Andrew Bragg

The Financial Planning Association of Australia (FPA) welcomes the creation of a Senate Select Committee on Financial Technology and Regulatory Technology as recognition of the critical roles Fintech and RegTech play in delivering affordable, high-quality financial advice to Australian consumers.

The motion to form the dedicated Senate Committee was proposed by NSW Senator Andrew Bragg and passed in Parliament around 4pm yesterday. The Committee will examine how FinTech and RegTech can benefit Australian consumers and businesses, and report back to the Senate in October 2020.

FPA CEO Dante De Gori CFP ® said: “Fintech is already playing an important role in the evolution of the financial planning profession and the Australian economy. According to FinTech Australia there are over 400 fintech businesses across Australia already and the industry is growing rapidly, so this is an important acknowledgement of an existing and future reality.

“Fintech can help financial planning professionals deliver more affordable and accessible high-quality advice to Australian consumers, but it’s important that regulations keep up with the new technology.

“It is great to see Senator Bragg and his Senate colleagues recognise this developing area and pay it the attention it deserves. The Committee has our full support, and we welcome any invitation to provide input on behalf of our members,” he said.

The FPA has long supported the opportunities that FinTech and RegTech hold for the financial planning sector. In 2017, the FPA launched a report and mapping tool to help members analyse the benefits, select and use fintech in their businesses.

In 2018 the FPA also published a fintech buyers guide and checklist to help financial planners identify the right products and services for their business.

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Andrew Bragg

The Financial Services Council’s Director of Policy Andrew Bragg has resigned and will leave the FSC at the end of November.

Mr Bragg has been a member of the FSC’s policy team since 2009 and was appointed Director of Policy in 2014.

Sally Loane, FSC CEO said: “On behalf of the FSC team and our members, I want to thank Andrew very sincerely for his excellent service to the FSC and its members over a long period.

‘He is passionate about good public policy and has helped deliver many positive outcomes for the financial services industry through advocacy and fact-based research, including the FSC’s Standard 20, which has delivered stronger governance to superannuation funds by mandating a majority of independent trustees for FSC member funds.

“He was also instrumental in initiating the Trowbridge review into the life insurance industry and pushing for a competitive landscape for financial services. “We wish him very well in his future career.”

Mr Bragg plans to work in the public policy arena.

A search for Mr Bragg’s replacement will be announced shortly.

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Amanda Young

The Financial Services Council and First Nations Foundation congratulate AUSTRAC for the release of its guidance note to aide the identification of people of Aboriginal and Torres Strait Islander heritage (Guidance) announced at the FSC Leaders’ Summit yesterday.

For over two years, FNF and the FSC have sought improvements to AUSTRAC’s guidelines to allow FSC’s members to better identify and engage with Indigenous Australians.

“Allowing financial institutions to tailor identification of customers of Indigenous heritage will boost financial inclusion.” Andrew Bragg, FSC Director of Policy said.

“The present law prevents financial institutions from taking cultural factors into account when legally identifying and engaging with the first Australians.”

“This issue is particularly pronounced in remote communities where drivers licences and passports can be extremely rare,” Mr Bragg said.

“In a world strangled by red tape, Aboriginal and Torres Strait Islander communities are often left out. Cultural practice may require you to change your name if it coincides with a relative who just died, an arbitrary date of birth may have been chosen for you which is not accurate, or your name is too challenging for Western spelling,” said Amanda Young, CEO of the First Nations Foundation.

“It is a breath of fresh air for AUSTRAC to have found a common sense approach which can satisfy all needs and they are to be commended for this Guidance. We hope the financial sector pick up on this leadership and adopt the same practice so our First Nations people are included financially,” Young said.

For example, a common challenge the Guidance specifically addresses, is the difficulty around identification that occurs when a family member has passed away. As is customary in Indigenous culture, the name of a deceased family member may not be used for a period of time after their death.

Many Indigenous Australians who share a name with a deceased person often subsequently change their name. Without official identification, such as a passport or drivers’ license, verification of the new name becomes challenging for financial institutions and hampers the payment of insurance claims or superannuation to beneficiaries. For such a situation, the Guidance approves processes of verification based on reference letters by an acceptable referee, such as a doctor.

These same verification processes can also be used by individuals for setting up bank accounts, superannuation and insurance services. Indigenous community cards are also listed as an acceptable form of identification. As such, the Guidance paves the way for financial institutions to facilitate greater financial access to Aboriginal and/or Torres Strait Islander communities.

The First Nations Foundation, supported by the FSC as a community partner, is the only nationally operating Indigenous charity solely dedicated to improving financial well-being.

The AUSTRAC guidance can be found at here. The FSC also acknowledges the contribution of the Indigenous Super Working Group towards this achievement, which includes representatives and members from the Australian Institute of Superannuation Trustees, the Association of Superannuation Funds of Australia, First Nations Foundation, as well as the FSC.

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The Hon. Steven Ciobo

The Financial Services Council congratulates the Hon Steven Ciobo on his Cabinet appointment as Australia’s second Trade and Investment Minister.

Andrew Bragg, FSC director of policy said: “This portfolio will shape the future of Australia’s services industries which represents 70 per cent of our economy but accounts for only 17 per cent of our exports.”

“The growth in demand for services from the swelling middle classes in the Asian region presents a tremendous opportunity. Australia needs the new Minister to ensure services can be exported through properly-implemented trade agreements,” Mr Bragg said.

“Selling Australian services requires much more than removing tariffs at the other end. Services trade will depend on licensing, digital barriers and other legal frameworks such as mutual recognition.”

“Services are the future and Mr Ciobo has the experience and the interest in services to ensure Australia capitalises on this opportunity. He has already shown his commitment to services trade by leading a financial services delegation to Korea in 2014.”

“Mr Ciobo will continue the work of the Hon Andrew Robb AO MP who put services trade on the map and sealed a trifecta of North Asian trade agreements with Japan, South Korea and China in 2014.”

“The industry is closely monitoring the implementation of these trade agreements and we look forward to the conclusion of the India free trade agreement,” Mr Bragg said.

The financial services industry also thanks Mr Robb for his outstanding service to the nation.

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Andrew Bragg

The Financial Services Council has called on the Government to conclude the 2009 Johnson Review recommendations to bolster the export of Australian financial services.

Andrew Bragg, FSC Director of Policy said: “Significant tax and policy changes are required to allow the financial services industry to deliver growth, jobs and new sources of tax collection as the economy transitions.”
In its Pre-Budget Submission, the FSC has recommended the Government finish the Johnson Review recommendations that a competitive withholding tax regime be established and there be a wider range of investment vehicles for fund managers.

“To boost growth, investment and employment, Australian financial services providers must be allowed to compete in the Asian region for new investors,” Mr Bragg said.

“Australia’s tax and regulatory systems force our financial services businesses to fight with both arms behind their back. This costs Australia an additional contribution to GDP of $4 billion, tax revenue of $1.2 billion and 10,000 jobs.”

“For example, foreign investors are not familiar with our unit trust structure – which is currently the only option available to them.”

“Investors are flocking to other jurisdictions such as Singapore, Hong Kong and Luxembourg which have broader collective investment vehicle structures which are simple, effective and workable,” he said.

The FSC has also recommended changes to Australia’s withholding tax regime to ensure the competitiveness of Australian funds.

“Australia’s taxation regime for foreign investors is complicated, with different rates or withholding tax applied to the type of income received by investors,” Mr Bragg said.

“This is confusing, uncompetitive and needs to be swept away for the implementation of the Asia Region Funds Passport in 2017.”

“The FSC has recommended the Government reduce the withholding tax rate for passport funds from 15 per cent to five per cent in the 2016-17 Budget.”

Mr Bragg said that more broadly, this Budget must support the general direction of essential tax reform.

“Australia must emerge from this tax reform discussion with a company tax rate which is closer to 20 per cent. It is the single lever which will significantly boost growth.”

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Andrew Bragg

The Financial Services Council has released a transformational tax reform package designed to grow the economy and reverse Australia’s collapsing competitiveness and flat productivity.

The package of growth-enhancing tax reform delivers lower company and personal income taxes, as well as fully compensating all households for an increase in the GST to 15 per cent.

The FSC’s proposal, modelled by KPMG, shows a deep cut to company tax is essential to increase growth, investment and employment.

The modelling shows Australia’s economy will be two per cent bigger and there will be a significant increase in new investment of around four per cent.

Around half of the new investment comes from offshore. New jobs will be the dividend of higher investment levels.

Under the FSC’s proposal, the new company tax rate of 22 per cent and lower, flatter, indexed income tax rates are paid for by a higher, broader GST.

In turn, it will be incumbent on states to remove stamp duties. The FSC has long campaigned for the removal of stamp duties on insurance which result in costs being passed on to consumers with little returned to the states. Insurance duties are one of the least efficient taxes. One quarter of the revenue collected is lost in administration costs.

Andrew Bragg, FSC Director of Policy said: “Australia needs a new tax mix to create growth, jobs and investment. Our modelling shows a new tax mix can be fully funded and fair for all Australians.”

“Cutting company tax to 22 per cent is the centrepiece of the new tax mix package.”

The average company tax rate in Asia is 22 per cent, compared to Australia’s which is 30 per cent. The company tax rate in the UK will be lowered to 18 per cent in 2020.

The new tax mix package is fully funded and will create tens of thousands of new jobs.

The research demonstrates cutting company tax will drive capital into Australia for new enterprises, jobs and opportunities.

Another element of the plan involves indexing the personal income tax thresholds to make the package sustainable over the longer term.

Mr Bragg said: “Indexing the personal income tax thresholds means there is no more easy money for Canberra.”

“Australia’s ageing population demands that our governments restrain expenditure. Ending bracket creep will drive better fiscal accountability.”

“Indexing the tax thresholds also prevents compensation given to households through tax cuts from being whittled away by bracket creep.”

The package provides compensation to households which means each household group will receive an increase in real incomes.

A lower company tax rate of 22 per cent is the essential ingredient of a tax reform package. It will:

• Increase GDP by 1.9 per cent, investment by 3.7 per cent and employment by 0.1 per cent, real wages by 1.4 per cent and labour productivity by 1.8 per cent;
• Reduce the federal budget’s reliance on corporate tax. The OECD average reliance on company tax is 8 per cent, while Australia’s is more than 18 per cent. (OECD);
• Reduce budget volatility – a lower reliance on company tax will mean Australia’s budgets will be less subject to revenue writedowns we have experienced over the past decade; and
• Lower the incentive for multinational companies to engage in profit shifting while a multilateral solution to base erosion and profit shifting is developed by the OECD and G20.

The modelling is available here.

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Andrew Bragg

Average working Australians would have thousands of dollars more in their retirement savings if bigger superannuation funds faced stronger competitive tensions, the Financial Services Council said yesterday.

A new report released in the FSC’s submission to the Senate Economics Inquiry into the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 shows that increasing scale in super through mergers and raising competitive tensions would reduce fees.

Andrew Bragg, Acting CEO of the FSC said: “On a day of reform discussion in Canberra, the new report highlights there is still more work to do on superannuation fees.”

“Twenty years after the introduction of super, we want to be saying that superannuation is meeting its purpose of providing most Australians with an adequate retirement and is reducing pressure on the public purse.”

“Superannuation is good, but it could be better,” Mr Bragg said.

The research by Rice Warner for the FSC demonstrates that larger super funds with a minimum fund size of $5 billion would result in an average of 0.95% in fees ̶ 0.15% less than the current average of 1.10%.

Mr Bragg said average industry fees could fall by as much as 0.25%, to 0.85% if the minimum size of a superannuation fund was $20 billion.

Rice Warner calculated that the average 20 year old woman who is a member of a small, inefficient fund managing less than $1 billion could be $55 000 better off at retirement if their fund merged with a larger, more efficient fund.

“Fees have been reduced with the introduction of the new MySuper default funds, but Australians will be much better off in retirement with a more competitive superannuation system,” Mr Bragg said.

“More reform is needed for super to meet its purpose. If we get the market structure right, super can alleviate increasing pension and aging costs through higher retirement savings,” Mr Bragg said.

“The legislation to improve superannuation governance introduced to Parliament on 16 September is a step in the right direction,” Mr Bragg said.

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Scott Morrison

The Financial Services Council (FSC) welcomes the Turnbull government’s appointments of the Hon Scott Morrison as Treasurer and the Hon Kelly O’Dwyer as Assistant Treasurer. Both Ministers have significant policy experience that will provide Australia with much needed reform capability.

“Australia needs both focused financial services reform in this Parliamentary term and a mandate for structural tax reform in the next term,” Andrew Bragg, acting CEO of the Financial Services Council said.

“We expect the new Treasury team will hit the ground running during this term to complete the reform agenda established by their predecessors.”

“This includes delivering reforms to reduce superannuation fees, concluding the Financial System Inquiry (FSI) and creating more trade opportunities as Asian demand for financial services increases.”

“The FSC agrees with the FSI findings that superannuation fees are too high due to a lack of competition and corporate governance in superannuation could be improved,” Mr Bragg said.

“Life insurance reform is overdue. The sustainability reform proposals have taken five years to develop and must swiftly progress.”

“New sources of growth will be critical as Australia’s economy transitions. To create this growth, we need to increase financial services exports via services trade architecture.”
“The China Australia Free Trade Agreement must be finalised and new free trade deals established with India, Indonesia and ASEAN.”
Tax reform and redrawing Australia’s Federation architecture must be a priority for the new Treasury team.
“Tax reform is essential as we cannot rely on personal and corporate income taxation as the primary revenue source in the future.

Australia needs a new tax mix to boost our competitiveness in this Asian century,” Mr Bragg said. “Our tax system is inextricably linked to the Federation which is the core of the uncompetitive, unsustainable tax regime and needs to be overhauled.”

The FSC also welcomes the appointment of Mr Alex Hawke, the Assistant Minister to the Treasurer.

We look forward to working with the new Treasury team and thank the outgoing Treasurer, the Hon Joe Hockey and the Assistant Treasurer, the Hon Josh Frydenberg for commencing many of these reform processes.

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Andrew Bragg

The Financial Services Council has set a deadline for the Parliament to show bipartisan support for the China-Australian Free Trade Agreement legislation by passing it during the October sittings.

This follows the introduction of the enabling legislation by Trade Minister Andrew Robb.

ChAFTA provides unprecedented access to the Chinese market and financial sector which is not available to our financial centre competitors such as Japan, the U.S. and most of Europe.

Andrew Bragg, Acting CEO of the FSC said: “We are the first major financial centre with broad access to China. ChAFTA builds essential architecture Australian companies need to export our services which our competitors do not have.”

“ChAFTA legislation must be passed in October. Any delay would slow down implementation and damage our head start in China.”

“Australia cannot afford to have this agreement held hostage by fear campaigns and misinformation.”

Creation of trade architecture for services sectors is considerably complicated and time consuming when compared to agriculture or minerals exports which largely rely on tariff removal.

“Certain financial services components of the agreement will take years to implement via agreements with central banks and corporate regulators.”

“ChAFTA will boost Australian employment, economic growth and tax collection. The jobs created in financial services through this agreement can help to fill the gap created by the slowing of mining investment,” Mr Bragg said.

“Along with the Free Trade Agreements with Japan and Korea, the Asia Region Funds Passport and Mark Johnson’s funds management reforms, which are progressing with bipartisan support, ChAFTA has the potential to create at least 10,000 new jobs in financial services alone.”

Mr Bragg also said: “China’s household savings pool, at US$8 trillion, is four times the size of our superannuation system. Over the next 15 years, there will be one billion middle class Chinese who will require services and investment opportunities outside their economy.”

“ChAFTA provides an opportunity which we must capitalise on by quickly passing this legislation.

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Andrew Bragg

Introduction

I thank the Joint Standing Committee on Treaties for the opportunity to appear at the public hearings into the China Australia Free Trade Agreement.

For this purpose, the FSC represents Australia’s funds management sector.

The financial services industry makes a significant contribution to the Australian economy. It pays more corporate tax than any other sector, employs more than 400,000 people and contributes $130 billion to the economy each year. Australia has the third largest pool of managed funds in the world and the largest in Asia, at $2.5 trillion. This is larger than Australia’s GDP and the capitalisation of the Australian stock exchange.

Our comparative advantage in funds management is an industry that has the potential to become a major exporter of services in the Asian century.

Despite our success in amassing a major funds management sector, less than 5 per cent of total funds are sourced offshore and therefore counted as an export. One of these reasons is we lack export architecture to countries such as China. Accordingly, this agreement is an outstanding free trade deal for Australia. It will create jobs and growth.

Let me be very clear, the agreement will create jobs in Australia as it builds new architecture for Australian financial services exporters.

Why China?

Above all, China is the market that Australia’s financial services industry wants to access.
The IMF now cites China as the largest economy. As of last year China knocked the U.S. of a mantel it has held since 1872.

China is also a nation with a household savings pool of about $US8 trillion and growing

The predictions are for one billion people to move into the Chinese middle class by 2030 (which will be 70% of the Chinese population).

This growing middle class in China will increasingly want to invest beyond China’s borders. But Australia cannot export to this market unless a regulatory structure such as this free trade agreement is in place.

Similarly, Australian fund managers are looking to meet their client demand for exposure to the growth within China. The FTA secures the ability for this exposure.

China is starting from a relatively low base of capability – only 3% of the 145 trillion Renminbi (RMB) Chinese finance sector are assets are held in managed funds. It is early days for funds management in China – there 90 asset management companies – but one third are unprofitable.

This compares with Australia’s 483 licensed fund managers.

What does the deal provide?

This deal provides preferential access to China’s markets which has been made available to a very limited number of countries.

China has three schemes for trading and investment. All three have quotas as China is carefully managing the internationalisation of its currency and economy. Australia will now have access to all three.

The Qualified Domestic Institutional Investor (QDII) allows Chinese investors to trade offshore – with foreign fund managers from Australia, amongst others.

The ChAFTA allows Australian fund managers market access to China to sell to QDII investors. There are currently 132 approved QDII firms in China, which Australian fund managers will now be able to access.

The Renminbi Qualified Foreign Institutional Investor (RQFII) and Qualified Foreign Institutional Investor (QFII) schemes enable foreign investment into China.

Currently, only 12 countries have RQFII quotas, including Australia.

RQFII guarantees access for Australian fund managers to Chinese share and bond markets.

Under this agreement we have been granted an RQFII quota of $50bn RMB. Vanguard based in Melbourne plans to use part of it.

The free trade agreement goes beyond these schemes and broadens access to markets in China for Australian fund managers.

Some of this additional access is so far only available to Australia such as the ability for Australian firms to hold up to 49% foreign equity (which is above its WTO commitment of 33%) in joint ventures.

There is also a guarantee for brokerage and advisory firms to provide cross-border portfolio management, custody, trading and advice to QDII investors.

While ChAFTA has not removed all technical barriers to trade for Australian financial services providers, the coveted ‘much favoured nation’ clause provides scope to ensure future benefits conferred to other countries will automatically flow to Australia.

Next steps

ChAFTA represents a starting position from which to build on.

To capitalise on the benefits and opportunities, two things must occur – the ChAFTA must be implemented and Australian domestic regulation must be reformed.

A) ChAFTA implementation

It is imperative that the commitment to establish a financial services committee begins swiftly to maintain momentum. It is also imperative that ASIC is included in this committee so any licensing and regulatory issues can be resolved. The end goal must be full mutual recognition for fund managers between the Australian and Chinese regulators.

B) Domestic policy

We have a lot going for us apart from our time zone. Australia is the 6th largest offshore Renminbi (RMB) centre. Our regulators and central banks have strong relationships – an RMB clearing bank will be in Sydney. China is our number one trading partner.

And we have a disproportionately large asset management industry – 3rd biggest in the world.
But our lack of competitiveness in funds management regulation is holding us back.

For example, Australian companies with subsidiaries in Singapore are more likely to use Chinese investment quota in Singapore than Sydney – because they are better than us at regulatory competitiveness.

It doesn’t have to be this way.

Mark Johnson provided us a reform blueprint in his 2009 review of Australia as a financial centre. Many of his recommendations have not been implemented.

To his credit, Chris Bowen commissioned the Johnson Report to secure Australia as a financial centre in the region. This was a major step forward but we need to implement Johnson’s many unfinished recommendations to boost our competitiveness.

Some progress has been made and the Government should be applauded for the tax certainty we now have through the newly minted Investment Manager Regime – legislated 4 weeks ago by Josh Frydenberg. (Royal Assent 25 June)

There is much more to do. The taxation and funds management collective investment regulations must change for Australia to take advantage of ChAFTA and Australia’s other free trade agreements.

3 things which must be delivered are:

1. New collective investment vehicle structures – as Australian unit trusts can be very unfamiliar to overseas investors, we need more options to offer them
2. Competitive tax rates – our withholding tax rates for foreign investors are a dog’s breakfast and our company tax rates are too high
3. Multi currency classes fund capability – we need this functionality to issue China funds in different currencies – foreign investors do not pine for $AUD

These Johnson Review recommendations will boost the usefulness of CHAFTA and our competitiveness in general and should be progressed as soon as possible.

Conclusion

This agreement is an outstanding achievement for Australia. It will create jobs and growth by allowing our industries to access the world’s largest market.

It provides Australian fund managers with a significant advantage which is not enjoyed by large competitors such as the United States or Japan.

ChAFTA builds the architecture we need to compete in the Asian century.

It gives us a first mover advantage. Delaying the measures in the FTA would damage our future growth prospects and we recommend its swift implementation.

By Andrew Bragg, FSC Director of Policy

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