Retail Delivery & Distribution

Stable and able

BY CHARIS PALMER

Februay 5, 2010

For the first time in its history, Sydney's financial sector is preparing to take on much larger rivals New York and London as a world-leading financial services hub.

The prediction comes on the back of the Government-commissioned report Australia as a Financial Centre, which has been warmly welcomed by the industry. The report, also known as the Johnson report, was developed by the Australian Financial Centre Forum, a Government and industry partnership led by chairman Mark Johnson; and consisting of a panel of six senior financial sector representatives, the Treasury Taskforce and a reference group.

Responding to the report, commentators argue Australia's financial sector is poised to capture more offshore business as regulatory change sweeps the US and UK.

"It's looking like the regulatory changes will be fairly modest here, and that's clearly not going to be the case in the US and UK," says Mark Crosby, associate professor in economics at Melbourne Business School.

"A lot of market activity will migrate away from the US and Europe as large banks decide they shouldn't be quite so exposed to that region."

"The Government is fairly aware that if they take advantage of what's happening internationally, it could really benefit our financial services sector."

Already, Australia has jumped from 11th to 2nd in the World Economic Forum's ranking of 55 of the world's leading financial systems and capital markets. The Forum determines the ranking by considering more than 100 attributes, including the contribution of the sector to the economy's GDP.

Recent data from the Australian Bureau of Statistics revealed the financial sector is the largest contributor to Australia's national output, employment and economic growth, generating more than 10 per cent of Australian output.

"We are committed to ensuring that our financial sector is well-placed to make the most of those opportunities that will emerge as the economic recovery takes hold," says financial services minister Chris Bowen.

The Johnson report makes a number of recommendations in relation to taxation, regulation, human capital and market access. These include a new regime for investment managers designed to attract overseas investors into funds run out of Australia, the removal of withholding tax on offshore borrowings, and the establishment of an "online gateway" and offshore business unit regime changes to help raise the profile of Australia's financial sector to offshore investors.

It also recommends the establishment of a Financial Centre Taskforce to assist with the implementation of policy measures and ensure Australia's competitive position remains strong.

The Australian Financial Markets Association and the Australian Bankers' Association have both welcomed the report, arguing for timely implementation of the recommendations contained within it.

"AFMA welcomes the practical focus of the Forum's recommendations," says AFMA executive director Duncan Fairweather. "Australia does not earn the level of export income that AFMA believes is commensurate with the capability of our financial institutions and markets."

Crosby says wealth management is the main area of opportunity for the sector. "It's an area where we clearly have a lot of expertise and can take that to the Asia Pacific region."

Crosby says despite the problem of competition in Australia brought on by the market dominance of the big four banks, this has ironically helped Australia's financial sector perform better than its rivals. "We've recognised the fact that these banks are going to be big and they're going to need regulation, and whilst we have to struggle to ensure there's enough competition, I think the Government has been very successful in making sure that happens."

Crosby says regulatory uncertainty will continue for some time in the financial sector, which will ultimately lead to financial services companies looking much more carefully at where they locate their business.

The stability of the Australian economy has placed us in good stead, he argues, thanks largely to the proactive stance taken by the Reserve Bank. "The RBA has been much more active than the Fed in a number of ways and has made sure not just the financial sector, but the economy more broadly, is stable."