Regulation seen crippling financial services in Australia
10 December 2012
By Asia Asset Management
CEOs of Australia’s financial services industry believe that the cost and complexity of regulation is crippling productivity growth at a national and industry level according to the Financial Services Council-DST Global Solutions CEO Report, released on Monday (December 10).
The FSC-DST Global Solutions CEO Report is based on an annual survey of Australia’s leading CEOs in the US$1.9 trillion wealth management industry covering funds management, superannuation, life insurance, trustee companies and financial advice networks. The survey focuses on key issues affecting their business, the financial services sector more broadly and the Australian economy. The financial services industry is the largest contributor to GDP at 10.6% and directly employs 430,000 Australians
The CEO survey results highlight a high level of concern amongst financial services industry leaders that, in many cases, regulations do not pass a simple cost-benefit test and are thwarting productivity improvements. Their concerns relate to the broader economy as well as financial services.
John Brogden, CEO of the Financial Services Council said: “The financial services sector invests across the Australian economy. Poor productivity affects the returns on our investments on behalf of Australian superannuation fund members”
“Policies that impact the productivity of the financial services sector deliver few positive outcomes for consumers,” he said.
Rhys Octigan, regional head of business development – Australia and New Zealand for DST Global Solutions, said: “There is an understanding that the investment in technology required to meet regulatory change can be turned into a potent driver of productivity, but also concern that excessive regulation and controls would inhibit innovation”.
Industry CEOs have put forward three key priorities to improve Australia’s productivity performance: reducing regulation, comprehensive tax reform and greater workplace flexibility.
CEOs are concerned that the pendulum has swung too far and that excessive regulation will stifle innovation.
Financial services CEOs also see an inefficient tax system, particularly inefficient state taxes, as impeding productivity growth for the financial services industry and the economy as a whole.
They had a strong preference to broaden the tax base by moving away from a reliance on income tax and company tax to a broader based consumption tax, such as developing a goods & services tax system that has fewer exemptions.
“Effective tax policy is a key future driver of Australia’s productivity growth,” Mr. Brogden said.
The other top productivity priority cited by CEOs centred on people. Both skills development and workplace relations were identified as key ways to ensure the labour force of the future has the skills and the flexibility needed to allow Australia to compete internationally.
“Our CEOs believe the latest round of changes have taken the workplace relations agenda back 20 or 30 years and will do nothing to drive real productivity,” Mr. Brogden said.
“With an ageing population, productivity is the key to lifting Australia’s growth rate,” he said.
“To return to the level productivity growth we had in the 1990s, Australia must reduce the stranglehold of regulation, introduce more flexibility into workplace relation and make our tax system more competitive.”
Technology drives change
A big driver of change for the industry is the rapid adoption of technology by consumers, including the internet and smart phones. This will have a significant impact on the financial services sector which will become increasingly focused on selling direct to consumers.
Mr. Octigan said: “Technology is a catalyst for change. As long as consumers can drive competition there will be better outcomes generally for the industry. Consumers will benefit from the transparency provided by efficient technology.
“The financial services sector manages about $1.9 trillion in superannuation accounts, life insurance, trusts and managed funds and traditionally has largely been about a business to business model.
“But the future could be very different. Widespread use of the internet and smart phone apps is already breaking down conventional wholesale-retail structures. The web provides consumers with easy access to up-to-date information at an affordable price.”
Industry CEOs said that the availability of web-based information increasingly saw superannuation clients’ by-pass the superannuation fund to access fund managers directly, especially through SMSFs.
They said the key issue was that online and mobile services were low-cost and convenient, making them an attractive distribution channel for both clients and the financial services sector.
69% of CEOs say Australia is not prepared for an ageing population.
Low consumer confidence, too much regulation and poor investment returns and the main concerns of industry.
65% say government needs to be more certain about infrastructure funding commitments.
71% say they are not confident Australia has adequate private savings levels amid an ageing population.
Reducing regulation, tax reform and more workplace flexibility are CEO’s top priorities to lift Australian productivity.
78% say the tax system is impeding productivity.
98% say the Australian tax system is more complex than it needs to be.
95% say infrastructure planning in Australia is insufficient.
82% say Australia is not prepared for rising health costs.
66% think Asia is an important future market for their business.
75 % think public pension in its current form is unsustainable.
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