The Australian Securities and Investments Commission wants competition powers added to its regulatory armoury, but history suggests a need for caution on the part of the legislators.
Something which would have gone unnoticed by many in the financial planning industry was a revelation in late February that the Productivity Commission (PC) believed the Future of Financial Advice (FOFA) changes had created increased market concentration.
That revelation came from the chairman of the PC, Peter Harris in an address to the Committee for the Economic Development of Australia (CEDA) in which he dealt at length with the PC’s draft report into Competition in the Financial System.
Importantly, Harris’ speech came little more than a week before the new chairman of the Australian Securities and Investments Commission (ASIC), James Shipton reinforced with the Senate Economics Committee the regulator’s desire to be endowed with the power to consider competition issues when dealing with financial services regulatory matters.
ASIC’s desire to be given competition powers is consistent with at least some of the findings of the Financial Systems Inquiry (FSI) and, to be fair, the PC itself used its draft report on Competition in the Financial System to argue that the Australian financial system needs a “competition champion” and nominated ASIC alongside the Australian Competition and Consumer Commission (ACCC) as a candidate for that role.
However, before any future Government considers handing ASIC competition powers it should reflect upon the role the regulator played as a ‘stakeholder’ and advocate in the development of the FOFA changes.
As the PC draft report makes clear, there were unintended competition consequences flowing from the FOFA changes, many of which can be interpreted as resulting from the manner in which dealer group commercial models were undermined by the outlawing of some forms of remuneration, including the receipt and dispersion of volume rebates.
A key draft finding on the part of the PC was: “The Future of Financial Advice reforms appear to have contributed to consolidation in the asset management and financial advice markets. Consumers may be better protected against poor advice, but be offered a narrower range of in-house products.”
The PC’s findings were in the context of similar moves being mooted for the mortgage broking industry. However, those words reflect the reality that while the major banks and institutions have continued to market their financial products largely unabated, there has been a significant reduction in the number of mid-to-large size dealer groups which traditionally provided distribution with respect to the products of non-institutional players.
The question the legislators must therefore ask themselves is whether ASIC’s submissions with respect to the FOFA changes leading up to the legislation’s enactment in 2012 would have been any different if the regulator had been required to look at the competition implications of such moves?
The legislators must also ask whether it is appropriate for a regulator, other than the ACCC, to be a champion of competition.
In the end, of course, the market itself appears to have taken care of some of the consolidation issues noted by the PC, with ANZ having virtually exited its wealth management business via the sale of its planning businesses to IOOF and its life insurance business to Zurich, while the Commonwealth Bank is exiting CommInsure and AMP is considering the future of its Life Insurance business.