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Regulatory

The regulatory pendulum has swung too far: FSC

Financial Services Council (FSC) chief executive Blake Briggs has said the regulatory pendulum for the superannuation, funds management, and financial advice sectors has swung too far over the last decade under successive governments.

It's time for policymakers to revisit and scrutinise the design and implementation of its recommendations and the impact of that regulation on the industry and its consumers, Briggs said at an event hosted by financial PR firm PritchittBland yesterday.

He said neither side of the political spectrum had "clean hands" regarding regulation, noting some reforms stemming from the Royal Commission were hastily implemented, saddling the industry and its consumers with the "costly overhang" of poor regulation.

As a result, the FSC's most urgent election policy is a call for whichever party forms government to create a "red tape razor gang" to slash inefficient regulation.

The FSC has outlined nine deregulation priorities it claims could add $800 million a year to industry productivity. Among them are reforms under ASIC's remit, including simplifying the breach reporting regime and a rethink of design and distribution obligations.

Some fall under APRA's remit, including a long-awaited product modernisation framework for legacy funds management and superannuation products to "finally allow" companies to "close onerous and expensive legacy IT systems" without leaving their customers with "hefty tax penalties."

Others sit with the government, such as streamlining the Foreign Investment Review Board processes for low-risk investments into Australia and reviewing and simplifying the Compensation Scheme of Last Resort (CSLR). A review of the CSLR was announced today.

"The fact is the growing cost of the CSLR makes the profession more unattractive for advisers, and the businesses that employ them, who are being saddled with higher regulatory levies to fund it. It's in the interests of the government, ASIC, and consumer groups, as well as the industry, for the CSLR to be sustainable. Clearly that is not the case," Briggs said.

Briggs argued the scheme's structure doesn't align with consumer expectation, noting that 80% of the compensation paid under the CSLR covers foregone capital gains rather than actual losses. This means consumers who saw their investments grow can still claim compensation if they would've achieved higher returns with different financial advice.

"This isn't the scheme that industry envisaged when it was originally implemented, and it simply isn't sustainable if we want a CSLR that enjoys the trust of the industry and general public," he said.

Briggs said the FSC has been pressing the government to commission a treasury-led review to ensure the CSLR remains "a genuine last resort," restricting compensation to those who've suffered actual financial losses due to poor advice, rather than unrealised gains.

Expanding the scheme to more sectors, he warned, would create the perception that it underwrites investment losses, introducing "moral hazard to our financial system."

Economic opportunities

Briggs said the arguably most obvious, yet most pressing area of deregulation - one which promises to unleash a wave of investment - is completing financial advice reform.

However, he cautioned that the next parliament, regardless of who forms government, mustn't see finalising advice reform as the finish line and simply wash its hands of the financial services industry.

"Australia needs to take seriously the opportunity presented by our globally competitive funds management industry. Our internationally recognised wealth management expertise offers immense opportunities for export growth, which unlike solar panels or quantum computing, doesn't need expensive government subsidies or investments," Briggs said.

Notably, only 6.5% of overall funds under management in Australia is globally sourced, compared to 78% in Singapore and 90% in Ireland.

"The export-led growth in these jurisdictions has been achieved through a political focus on regulatory and tax settings that make them globally attractive," Briggs said.

"Tax settings can be streamlined so that Australian managed vehicles are internationally aligned, including removing barriers for funds transitioning to the new and globally competitive Corporate Collective Investment Vehicles."

Briggs said the FSC's policy recommendations to foster economic growth could add $19 billion to GDP over the next decade while additionally lifting funds management exports by $2 billion each year, supporting a private sector-led economic recovery.

He noted "the Australian economy is in a malaise", with GDP growth slowing over 2024 to an annual rate of 0.8%-the weakest in a generation outside the COVID-19 downturn.

Tax Reform

Briggs labelled the proposed superannuation tax on balances with over $3 million as "symbolic of everything that's wrong with the tax debate in Australia."

"The proposal breaches fundamental tax policy principles, by taxing unrealised gains," Briggs said.

"The proposed superannuation tax is also political trickery at its crudest, designed to hit only those with over $3 million in retirement savings - rich boomers - because after all, who could object to that...? Whilst the incidence of the tax, who it will actually impact, is young Australians as a result of the deliberate decision not to index the $3 million threshold."

Of the 500,000 working Australians who'll be impacted by this tax during their lifetime, 400,000 are in their thirties or younger, he said.

"It's disingenuous to say this tax targets older and wealthier Australians when in reality it targets younger, middle-income Australians, designed to establish what is known as a 'structural saving' in the budget that will be impossible for future governments to unwind," Briggs said.

He said if superannuation consumers continue to be treated as mugs, repeatedly tinkering tax settings, Australians' confidence in the security of their super will be undermined.

"The objective of the superannuation system is to deliver income for a dignified retirement for Australian consumers and, unlike the government's ill-conceived superannuation tax - which should be withdrawn in favour of a broader tax review - future changes to superannuation tax settings should be measured against this legislated objective," he said.

Read more: TaxSuperannuationFSCCSLRFunds managementFinancial adviceBlake BriggsFinancial Services CouncilASICAPRACompensation Scheme of Last ResortCorporate Collective Investment VehiclesForeign Investment Review BoardRoyal CommissionEconomy