Wallis sets future financial system direction

9 April 1997

The Report of the Financial Systems Inquiry will set financial system directions in the coming years, Australian Competition and Consumer Commission Chairman, Professor Allan Fels, said today.

"The ACCC supports the Government's decision to end the so-called 'Six Pillars' policy. This policy created a ban on mergers between the four major banks and the two largest life insurance companies.

"The ACCC notes the decision that mergers among the four major banks currently will not be permitted. This will be reviewed when the Government is satisfied that competition from new, and established, financial industry participants - particularly in small business lending - has increased sufficiently.

"On a preliminary reading of the report, the ACCC is pleased that the Wallis Committee endorses that Section 50 of the Trade Practices Act continues to apply to the financial services sector and that the ACCC should continue to administer those competition laws.

"The report comments on trends occurring within the financial system which are of relevance to the process of assessing mergers. It makes findings, though not recommendations, based upon these observations. It makes it clear that:

  • it is not commenting on specific merger scenarios;
  •  it is not possible to define markets or assess mergers in the abstract. (That is, these tasks can only be performed in the context of a specific merger proposal); and
  • that the Inquiry has not looked at all of the factors which must be considered when defining a market or assessing a merger in practice, since this requires intensive facts based market investigations which can only be properly undertaken in the context of a specific merger assessment.

"That said, the Inquiry's observations on both demand and supply side characteristics of the retail banking segment led it to the findings that:

  • The cluster of services methodology should be closely questioned and at least narrowed (see pages 432 to 446);
  • While the market for some retail banking products is moving from being regional to national, the pace of that movement varies depending on the product.

The market for a limited number of products, such as housing loans and credit cards, may already be national. The market for some other retail and SME products may be national in the future, but they do not appear to have yet reached that point. (That is, the findings basically support the ACCC's current regional market definition) (pp 446 to 453); On the importance of regional banks, the Inquiry agreed with the ACCC that they have played an important role in ensuring competition in recent years but also noted that there is nothing immutable about their present position and that their importance to the competitive process must be assessed in the context of each merger (pp455 to 459); and

On the issue of efficiencies and mergers, the report notes that the evidence about efficiencies and mergers is at best inconclusive - although clearly there are large savings available from well managed mergers. It notes that, in practice, the issue will only arise in the context of an authorisations procedure and that it would be up to the organisation claiming the efficiency benefits to make their case to the ACCC (pp 463 to 467).

"The ACCC believes the Wallis Inquiry's views on these matters and those of the ACCC are not much different. The ACCC accepts that aspects of service delivery linked to new technology requires regular review. More generally, it believes that the sector is undergoing rapid change. All questions bearing on competition analysis and market definition need continuous review on a case-by-case basis as they arise. "In addition to welcoming the Inquiry's findings on mergers and acquisitions, the ACCC also welcomes many of the Inquiry's other recommendations aimed at improving competition. These changes should help to complement and reinforce the key role of the TPA in promoting competition in the Australian economy.

"More specifically, recommendations aimed at liberalising access to payments systems, easing foreign ownership requirements and unifying the arrangements for prudential supervision of institutions are important pro-competitive initiatives. Indeed, many of these recommendations substantially mirror those in the ACCC's submissions." The ACCC is yet to fully consider the consumer protection recommendations. "But the ACCC finds much that is welcome in the report and its recommendations. Within the broader goal of establishing a consistent and comprehensive regulatory structure, the report embraces several suggestions and recommendations on consumer protection made by the ACCC. These include recommendations relating to the:

need to employ a broad range of regulatory approaches for effective consumer protection in the sector, including codes of conduct; important role of industry codes of conduct as a means of providing protection to consumers, and the importance of self- and/or co-regulatory approaches to administering codes of conduct; importance of consistent and comparable disclosure requirements to enable easy comparison between products by consumers and to promote competitive neutrality between different types of institutions; establishment of a central gateway for (external) dispute resolution schemes, and a broadening of their coverage; and a need for international co-operation between regulators in the context of financial services and products becoming available through electronic and global markets.

"The ACCC is encouraged by the Inquiry's recommendations to maintain the economy-wide application of the consumer protection provisions of the TPA. However, the ACCC would be concerned if jurisdiction over Part V of the TPA is withdrawn in regard to the financial services sector or if it ceases to have any consumer protection role in financial services.

"Given the proposal that there be a defence under Section 52 of the TPA about due diligence processes and the further proposal for an operating agreement between the ACCC and Corporations and Financial Services Commission (CFSC), there is no impediment to concurrent jurisdiction. applicable to prospectuses, take-over documents and superannuation statements.

"The ACCC accepts that there is a degree of compromise embodied in the recommendation about a limited due diligence exemption under Part V and, indeed, in its Wallis submission indicated that although it was opposed to the whole idea of this type of exemption from the TPA nevertheless it did itself put forward this possibility as a compromise.

"The ACCC will be in a position to comment more fully on the report at a later point in time."

Further information Professor Allan Fels, Chairman, (03) 9290 1812 or pager (016) 373 536 Ms Lin Enright, Director, Public Relations, (06) 264 2808

Release number: 
MR 030/97
ACCC Infocentre: 

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