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2009 looks set to be a tough year for the global economy and a tough year for Australia as fallout from the global financial crisis continues, but with adversity comes opportunity.
The Government will use the opportunity to continue strengthening our financial system for the future.
Most countries in the developed world are in recession, or close to it, including the US, UK, Japan and Germany. Even resources boom powerhouse China forecasts much slower economic growth this year due to the global downturn that has cut demand for Chinese goods.
In Australia, the Government’s aim is to do everything possible in the face of the dramatic changes in the global economic outlook to bolster our economy.
To protect Australians as the impact of the global crisis moves to our ‘real’ economy — jobs and economic growth — the Government announced a $10.4 billion Economic Security Strategy to stimulate economic activity and underpin growth. The effects of this should be seen in the coming months.
A key focus in my portfolio this year is to see through the transfer of consumer credit and the other remaining state government-regulated financial services to the Commonwealth, a process agreed to by the Council of Australian Governments last year.
The long overdue move will bring Australian financial services regulation firmly into the 21st century.
Included in the transfer are mortgage broking, trustee companies and consumer credit such as mortgages and payday lending.
And, for the first time, margin lending will also be properly regulated in Australia at a national level.
This means for the first time there will be uniform disclosure requirements that will dramatically improve protections for consumers.
The Government’s Financial Services Working Group has been tasked with ensuring that disclosure documents for margin lending products will be simple and easy to read, unlike the often Latin-like documents we’ve seen in the past.
Key elements of the action plan to nationally regulate financial services are set to be enshrined in legislation by mid-June 2009.
Specifically, the existing state legislation, the Uniform Consumer Credit Code (UCCC), will be enacted into Commonwealth legislation.
The Australian Securities and Investments Commission (ASIC) will be the sole regulator of the new national credit framework with enhanced enforcement powers.
A national licensing regime will be in force, requiring providers of consumer credit and credit-related brokering services and advice to obtain a licence from ASIC.
All licensees will have to comply with conduct requirements including responsible lending practices. They will also have to be members of an external dispute resolution scheme.
A legislative framework for national regulation of trustee corporations will also be in place.
Details of the future regulation of credit ratings agencies and product research houses will also be finalised and implemented during 2009. This is a high priority in the wake of the global financial crisis. The Government has already announced that firms must have an Australian Financial Services Licence (AFSL) and report to ASIC annually on the quality and integrity of their ratings processes, including conflicts of interest management.
Regulations for the operation of the recently passed Corporations Amendment (Short Selling) Act 2008 will be finalised shortly, after Treasury and ASIC consultations with industry stakeholders. The Act confirms the powers of ASIC to regulate short selling, bans naked short selling (which means the seller will need a legally binding securities lending agreement before making a short sale), and will ensure disclosure of covered short sales.
In the superannuation part of my portfolio, I will advance work on the Government’s plan to re-unite Australians with their lost superannuation through the use of Tax File Numbers (TFNs).
Currently, Treasury is assessing submissions to the consultation paper on the Government’s proposed superannuation clearing house measure, which is designed to cut costs and red tape for small business. That paper also took submissions on initiatives to solve the $12.9 billion lost super problem. This is a very important issue and I will make further announcements on the Government’s plan of action as the year progresses.
This year, I will also direct the Australian Prudential Regulation Authority to publish data showing the long-term performance of superannuation funds.
The availability of APRA data will also assist the Australian Industrial Relations Commission and industry bodies to assess the ongoing appropriateness of default super funds in modern industrial awards.
Most Australians end up in default super funds because they fail to actively ‘choose’ a super fund. However, in my view, all Australians are entitled to expect a high quality default super fund as it is a compulsory superannuation system.
In these difficult times, many fund members will question the fees they pay and assess whether they are receiving value for money. The annual fee for super funds across the system is 1.25 per cent, according to Treasury. I believe this fee should be 1 per cent or less and have asked industry for input on how this can best be achieved.
Senator Nick Sherry is the Minister for Superannuation and Corporate Law.
