Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the government has work to do to improve the financial sector and how Australians interact with it. It can start by investing in education, technology and regulation.
The disappointing findings of the Hayne Royal Commission on the finance industry have undoubtedly shaken up the sector. With senior business leaders pushed to resign and major organisational restructures underway, the next big question is how Government will respond and take on Commissioner Hayne’s 76 recommendations.
The recommendations are designed to substantially change the way the banking, superannuation, insurance and financial advice sectors operate.
However, a considered policy approach needs to go beyond the operations of Australia’s financial institutions.
I’d like to see the Government address three key areas in the 2019 budget – education, investment in technology and regulation.
More than half (60%) of Australians do not meet the basic threshold for financial literacy and capability.
Yet, we place a high degree of responsibility on customers to make complex financial decisions.
Motivation is a further problem: almost one in three Australians reported not acting to improve their financial situation despite knowing a better deal existed on superannuation, home loans and credit cards.
A huge priority for the Federal and State Governments should be to strengthen the financial capabilities of Australians.
We should see the introduction of compulsory financial capability training in high schools, TAFE and in tertiary education – analogous to health education. The government should provide funding that allows evidence-based training to be developed and delivered all across the country, including the development of high-quality curricula and training of teachers.
Harnessing artificial intelligence
Many financial decisions can be time-consuming and overwhelming, and they are often highly complex. There is a tremendous opportunity to harness new and emerging technologies to make finance easier. Recent advances in artificial intelligence, for example, could be of great help here.
I envision a time in the not too distant future when each of us will have a digital personal financial assistant that takes care of our every-day finances. In addition to helping with bill payment or budgeting, it would perform financial health checks and provide advice on superannuation investments in real time.
The benefits of such a technology would be substantial. However, a lot of research is required to make this vision a reality and to ensure that such technology is not only useful but also safe and secure.
The government should establish new national centres for research and innovation in finance where universities and industry work together to discover novel and effective ways to make Australians fit for their financial future.
More effective regulation
As the Hayne Royal Commission report highlighted, insufficient outcomes for consumers are sometimes the consequence of non-compliance by financial services providers with the law, such as responsible lending conduct obligations.
In addition to financial losses for consumers, non-compliance of financial institutions with the law can undermine consumers’ trust in those institutions, which in turn poses a risk for financial stability.
The Government needs to strengthen the agencies that regulate financial markets such as the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).
We need to see the monitoring and enforcement capabilities of the regulators improved substantially to ensure timely detection of transgressions of the law and effective prosecution.
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