On 20 October 2015, the Government released its response to the Murray Financial System Inquiry (FSI). It has accepted all but one of the Inquiry’s 44 recommendations (it disagreed with the LRBA restriction recommendation), although has included 6 additional measures that it says “are consistent with the Inquiry’s underlying philosophy”. [The final report of the Murray Inquiry was released on 7 December 2014.]
Highlights from the response include that the Government says it will “enshrine the objective of the superannuation system in legislation” and will not ban limited recourse borrowing arrangements (LRBAs) by super funds. It has also agreed to rename “general advice” to improve consumer understanding, and has agreed to develop legislative amendments to raise the professional, ethical and educational standards of financial advisers by requiring advisers to hold a degree, pass an exam, undertake CPD, subscribe to a code of ethics and undertake a professional year. The Government will introduce legislation to make the issuers and distributors of financial products accountable for their offerings. The Government will also restrict use of the term “financial adviser” and “financial planner” to those listed on the register of financial advisers.
In its response, the Government set out a timeline for making changes that will be implemented in stages over the coming years, some going out to 2018 and beyond.
In relation to the super-related recommendations, the Government response includes:
- SMSF borrowings – the Government DOES NOT AGREE with the recommendation to prohibit direct borrowings by superannuation funds for limited recourse borrowing arrangements (LRBAs).
- Objectives of superannuation – AGREES that the objectives should be enshrined in legislation.
- Default funds – AGREES to task the Productivity Commission to immediately develop alternative models for a formal competitive process for allocating default fund members to MySuper products.
- Retirement income products – AGREES to support the development of comprehensive income products for retirement (CIPR) and will facilitate trustees pre-selecting these products for members. However, further consultation is required to develop a framework with regard to the Tax White Paper process and the Retirement Income Streams Review.
Financial planning/other measures
Government responses to other notable recommendations include:
- Competency of advisers – the Government AGREES to develop legislative amendments to raise the professional, ethical and educational standards of financial advisers by requiring advisers to hold a degree, pass an exam, undertake continuous professional development, subscribe to a code of ethics and undertake a professional year.
- ASIC’s powers – the Government AGREES to strengthen ASIC’s enforcement tools in relation to the financial services and credit licensing regimes by developing legislative amendments.
- Product intervention power – the Government AGREES to provide ASIC with a financial product intervention power to enable it to modify, or if necessary, ban harmful financial products where there is a risk of significant consumer detriment.
- Crowdfunding – the Government AGREES with the report’s recommendation to graduate fundraising regulation to facilitate crowdfunding for both debt and equity and, over time, other forms of financing.
- Corporate administration and bankruptcy – the Government AGREES to consult on possible amendments to the external administration regime to provide additional flexibility for businesses in financial difficulty.
- Legacy products – the Government AGREES to facilitate the rationalisation of legacy products in the life insurance and managed investments sectors, in light of consumer, constitutional and fiscal issues.
For the latest news developments, including an extended report, watch out for the next issues of Thomson Reuters Weekly Tax Bulletin (Issue 45 of 2015) and Superannuation & Financial Services Bulletin (Issue No 10 of 2015).