Government Response to the Financial System Inquiry

20 October 2015

The Turnbull Government today released its response to the Financial System Inquiry (FSI), having agreed to most of the 44 recommendations contained within the report.

The FSI, chaired by Mr David Murray AO, was established in late 2013 to conduct a full root and branch review of Australia’s financial system, with the Inquiry panel tasked with examining the strength of the financial services sector and make recommendations on how to promote growth. The final report was handed to government on 28 November 2014, and publicly released on 7 December 2014. Following extensive consultation and a series of roundtables, the Government has now issued its response, which is divided into five distinct, strategic priority areas: resilience, superannuation, innovation, consumer outcomes, and regulatory systems.


The Government has accepted the panel’s findings that Australia’s financial sector is largely strong and stable but that the industry is still vulnerable to future financial crises. The Australian Prudential Regulation Authority (APRA) has previously increased the mortgage risk weight requirements of Australia’s largest banks following the GFC.

The Government will continue to consult on measures to strengthen the financial system, with APRA tasked with ensuring all banks are complying with capital ratios.

By the end of the year, the Government has said it will develop legislation to allow Australian entities to participate in international derivative markets.


There is currently over $2 trillion in superannuation assets under management, making it the second largest segment of Australia’s financial system. The Government believes the system to be fragmented and too complex, and will seek to introduce measures that will lead to efficiencies and greater competition.

It will immediately task the Productivity Commission (PC) with developing a set of criteria by which to measure the effectiveness of the superannuation industry and recommend an alternate model for the default allocation of superannuation accounts. Further, the Government will continue to develop legislation that will lead to greater transparency and governance in the sector.

The Government has also committed to enshrining the objective of superannuation in legislation in the new year and beyond 2016, will legislate penalties for directors of superannuation funds found to be in breach of legislated standards and objectives.


The Government has announced its intention to develop crowd source funding markets to help finance early stage innovators and it is anticipated draft legislation will be available for consultation by the end of 2015. It will also seek to establish a public-private Innovation Collaboration Committee that will allow stakeholders to directly consult on start-up sector policy.

In 2016, the Government will introduce electronic payment system reforms that will ban excessive credit and debit card surcharges that exceed the cost of processing the payment. The Australian Competition and Consumer Commission (ACCC) will be tasked with overseeing these changes and be responsible for the determination of ‘excessive fees’.

The Government will work with the financial services sector to identify and amend priority areas of legislation and regulation to achieve technological neutrality.


The Government will introduce a number of measures to lift the professional standards of the financial services and advisory sector and address concerns surrounding certain fee structures.

To raise the competency of financial advice, financial advisers will be required to hold a relevant degree and undertake continuous professional development, as well as subscribe to an industry code of ethics. Professional standards are to be set by a new industry body, which will be recognised in legislation, with a review of the regulatory framework set for 2019.

The Inquiry concluded that commercial incentives in the life insurance sector are often in conflict with consumer interests, however, the Government will not be accepting the report’s recommendation to regulate fee structures. Former Assistant Treasurer Josh Frydenberg announced in June this year that the Government will instead endorse an industry proposal to address the misalignment of incentives, with specific measures to be announced later this year.

A review of the life insurance sector and industry fee structures will be conducted in 2018, and the Government has not ruled out implementing the Inquiry’s recommendations should it feel necessary.

The Government has also announced its intention to introduce amendments that would require greater mandatory disclosure of financial products and ownership structures by financial advisers and mortgage brokers, however, has not indicated a timeframe for doing so.

The Government does not support the creation of a new Financial Regulator Assessment Board.

Separately, the Australian Securities and Investment Commission (ASIC) will be tasked with examining remuneration structures in the mortgage broking sector, with the possibility of future reforms.

Following consultation with stakeholders and consumer testing, ‘general advice’ will be renamed to more accurately reflect its importance and promote consumer understanding.


The Government accepts the Inquiry’s finding that Australia’s current regulatory system does not require major change, but will continue to work with industry to ensure regulations keep pace with changing requirements.

The Government will review the Statement of Expectations for APRA, ASIC and the Payment Systems Board and increase the annual reporting requirements of each. It will also continue with the existing capability review of ASIC and legislate to add competition to its mandate in 2016.

The Government has also announced its intent to task the PC with reviewing the state of competition in the financial system.

Read the Government’s response to the FSI in full  here.


Back to articles