Budget 2017 and financial services: an opening for the minnows and a warning for the sharks

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Last week we talked about the Government’s new rules for temporary working visas. On 9 May, the release of Federal Budget 2017, the Government filled in some key details of this initiative – including the hefty new levy of $1200 to $1800 (depending on the size of the business) for each temporary visa sponsored. This money will go into a ‘Skilling Australians’ fund which a state or territory government will be able to draw on in training new apprentices.

Today we want to clarify a host of changes that have been announced for the financial services sector. In Budget 2017, the Government signalled reform of the financial services sector, especially increased competition, as a key lever for strengthening the Australian economy. Below we highlight four key changes that should make it easier for small operators to compete with the established banks, we well as two changes targeting those who would flout the rules.

1) A loosening up of the term ‘bank’

The Government intends to open the way for small authorised deposit-taking institutions (ADIs) to call themselves a ‘bank’. The term ‘bank’ will no longer be reserved for ADIs with $50 million or more in capital. The marketing advantage of calling oneself a ‘bank’, should help the smaller players attract more business.

2) Ending the required 15% stake

Currently, banking legislation requires that any one shareholder in a bank not have more than a 15% ownership interest in the bank. In Budget 2017, the Government announced an intention to alter the law so that “innovative new entrants” will be exempt from this requirement.

3) Expanding crowd-sourced equity funding (CSEF)

This change is not just for smaller ADIs, but to level the playing field for small businesses (some of which are ADIs) generally. Currently, only publicly listed companies are allowed to attract stakeholders through CSEF. In Budget 2017, the Government announced that it will introduce legislation to extend this to proprietary companies (the most common sort of private company in Australia) and these companies will be able to have an unlimited number of CSEF shareholders.

4) The levy

Perhaps the most controversial announcement in Budget 2017 is the new levy for large banks. From 1 July, a new levy will be introduced for ADIs with licensed entity liabilities of $100 billion or more. The effect of this will be that Australia’s five biggest banks will be required to pay approximately $300 to $400 million a year, to raise $6.2 billion over a projected four-year period. As well as drawing revenue for the Government, the Government has emphasised that this is intended to help smaller ADIs gain market share.

In addition to reducing barriers to entry for the small ADIs, in Budget 2017 the Government has declared open season on those putting the financial system at risk.

(1) A new Banking Executive Accountability Regime

Senior executives in banks will need to register with the Australian Prudential Regulation Authority (APRA). APRA will have the power to:
• deregister senior executives
• disqualify from holding senior positions
• strip significant bonuses.

(2) Australian Competition and Consumer Commission (ACCC) funding increase

The ACCC will receive $13.2m for a specialised team devoted to investigation competition within the financial system.

It is important to note that while some of the Budget announcements have a set commencement date (e.g. 1 July for the levy), others, involve the passage of legislation (such as changes to CSEF and the 15% stake) and would come into force at some future point. As always, consult a professional for further information.

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