Speech - A50 AUSTRALIAN ECONOMIC FORUM 2018

Good morning, everyone — it’s wonderful to be with you again.

 

This forum provides a fantastic opportunity to discuss some of the most important areas of the Australian economy — and financial services is certainly one of them.

 

On a macro-level, financial services is actually the largest industry in the Australian economy, contributing about 9 per cent of Australia’s GDP and employing more than 400,000 people.

 

Over the summer, I was privileged to represent Australia at the Asian Financial Forum in Hong Kong where it was very apparent that our banking, superannuation and financial services industries have gained a hard-earned reputation as one of the strongest and most stable in the world.

 

On a more human level, financial services matter a great deal to the Australian people.

 

Financial services are simply the means through which some of the most important milestones in peoples’ lives are achieved - whether it’s buying a home, starting a small business or saving for retirement.

 

Given the personal nature of these financial events and the significant impact the sector has on most Australians, financial firms clearly operate under an implicit social licence. And in return Australians expect — and deserve — the highest standards from the sector.

 

Post the GFC, which might I say to our overseas visitors is a curiously Australian-only acronym, it is now widely but not universally recognised that prudent regulation, actually encourages both good consumer outcomes and better long-term international opportunities in the financial services sector.

 

There has been a lot of talk this week about the competitive state of the financial services market, and I want to reiterate that the Australian Government is absolutely committed to ensuring Australia continues to be, a globally competitive marketplace that also includes our world class regulatory framework.

 

They say imitation is the sincerest form of flattery and Australia’s internationally renowned “Twin Peaks” regulatory model has been emulated around the world.

 

Strong competition, financial system stability, and sensible regulation makes us well positioned for expansion into new markets in Asia and other new markets around the world.

 

I want to use the brief time I have available today just to highlight the key innovations the Australian Government is pursuing to facilitate international investment.

 

Australia’s funds management sector has over A$3.27 trillion under management, making it the sixth largest pool of funds globally and the largest in Asia.

 

By increasing trade in financial services across Asia alone, we have the potential to create a more competitive and efficient financial services sector, lowering costs and providing consumers with a greater choice of products.

 

There is no doubt that duplication and divergence in regulatory settings across different economies in our region is a significant impediment to cross-border provision of financial services.

 

Such regulatory burdens can make it unfeasible or impossible for fund managers to offer their services in other economies.

 

The Asia Region Funds Passport is an Asian regional initiative that will expand opportunities for trade in funds management.

 

The Passport will allow fund managers in participating economies to offer their services to consumers in any of the participating economies, without being required to comply with two different sets of regulation.

 

At the same time the Australian Government is also re-drafting its financial laws to allow Australian fund managers to offer collective investment funds through a corporate structure, rather than trust structures.

 

These structures will be known as Corporate Collective Investment Vehicles.

 

And, it will also benefit investors, including consumers, through greater investment choice across a broader and more diverse funds offering.

Australia’s compulsory pension system is undoubtedly one of our great competitive advantages.

 

At more than $2.5 trillion it makes Australia an attractive source of capital and positions Australia as leader in exporting our financial services expertise.

 

In the 12 months to September 2017, that retirement nest egg grew by 8.7 per cent, and is predicted to reach $4 trillion over the coming decade.

 

This incredibly large pool of capital is vital to all working Australians, it is their money, a mandated deferral of almost 10 per cent of their income today to build an income for their retirement.

 

Australian superannuation funds have earned a reputation for being some of the most innovative investors in asset classes like infrastructure both in Australia and around the world.

 

Ensuring that Australia is prepared to face the challenges of an ageing population will provide a unique opportunity for the financial services industry to deliver innovative, flexible retirement income solutions to improve the quality of life for Australians in the decades ahead. 

 

All these changes sit alongside financial innovation - which is transforming the Australian financial sector at a rapid pace.

 

In December 2016, Australia’s corporate and financial services conduct regulator – the Australian Securities and Investment Commission (ASIC) – introduced a FinTech regulatory sandbox.

 

By allowing eligible businesses to test and refine innovative financial and credit services for up to 12 months without needing to apply for a licence, ASIC’s sandbox reduces the time it takes to get these new services to market.

 

To build on this work, we have introduced legislation to broaden the scope of the sandbox to allow more businesses – including foreign companies registered in Australia – to test a wider range of new FinTech products and services.

 

Financial technology or ‘FinTech’ is driving change in financial services through increased competition and delivery of innovative products and services.

 

These developments are giving consumers access to payment functionality like digital wallets, marketplace lending and crowdfunding platforms, new streams of rich and real-time data, wealth management services via robo-advice, and the potential for greater personalisation and choice of products and policies in areas including wealth management, insurance and superannuation.

 

Australia is a world leader in FinTech adoption, ranking fifth in the world in 2017. What’s more – Australia is an attractive market for the launch and expansion of FinTech products.

 

In my role as Minister for Revenue and Financial Services, I am committed to ensuring our FinTech industry is supported. In his March 2016 FinTech statement, the Treasurer said our objective is to: ‘to help create an environment for Australia’s FinTech sector where it can be internationally competitive, and where it can energise the broader local economy by attracting and keeping talented entrepreneurs in Australia’. 

Since making that statement, the Government has been methodically taking action across a number of areas to support Australian FinTech. A forthcoming priority is mandating participation in comprehensive credit reporting regime, which will commence for Australia’s four major banks beginning 1 July 2018.

 

The Treasurer will today release the Report of the Review into Open Banking – and legislation to extend crowd-sourced equity funding to proprietary companies is currently before Parliament.

 

Finally, an exciting industry-led development, the New Payments Platform (NPP) is expected to start rolling out to consumers. The NPP will enable real-time payments, send more complete remittance information with payments and address payments in a relatively simple way, generating new avenues for competition and innovation.

 

Australia has embraced the opportunities of FinTech. These policies all play a vital role in our transition to a stronger, more innovative economy.

 

In my role, I am also conscious of the need to help reduce the risk of harm to consumers. This is why the Government is creating new accountability obligations for issuers and distributers of financial products, and granting ASIC a product intervention power.

 

The product intervention power, currently under development, will allow ASIC to intervene in the sale of financial and credit products, where ASIC determines that they are causing, or are likely to cause, significant consumer detriment.

 

Additionally, the design and distribution obligations, also under development, will require issuers of financial products to identify target markets for their products, and distributors of financial products to put in place reasonable controls to ensure products are distributed in line with the identified target markets.

 

These measures will ensure that financial and credit products are designed and distributed with an appropriate class of consumers in mind, whilst remaining flexible enough to ensure that industry continues to innovate and provide high quality products.

 

The ASIC enforcement review, which I commissioned in 2016, allowed for a thorough examination of the adequacy of ASIC's enforcement regime, to deter misconduct and foster consumer confidence in the financial system.

 

ASIC is our frontline defence against misconduct in the financial services sector so this outcome is incredibly important.

The Government is carefully considering the recommendations in the Taskforce’s report and will respond to the report in the near future.

 

We are also looking to encourage investment which is why we are intent on cutting the corporate tax rate.

 

The Government has already been successful in legislating a cut in the company tax rate to 27.5 per cent for businesses with a turnover of less than $50 million.

 

Just this week the Government passed through the House legislation to cut the company tax rate to 25 per cent, which will then go to the Senate.

 

The Turnbull Government wants to keep Australia’s system competitive with other economies internationally who are competing for your investment dollar.

 

So let me finish by thanking you for welcoming me to this forum and leading this discussion on Australia’s financial services industry.

 

Ours is one of the strongest and most stable in the world. Our banking system is also systemically strong, internationally recognised and with the world’s best prudential regulation and oversight.

 

But it must also operate and function for all Australians. As you have just heard, 2018 is going to be another busy year – I look forward to our discussion.

 

Thank you.