Financial System Inquiry (FSI)

Articles relating to the Financial System Inquiry (FSI), also know as the Murray Inquiry, including the interim and final reports, superannuation-related recommendations and submissions to the inquiry and to Government.

Industry supports Financial System Inquiry recommendations

Financial System Inquiry (FSI) recommendations, industryBroadly the Financial System Inquiry has been well received by industry, with some exceptions. The large banks can be expected to continue to campaign against higher capital requirements, industry super funds oppose the governance recommendations, and some will object to banning SMSF borrowing.

The Financial Services Council (FSC) supports the extension of super choice to all employees. “The FSI strongly endorses the principal of a consumers’ right to choose their superannuation fund. This must be a foundation of superannuation in compulsory system,” said FSC CEO John Brogden.

Unsurprisingly the FSC also supports the super fund governance recommendation. “Superannuation Boards must be independent and free of vested interests from unions and other bodies. We strongly support the recommendation to require public offer superannuation funds to have a majority of independent directors and an independent chair,” said Mr Brogden.

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Disclosure and financial literacy not enough, says David Murray

Financial System Inquiry (FSI), David Murray, Murray InquiryDavid Murray, chair of the Financial System Inquiry, says that disclosure and financial literacy are not enough to protect consumers from unsuitable financial products.

Mr Murray said the Financial System Inquiry (FSI) report “sets out a blueprint to guide policy making over the next 10 to 20 years,” in a speech to the Committee for Economic Development of Australia, CEDA.

The final report differs from the earlier Wallis Inquiry in two areas. Firstly the FSI panel “believe external shocks can and will occur.”

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Industry super funds reject FSI governance recommendations

Financial System Inquiry, Murray Inquiry, Industry Super Funds, Independant Directors, GovernanceBoth the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia are opposed to the recommendation of the Financial System Inquiry that public offer superannuation fund boards have a majority of independent directors.

AIST said “the Australian super system is recognised internationally as being among the best governed in the world,” and the Financial System Inquiry did not “meet the challenge of finding a robust and universal definition of independence.”

“There is no evidence to suggest that forcing structural change to the boards of not-for-profit funds would deliver better outcomes to members. These funds already significantly outperform with all but two of the top 50 funds over the last decade adopting the equal representation system of governance,” said AIST CEO Tom Garcia.

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FSI report a ‘ringing endorsement’ of SMSFs: SPAA

Financial System Inquiry (FSI), murray inquiry, SPAA, SMSFSMSFs have “received a pre-Christmas gift” with the final report of the Financial System Inquiry not recommending minimum balance requirements or other restrictions on establishing SMSFs, says the SMSF Professionals’ Association of Australia (SPAA).

The “only potential downside,” according to SPAA, in the final report is the ban on limited recourse borrowing arrangements (LRBAs). “No date has been set for the proposal to begin,” said SPAA. If the Financial System Inquiry (FSI) recommendation was adopted in full current borrowings would be allowed to continue.

With wide coverage of the interim report the recommendation of a ban came as “no surprise.”

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Ban SMSF borrowing: Financial System Inquiry final report

Financial System Inquiry, final report, SMSF borrowing, Limited Recourse Borrowing Arrangements (LRBA)The Financial System Inquiry final report has recommended banning most forms of direct leverage by superannuation funds as it creates risks for the financial system and is “inconsistent with the objectives of superannuation to be a savings vehicle for retirement income.”

The Financial System Inquiry panel recommends removing section 67A from the SIS Act. This would retain the limited borrowing on a short-term basis contained in s67, but ban SMSF Limited Recourse Borrowing Arrangements (LRBAs).

Banning superannuation borrowing will “prevent the unnecessary build-up of risk in the superannuation system and the financial system more broadly,” and “fulfil the objective for superannuation to be a savings vehicle for retirement income, rather than a broader wealth management vehicle.”

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Financial System Inquiry to reshape superannuation system

Financial System Inquiry (FSI) final report

The final report of the Financial Systems Inquiry, released on Sunday, has made a number of recommendations that could shape the superannuation system for years to come.

Among the 44 recommendations are banning direct borrowing by superannuation funds, extending choice of super fund to all employees, a legislated purpose for the superannuation system, a review of MySuper and a competitive process for default super funds, new retirement income products and reform of super fund governance.

Likely the most controversial superannuation recommendations is the ban on borrowing by superannuation funds, including SMSFs. For more detail see: Ban SMSF Borrowing: Financial System Inquiry final report.

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Financial System Inquiry final report released

Financial System Inquiry (FSI) final reportAfter almost a year of work the Financial System Inquiry final report has been released publicly and recommends that SMSF borrowing be banned, among 44 recommendations.

The recommendations include:

  • Increase bank capital levels
  • Restoring the general prohibition direct leverage by superannuation funds
  • “Enshrine in legislation” the purpose of the superannuation system
  • Require superannuation fund trustees to “pre-select a comprehensive income product for members’ retirement”
  • Extend Super Choice to all employees for Superannuation Guarantee contributions
  • Mandate a majority of independent directors for the boards of public offer superannuation funds
  • Rename ‘general advice’
  • An “industry funding model” for ASIC

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What will the Murray inquiry recommend for SMSFs?

Financial System Inquiry (FSI), Murray inquiry, recommendations, SMSFWhat recommendations for changes to SMSFs will be contained in the final report of the Financial System Inquiry, also called the Murray inquiry?

The Murray inquiry interim report had asked if there should be a ban on borrowing by super funds. Such a ban would include SMSF Limited Recourse Borrowing Arrangements (LRBAs), and return borrowing to the very limited rules allowed prior to 2007. Risk to retirement savings from SMSF borrowing, or questionable advice around property, is not the primary concern of the Murray inquiry. Instead the Murray inquiry panel is concerned, as is the purpose of the report, that borrowing in the superannuation system combined with borrowing in the banking sector will weaken the ability of the economy to respond to shocks, such as the GFC.

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Superannuation battle lines drawn ahead of FSI final report

Financial System Inquiry (FSI), Industry Super Australia, Financial Services CouncilThe battle lines have been drawn between Industry Super Australia and the Financial Services Council ahead of release of the Financial System Inquiry (FSI) final report.

Industry Super Australia CEO David Whiteley says the superannuation sector is at a “crossroads.”

“The banks are lobbying hard to scrap the safety net and replace it with a system designed to suit their vertically-integrated business model, which is geared towards profits and dividends to shareholders.”

Read More »Superannuation battle lines drawn ahead of FSI final report