Mr Murray spoke at a Committee for Economic Development of Australia (CEDA) luncheon in Sydney yesterday following Sunday’s release of the final Financial System Inquiry report.
Asked about the institutional ownership of wealth management firms in Australia, Mr Murray acknowledged there has been a lot of “heat” surrounding the topic in recent years.
“A lot of that comes out of the war which hasn’t formally commenced yet – and which is still underway – between sectors of the superannuation industry,” Mr Murray said.
The FSI chairman employed an analogy about the pharmaceutical industry to make his point about vertical integration.
“If I buy Vitamin C pills there’s a requirement from the manufacturer and the distributor to ensure that there’s information on the bottle,” Mr Murray said.
To buy a product like pseudoephedrine there is an additional obligation on chemists to warn consumers about the side effects of the drug; and if a patient wants antibiotics they must go to a doctor, where there is a “very significant information imbalance” and it is up to the doctor to decide if further advice is warranted, he said.
“What we’re saying about [the financial] system is that the product manufacturer needs to consider what information is made available, whether advice is needed or not,” Mr Murray said.
It is on this final point (ie, ‘whether advice is needed or not’) that the FSI report goes further than FOFA, he said.
“The distributor has to take that on board,” Mr Murray said.
“Once that system is in place, vertical integration doesn’t matter anymore. The same obligations are on everybody whether they’re vertically integrated or not.”
Mr Murray also discussed the FSI recommendation that ASIC be given greater intervention powers to amend, restrict or even ban products from the market.
The FSI panel had a “long discussion” with the UK regulator the Financial Conduct Authority (FCA), which already has some product intervention powers, he said.
“There are [providers in the market] who are finding themselves trying to compete with new products coming into the market which do not make sense,” Mr Murray said.
Such products make a lot of promises that can look “undeliverable” to experts, he said.
As a result, other product providers can “try and be devious” and “catch up” by amending their product design, Mr Murray said.
“The FCA was very clear with us that it’s only in the most obvious and extreme of circumstances that they would use [such powers] – and I think that should be the case [in Australia],” he said.
Such powers should be used “extremely sparingly” by ASIC and “anybody exposed to it would have to have some powers of recourse to challenge to [them]”, Mr Murray said.
