The only measure rejected by the government was that self-managed superannuation funds should be banned from borrowing to buy assets such as property and shares.

This week the new Prime Minister and his new Treasurer announced the largest overhaul in nearly two decades for the financial system, starting almost immediately.

They agreed to all but one of the 44 recommendations made by David Murray’s Financial Systems Inquiry.

So what will it mean for you?

It should result in a fundamental shift toward consumer welfare, including…

Lower credit card and bank fees. New regulations (to be phased in by July next year) will ban merchants, retailers and taxis from excessive credit card surcharges. Bank interchange fees are also to be more tightly regulated and better protections put in place for consumers using electronic payment systems.

Better superannuation. Legislation is to be developed to:

  • give workers full freedom to choose where and how their super is invested (even those tied to a superfund by an enterprise bargaining agreement)
  • set out the objectives of the superannuation system and report publically on how well proposed policies meet those objectives
  •  improve governance and transparency (including greater penalties for directors who fail in their responsibilities) with the aim of reducing management fees.

The inquiry also recommended that super fund trustees pre-select an income annuity product for members’ retirement, but the government has said they would consider this only after extensive industry consultation.

Better financial products and advice. Measures are to be developed designed to to make the issuers and distributors of financial products more accountable for their offerings. These include:

  • reviewing financial incentive and remuneration arrangements in the life insurance, stockbroking and mortgage broking industries
  • lifting the standards of financial advisers so they have to hold a Degree, undertake a professional year, undergo an exam and ongoing professional development, and subscribe to a code of ethics
  • give ASIC new and broader powers in relation to licensing regimes and banning individuals from managing financial firms.

A new ASIC product intervention power could be used to modify products or remove harmful products from the marketplace before any laws have been broken… before investors have been hurt!

More innovation. The government plans legislation to support crowd-sourced funding by the end of 2015. Plans are also afoot to implement a digital identity strategy: a new framework under which private and public sectors compete to supply digital identities to consumers and businesses.

Stronger Banks. A range of measures aim to ensure that the banks remain robust even in the case of severe external shocks, reducing the risk of taxpayer-funded bailouts. These include raising capital requirements for the big banks so they are more in line with smaller banks and other financial institutions.

In theory, this should create a “more even playing field” for smaller institutions (who were largely squeezed by funding costs during the GFC) and so increase competition. Ironically the major result for consumers so far has been Westpac, Commonwealth Bank, and today National Australia Bank raising their loan interest rates (with ANZ sure to follow).

In time, however, more competition may… should… lead to lower rates. In the meantime, the Reserve Bank may decide to cut the official rate to compensate.

What are your thoughts?

Do you have concerns or questions about the Financial System Inquiry? Is there anything else you’d like to know about everyday money matters?

Join the conversation — leave a comment below and let us know what you’re thoughts are.

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