MEDIA RELEASE 2019 is set to be a year of significant technical, strategic, and regulatory change for the Australian superannuation and insurance sectors, with long-term implications for all stakeholders in these industries, according to Wendy Colaço, principal consultant at independent consulting firm QMV.
QMV has identified four key trends that will dominate the financial services landscape in the short term – consumer focus, remediation, asymmetric competition, and fees and cost restraint.
Ms Colaço says the combined effect of the member outcomes assessments, consumer data right, financial product design and distribution obligations, and royal commission recommendations, will converge to place consumers at the centre of regulatory and business activities in 2019.
“The new prudential standard and guidance on Strategic Planning and Member Outcomes, recently released by APRA, will require that superannuation trustees rigorously assess and strive to improve performance in terms of the outcomes they are providing their members. This will involve more structured strategic business planning, a greater oversight on expenditure, and closer monitoring of performance towards member outcomes.
“While the new laws do not commence until 2020, we suggest forward-looking superannuation trustees should move quickly to align strategic business planning with the new requirements as soon as possible.”
She added that there is strong alignment between the member outcomes requirements and the proposed financial product design and distribution obligations.
“These proposed new laws require financial institutions and superannuation trustees to ensure that financial products have a clear target market and are designed and distributed to cater to and suit the needs this target consumer.
“When combined with the Consumer Data Right, the member outcomes and design and distribution obligations will shift the power towards individual consumers, providing opportunities for balancing competition-driven efficiency, and confidence in the financial system,” says Ms Colaço.
There will also be a continued heavy focus on remediation of existing and newly uncovered regulatory breaches.
“The more assertive regulatory posture which the royal commission has promoted will inevitably see superannuation trustees and financial institutions investing resources into ensuring timely and accurate remediation.
“Remediation of conduct, data, and system configuration related breaches can be a tricky and costly exercise; however prompt, dedicated, and specialised expertise can assist in mitigating the risks of contagion and delay.”
Ms Colaço added that existing superannuation trustees and financial institutions are paying for the technology and remediation debt they’ve built over a generation, resulting in a ‘rear view mirror’ focus rather than a forward-looking approach, which creates opportunities for new entrants.
Following on from this, the competitive landscape for financial institutions and superannuation funds is likely to see continued attempts at disruptive innovation. However the most effective disrupters may be asymmetric, focusing on opportunities in the supply chains or consumer interface rather than direct competition.
“New entrants from the tech sector will develop to meet the demands of an emerging demographic, such as new payments platforms plugging holes in a disjointed industry but answering the needs of a community demanding immediate service and nimble products.
“It is likely we will see a flood of new market entrants looking to capitalise on market opportunities resulting from the reputational impacts of the royal commission through using modern technologies, particularly in the Banking, Financial Planning, and Insurance sectors,” she says.
Fees and cost restraint
In an environment of increasing competitive, regulatory, and technical change, it will be critical for financial institutions and superannuation trustees to ensure that costs remain within budget, says Ms Colaço.
“With the amount of work facing the industry as a result of new regulatory requirements, transparent indirect fee and cost disclosure, the Productivity Commission Report into Competition and Efficiency, and the Royal Commission Final Report, financial institutions and superannuation funds will have pressures on funding or headcount available to dedicate to innovation, differentiated product development or new technologies.
“Unfortunately, innovation may become the ugly cousin and fall by the wayside for the big players.”