MEDIA RELEASE: Financial System Inquiry recommendations contradict tenets of efficiency, resilience and fairness

Specific recommendations of the Financial System Inquiry are of concern, as they seem to go against the tenets of the Inquiry’s philosophy of promoting efficiency, resilience and fairness in Australia’s financial system, says Dr Patrick Carvalho, a Research Fellow at the Centre for Independent Studies.

Dr Carvalho’s submission to the FSI Final Report cites as an example FSI Chapter 1, which addresses the resilience of the financial system to reduce the costs and probability of failure, while limiting risk to taxpayer funds. “Generally speaking, adjustments to the current financial framework have to be made, but hastening untested theories without a proper cost-benefit analysis risks compromising the vitality and endurance of Australia’s financial institutions,” he says.

“More specifically, the lack of a firm consensus on what constitutes ‘unquestionably strong’ capital levels seems to lead to an unwarranted trade-off between an unquestionable rise in financial costs without the guarantee of higher resilience. Section I of this submission will address the matter in detail.

“The recommendations in FSI Chapter 4 also need further attention. This chapter focuses on consumer outcomes by attempting to enhance confidence and trust in the financial system. There is strong evidence that some of the proposed measures in this chapter risk violating inalienable individual rights.

“In particular, Recommendation 22 supporting ASIC with a regulatory power that “would enable intervention without a demonstrated or suspected breach of the law” is an affront to the Rule of Law principle. Moreover, proposals to introduce mandatory targeted and principles-based product design and distributional obligation and tertiary degree requirements for financial advisers impose unnecessary costs on industry the without a guaranteed benefit to consumers.

Dr Carvalho’s analysis aims to provide a constructive critique and analysis of the final report of Financial System Inquiry in response to the Treasury’s invitation for submission. “It is in Australia’s best interest to adopt a cautious and wise implementation of regulatory changes in order to avoid unnecessary costs to the industry. Ultimately, the strength of the financial system lies in the business strength of its members.”

Download a copy of the full Submission to the Financial System Inquiry Final Report

 

Dr Patrick Carvalho is a Research Fellow in the economics program at the Centre for Independent Studies.

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