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Fear is FoFA will overshadow report on financial system

Australia's banks fear the release of the financial system inquiry's interim report on Tuesday will be overshadowed by Parliament's focus on the government's Future of Financial Advice (FoFA) reforms and the saga in the financial planning division of Commonwealth Bank, where inquiry chair David Murray was chief executive.

''The big risk this week is those immediate issues, important as they are, will crowd out the bigger issue here, which is the ability of the financial system to serve the Australian economy,'' said Australian Bankers' Association chief executive Steven Munchenberg.

In its submission, the ABA asked the inquiry to halt the rising tide of financial regulation, noting ''additional regulation may add further stability to an already robust system, but at a cost which might far outweigh the marginal gain.'' It also specifically noted additional regulation of financial products ''may increase the compliance costs for product developers and providers to a point where fewer participants are able to enter or participate in the market.''

The banks also want Mr Murray to call on the government to abolish interest withholding tax, which would support their offshore fund-raising.

But the crisis at CBA, following revelations a group of its financial planners obliterated millions of dollars of customer savings as they chased big bonuses ahead of the global financial crisis, has put pressure on the inquiry to spell out measures to improve the standard of financial advice retirees receive in its interim report.

''My concern on Tuesday is there is so much other stuff going on, people will ask, 'has Murray addressed the FoFA issue, has he addressed the CBA issue?' But we would not expect the report to do that,'' Mr Munchenberg said.


In a speech in May, Mr Murray said his consultations had revealed that while the regulatory framework was generally sound, ''there are some concerns about disclosure and financial advice and investment''. Yet some believe the banks and the big superannuation funds have little to fear from the inquiry, given most panel members, and Mr Murray himself, have spent their lives working in the banking or superannuation industries.

The mutual banking sector has also criticised the composition of the panel and remains sceptical that this week's report will assist with generating more competition in the banking sector.

Chris Whitehead, chief executive of Australia's largest credit union, CUA, said on Friday that the inquiry panel had no representation of smaller lenders.

''One would have to be concerned that the outcome announced on Tuesday does not focus on competition issues, and I think it would be a missed opportunity,'' he said.

''We think it is dangerous and bad for consumers that you have this oligopoly of four major banks that, at the end of the day, are more focused on what they've got to lose than what they have to win, which is not good for consumers.''