tax but we had no choice but to introduce it,” he says.
Notwithstanding such an approach, the Minister sees superannuation as an important element within the financial services sector and something that needs to be discussed on a broader scale.
On the issue that most clearly differentiates the Government from the ALP – the power of the industry regulators – Hockey is adamant that the Government has no plans to give the ASIC more power.
“We believe the regulator has an adequate range of powers. You can’t give them carte blanche”.
“However if we see a regulation that better services the ultimate objective then we’ll look at it. Our focus is not more regulation but better regulation,” Hockey says.
The Minister says the Government had already increased funding to ASIC and is not open to providing a blank cheque on the basis that the regulator cannot prevent bad practice it can only dissuade it.
In any event, in Hockey’s view the financial service’s metamorphosis from an industry to a profession will enable it to improve its own standards of practice.
In fact he goes as far to highly praise the industry for driving the moves to professionalism in the last few years and for taking the task upon itself to do so.
“Industries have shonks, professions have fewer of them. Within a professional environment, it won’t just be ASIC that’ll get them, it will also be their peers and I think that will minimise the existence of bad practice,” Hockey said.
