Inside Money: Aust inquiry dishes up 44 answers - that's final

Photo / Thinkstock

The Australian Financial System Inquiry (FSI) has gone two better than Douglas Adams, computing 44 as the answer to everything (that is financially dysfunctional) in its final report released early in December.

"The Inquiry has made 44 recommendations relating to the Australian financial system," the final FSI report says on page xiii of the 350-page document.

Well before the roman numerals end on page xxviii (actually page 30 of the PDF), the FSI report has said everything it needs to say: the rest is just detail.

The handy 'Guide to the Financial System Inquiry Final Report' provides a nice picture of the FSI's ambit - and flow chart fans could just stop there.

But the 44 recommendations, grouped under five themed chapters, do get a bit of fleshing out.

Page 42 (arabic style) contains the most headline-grabbing item, in which David Murray, FSI chair and former head of Australia's largest bank, surprises everyone by suggesting banks need to set aside more capital.

While NZ might already be operating to tighter capital standards, if the FSI recommendation does get implemented it's certainly possible the Australian parents might want to squeeze a little more return out of their trans-Tasman offspring to help cover increased costs.

Elsewhere, there's a lot of guff about enhancing Australia's superannuation system, most of which won't be relevant to New Zealand directly - although the proposal that super funds include default retirement income products for members will be watched with interest by KiwiSaver providers.

Despite coming down hard on the 'vertical integration' problem in its interim report, the final FSI has stopped short of calling for banks et al to be legally separated from their financial advisory arms.

Instead, the FSI recommends (number 21) that "product issuers and distributors should take greater responsibility for the design and targeted distribution of products" - in effect, this is just asking politely for everyone to be nicer to consumers (albeit with the threat of greater regulatory powers to ban or reclassify products as 'not for mums and dads').

"This should strengthen consumer confidence and trust in the system and reduce the number of cases where consumer behavioural biases and information imbalances are disregarded," the FSI report says.

At a post-release luncheon (which is like lunch, but longer and more boring), Murray said recommendation 21 would flatten vertical integration as "the product manufacturer needs to consider what information is made available, whether advice is needed or not".

"The distributor has to take that on board," 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."

And after swallowing that, it might be time for a lie down with a good book.