Our insights - Henry Davis York

The Wrap - April 2014

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As this edition of THE WRAP goes to press, the financial services sector is facing a number of intersecting market and regulatory forces. Market conditions are improving both domestically and internationally, albeit slowly, unevenly and not without threat from political instability in some regions.

In Australia, financial services businesses are bedding down adapted business models and compliance arrangements in response to the recent wave of regulatory reforms, which include the Future of Financial Advice (FoFA), Stronger Super and Privacy law reforms.

While there is work left to do on the current regulatory reform agenda, the fact that we have moved into the implementation phase on a number of fronts is cause for increased optimism. In theory at least, businesses should have firmer ground on which to make commercial and strategic decisions, given there is greater certainty around the current regulatory and political environment. Indeed, we are seeing a gradual shift in perspective away from change management and toward business development. There is increased activity in terms of product development, innovation and mergers and acquisitions across the sector.

In this edition of THE WRAP, we give our perspective on some of the major forces impacting the broad financial services sector and how they relate specifically to wealth management. We also look at some of the issues that
are specific to wealth management businesses:

  • the intersection of the new privacy laws and the increasing appetite among financial services businesses for leveraging the value of customer data assets
  • the Government amendments to the FoFA laws, which were made not without substantial media noise and with the result that the amendments have now been paused. We look at what the amendments mean for scaled advice
  • providers of custody services will need to respond to ASIC’s new requirements, including new minimum standards and higher financial requirements
  • the Senate inquiry into the performance of ASIC provides the backdrop for our analysis of the pros and cons of enforceable undertakings
  • changes introduced by the Stronger Super reforms have brought about a rethink in group insurance arrangements. Default super funds must now provide minimum levels of cover and new requirements are targeted at ensuring insurance benefits do not get trapped in superannuation funds
  • the Federal Government’s recent announcements on tax reform have provided clarity for investment funds businesses regarding key tax changes.

As the sector tackles the issues discussed in this edition, we may pause to consider what the next wave of change may look like. In fact, this next wave is already upon us. We are already seeing attention focussed on the Financial System Inquiry (FSI) and CAMAC’s review of the establishment and operation of managed investment schemes. These are two significant, and to an extent overlapping, review initiatives. The broad terms of reference for the FSI have drawn a wide variety of suggestions for topics and areas of the industry which should come under scrutiny. The FSI and CAMAC reviews will gather pace over the coming months and have potentially broad ramifications. Running alongside these initiatives are a variety of other potential game changers for the industry, including the Asian region funds passport, TASA, FATCA/GATCA, OTC derivatives reporting, the investment manager regime and ASIC’s focus on complex investment products.

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Nikki Bentley


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Seema Mishra

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