Financial System Inquiry chairman David Murray with Treasurer Joe Hockey. Source: News Corp Australia

The former Commonwealth Bank boss handed down the 44 recommendations of the Financial System Inquiry panel on Sunday, and it’s pretty heavy going.

There has already been mountains written about the Murray Inquiry — what it means for the banks, what it means for super, what it means for the government.

But what does it mean for you?

Put simply, it represents a fundamental shift towards consumer welfare.

It recognises that current regulation is too weak to offer adequate protection, and urgent action is needed to strengthen the system both for consumers and from outside shocks such as another GFC.

Alan Kirkland, CEO of consumer group Choice, has welcomed most of the recommendations, but says it still won’t stop excessive surcharges.

“The biggest thing is a much stronger focus on consumer protection,” he said. “In essence it’s saying ASIC should have more powers, it should have more money, and that we should be willing to expand those powers further over time.

“It’s a big turnaround in a time when the government’s focus has been on removing legislation.”

The current government suffered a setback in the final sitting weeks of parliament when its wind-back of Labor’s Future of Financial Advice reforms were defeated in the Senate.

The Murray recommendations would represent an even tougher set of financial advice regulations than those proposed by Labor.

Choice chief executive Alan Kirkland has welcomed the final report. Source: Supplied

“This has to put an absolute end to the FOFA debate,” said Mr Kirkland.

Treasurer Joe Hockey said he would weigh the implications for financial services providers carefully.

Writing in Business Spectator, Alan Kohler described the report as an “absolute shocker” for the government and the banks it’s trying to please. “If accepted it would undermine both of their two pillars of profitability: property lending and superannuation,” he says.

Prime Minister Tony Abbott has welcomed the “useful” recommendations but won’t jump to any conclusions. “We’re not going to rush something out before Christmas,” he told ABC radio.

“We’re going to carefully digest the report. We will follow the community debate, we’ll take people into our confidence and then we’ll make decisions.”

Mr Murray told a business lunch on Monday that recommendations to make ASIC a stronger and more proactive regulator did not absolve consumers of taking responsibility for their own finances.

Firms also needed to take more responsibility for the protection of their own customers, while financial product manufacturers needed to do more to determine who their products were appropriate for, he said.

The government says it will now consult with stakeholders before it makes any decision on the recommendations, with a formal response to be released in mid-2015.

So, if all goes to plan, here’s (some of) what you can expect:

LOWER INTEREST RATES

The recommendations would “level the playing field” for lenders. Source: Getty Images

The Murray Inquiry wants the government to force banks to hold more capital reserves against potential loan losses — if Mr Murray gets his way, Australian banks will require an additional $15 billion to $20 billion in equity.

The argument goes that currently, the bigger banks have an unfair advantage because they can afford to take greater risks as they have an implicit ‘too big to fail’ expectation that the government will jump in.

“To avoid moral hazard, regulatory settings should reduce the likelihood of government support being required,” the report says.

The recommendations would require the big banks to change the way they assess risk, levelling the playing field for smaller banks and lenders, and ultimately driving down prices.

“One of the upshots would be the return of the smaller players in banking. It should be easier for smaller players to offer interest rates that are comparable with the big four, and that should make things cheaper over time,” said Mr Kirkland.

“It’ll be particularly important for products such as home loans but also credit cards.”

The big banks, however, disagree — they have already warned that holding extra capital would be damaging. ANZ said it would result in higher interest rates for customers.

BETTER RETIREMENT

Superannuation is a big focus of the recommendations. Source: Getty Images

The superannuation industry has been put on notice.

Mr Murray said his recommendations for changes to Australia’s $1.8 trillion superannuation system were aimed at delivering more efficient retirement incomes, addressing the “underdeveloped” retirement phase of the system.

Fees were too high in the accumulation stage, he said, and the absence of competition remained a significant problem.

“We’re putting the individual at the centre of the superannuation system and strengthening its focus on retirement incomes,” he said.

Mr Murray said the inquiry was not confident that MySuper would be able to drive the efficiency improvements required in the system, and has recommended a review of the regime by 2020.

“One of the big outcomes of the inquiry is it should be easier to manage super in retirement with simple default products,” said Choice’s Alan Kirkland. “They also don’t think fees have come down enough, so they’ve set a challenge: if they don’t bring fees down further by 2020 the government should step in and introduce a tender system.”

The inquiry also wants all employees to have the ability to choose the fund into which their superannuation guarantee contributions are paid.

CREDIT CARD SURCHARGES

Regulations to clean-up credit card surcharges need to be enforced. Source: Getty Images

The Murray Inquiry recommends a clean-up of credit card surcharge regulations, which would allow consumers using debit cards to avoid paying exorbitant surcharges when paying for airline tickets and other items.

Consumer Action Law Centre CEO Gerard Brody welcomed the proposal but said without a strong regulator to police the issue, promised savings may never eventuate.

“Consumers feel helpless when stung by high and hidden surcharges,” he said. “While the recommendation for the Reserve Bank to limit or abolish surcharges on low- and medium-cost cards is a step in the right direction, consumers need somewhere to lodge a complaint otherwise illegal surcharges will continue.”

Choice’s Alan Kirkland says it’s the one element of the report which doesn’t live up to expectations. “We were actually disappointed with what the report said about surcharges,” he said.

“All it says is there should be new rules but nothing about how they should be enforced. The problem is there are rules at the moment but no one polices them. Neither ASIC nor APRA nor the RBA pull companies into line, and there are no penalties.”

FEWER DODGY PRODUCTS

The corporate regulator will have greater “product intervention” powers. Source: Supplied

Under the proposed changes, ASIC will have specific powers to intervene and ban particular financial products when it sees something dangerous happening.

It could also choose to limit who those products could be offered to — say, only people earning above a certain amount, or those who are still working.

“It’s very hard to do that now,” said Mr Kirkland. “It’s not so much predatory lending, but predatory investment products. What we saw in some of the big crises like Storm Financial was people were being put into products which were manifestly wrong for their situation.

“This should mean that’s less likely to happen. There is also a recommendation that there be a strong obligation on financial institutions to think about how products are appropriate for different consumers when they’re designing products, which doesn’t happen now.”

The competency requirements of financial advisers would also be raised, with advisers requiring a relevant tertiary degree, competence in specialised areas and ongoing professional development.

“In addition, ASIC should complete the establishment of an enhanced public register of all financial advisers, which includes those who are employees,” the report says.

frank.chung@news.com.au