Foreword

Background to this Inquiry

On 20 November 2013, the Treasurer, the Hon. Joe Hockey MP, released a draft terms of reference for the Financial System Inquiry (the Inquiry) for consultation with interested stakeholders.

After completing this consultation process on 20 December 2013, the Treasurer released a final terms of reference (at Appendix 1) and appointed a Committee, independent of Government, to undertake this task. The Committee comprises:

  • Mr David Murray AO (chair)
  • Professor Kevin Davis
  • Mr Craig Dunn
  • Ms Carolyn Hewson AO
  • Dr Brian McNamee AO

The Committee is charged with examining how the financial system could be positioned to best meet Australia’s evolving needs and support Australia’s economic growth.

In March 2014, the Treasurer also appointed an International Advisory Panel (the Panel) to provide an expert international perspective on issues relevant to the Inquiry. The Panel comprises: Sir Michael Hintze AM (London), Dr David Morgan AO (London), Ms Jennifer Nason (New York) and Mr Andrew Sheng (Hong Kong).

The Treasurer tasked the Committee with producing an Interim Report for consultation with stakeholders in mid-2014, before providing a Final Report in November 2014.

Consultation

The Inquiry has taken a consultative approach to its task. Submissions for a first round of consultations, based on the Terms of Reference, opened on 30 January 2014 and closed on 31 March 2014. As part of this process, the Inquiry received over 280 submissions. Appendix 3 provides a list of stakeholders who lodged first round submissions.

In addition, the Inquiry has participated in more than 100 meetings with interested stakeholders to gather information, seek alternative perspectives and discuss policy issues in depth. This included Committee members meeting with a large range of domestic stakeholders on a bilateral basis, including financial institutions, businesses, academics, consumer groups and regulators. The Committee also met with the Panel and international regulators.

The Committee would like to thank all stakeholders who have freely given their time to assist the Inquiry in its task so far.

This consultation process, which has gathered both policy issues and stakeholder views on market-related opportunities and challenges, has been the primary source of information in preparing this Interim Report.

Through this Interim Report, the Inquiry is now calling for a second round of submissions to gather further evidence, check the validity of observations and test potential policy options. For information on how to make a submission, please refer to the Financial System Inquiry website.

Submissions are requested by Tuesday, 26 August 2014.

Scope of Interim Report

The purpose of this Interim Report is to elicit comments from interested stakeholders to inform the Final Report to the Treasurer. The Interim Report does not make recommendations, nor does it describe the final view of the Inquiry.

Each chapter of the Interim Report makes a number of observations on the Australian financial system, as summarised in the Executive Summary. These observations reflect the Inquiry’s current judgement, based on available evidence. The Inquiry welcomes additional evidence from interested stakeholders to either support or contest these observations.

The observations do not cover all the issues raised in submissions or consultations. By necessity, the Inquiry has had to prioritise issues. Even so, the range of topics covered in the Interim Report remains broad. Stakeholders are encouraged to provide feedback on whether other issues are of greater priority than those covered in the Interim Report and which issues should be the focus of the Final Report.

Reflecting the observations made, the Interim Report also includes a range of possible policy options mentioned throughout each chapter. The Inquiry seeks evidence of the costs and benefits of these options, including the option of ‘no change’ or other policy alternatives. As mentioned above, these policy options are not the Inquiry’s draft recommendations. In most cases, the Inquiry has chosen to put forward a spectrum of policy options, rather than a single suggested option.

In considering reforms, the Inquiry is mindful that no system is perfect and preferred outcomes will not always be practical or cost effective to achieve. The Inquiry’s final recommendations will reflect the Committee’s judgement, based on the evidence provided, that the change will deliver a better balance of policy outcomes than the status quo.

The Inquiry recognises other processes may be best placed to consider certain subjects in further detail, including through concurrent Inquiry processes such as the Tax White Paper and the Competition Policy Review.

The Inquiry also notes that, concurrent with the preparation of this report, the Senate has been examining the performance of the Australian Securities and Investments Commission. The Senate Committee’s Report contained a large number of recommendations relevant to the work of this Inquiry. The Senate Report was issued at the time the Interim Report was being finalised for printing. The findings of the Senate Report will be carefully examined by this Inquiry in the lead-up to its Final Report.

Most chapters also include a number of specific questions where additional information would be appreciated to assist in preparing the Final Report and making final recommendations.

Next steps

Following its release of the Interim Report, the Inquiry will continue to engage actively with stakeholders. In addition to receiving formal submissions, Committee members and secretariat staff will undertake a range of consultation processes, including public forums and domestic and international stakeholder meetings.

Over the remainder of the available time, the Inquiry will further focus its attention on those issues of the highest priority, gathering more evidence to make informed, practical policy recommendations to the Treasurer in November.