Chief executives from major public companies in energy, banking, insurance and telecommunications have opened up about the positive and negative impacts of government regulation.
Regulation, which has been an important driver of Australia's loss of international competitiveness, loomed large in the minds of all the CEOs interviewed by Chanticleer on Thursday.
The business hit hardest by regulation in 2016 was wealth management and life insurance group AMP, which took a $500 million hit to its cash flows simply because of the changes to superannuation.
Discretionary contributions to AMP's super products collapsed in the June and September quarters last year following the government changes to non-concessional contributions and the $1.6 million cap on pensions from July 1, this year.
Discretionary super contributions picked up in December at AMP and are expected to rise significantly in the lead up to the June 30 deadline according to AMP chief executive Craig Meller.
Meller believes it is time to stop fiddling with the tax on superannuation so that there is certainty for customers and advisers.
Shareholders in AMP will be well aware that changes in the regulatory environment are a key strategic risk. The company said in its preliminary final report that the increased attention from the media and public is placing additional pressure on governments to make changes to existing regulations.
"We recognise that failure to effectively anticipate and respond to regulatory changes could adversely impact AMP's reputation and ability to achieve its strategic objectives," the company said.
Not all regulation impacting the company is negative. In China, new regulations for occupational pensions for public servants present a huge opportunity for the joint venture between AMP and China Life Pension Company (CLPC).
The new Chinese pension system is modelled on Australia although the contribution rate is 12 per cent of salary.
About 40 million civil servants in China's provinces are covered by the new regulations. AMP estimated annual flows of pension savings will hit $40 billion. AMP owns 20 per cent of the CLPC joint venture.
The other CEO who is seeing regulation as a two-edged sword is Michael Cameron at Suncorp.
Cameron would like to see more effective and thorough regulation by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority.
He says this would help to restore community confidence in the financial services sector and avoid further intervention by politicians calling for reviews and inquiries.
Cameron says the global financial crisis showed Australia had a robust regulatory system but he thinks our financial institutions should be proactive and learn the lessons of recent infractions in the United States.
He says we don't want to have a repeat of the cross selling debacle at Wells Fargo Bank.
Cameron think cross selling is not in the interests of customers or shareholders. That explains why he is moving to a marketplace strategy which allows customers to access best of breed products through any channel or medium.
This strategy is open to products from rival financial institutions. For example, Suncorp sells a health insurance product underwritten by NIB Holdings and an annuity product created by Challenger.
Most Australian financial institutions are revisiting the idea of being all things to all customers. Cameron does appear to be moving faster than others to a new business model after taking the view that there is no point manufacturing products if they simply consume capital and do not lead to the best outcome for customers.
He is not a big fan of vertically integrated financial institutions forcing banking staff to sell insurance products to customers.
Cameron's belief in bringing third parties into the Suncorp product set is behind his decision to conduct a strategic review of Suncorp's life business.
While regulation is a bugbear for both AMP and Suncorp in terms of cost of compliance and potential impact on cashflows, they should both benefit from the new regulations requiring higher standards for financial advisers.
From January 1, 2019 it will not longer be possible to become qualified to give financial advice with just four days training.
New advisers will be required to hold a degree before they are eligible to commence a supervision year and sit an exam. Existing advisers will have two years, until January 1, 2021, to pass the exam and five years, until January 1, 2024, to reach a standard equivalent to a degree.
In the telco space, Optus chief executive Allen Lew delivered the last quarterly Optus profit that will be hit by the regulatory crack down on mobile termination, which is a charge for terminating calls on another carrier's network.
The 9.8 per cent decline in Optus's operating revenue in its Australian consumer business in the December quarter reflected the impact of a cut in mobile termination rates of $187 million.
Lew says the telco sector is used to lots of regulation and the company spends a lot of time with regulators to ensure they understand what drives profit and investment in the sector.
In Australia, the single biggest factor governing the future direction of the industry is NBN Co's construction of a wholesale broadband network. This is mega regulation not seen anywhere else in the world and it is smashing the profit margins of many existing players including TPG Telecom and Vocus.
Lew says profit margins for some companies are coming down from 30 to 40 per cent to 10 to 15 per cent.
NBN, which is now half built, is a big opportunity for Optus because its 10 million customers (9 million mobile and 1 million fixed line) will give it the scale to compete more effectively with Telstra. Lew says it will finally create a level playing field in the fixed line market.
In the energy sector, regulation is still a moveable feast. That helps explains why AGL chief executive Andy Vesey is willing to invest up to $300 million to import natural gas into the south eastern states.
It might seem bizarre that within a year of several companies completing $60 billion of LNG export plant facilities in Gladstone, AGL is preparing the way to possibly import LNG.
Gas is seen as a transition fuel on the way toward increased use of renewable energy. Vesey is concerned about price stability and security of supply at a time when state governments have banned gas exploration.
Vesey is keen to see Australia put in place the appropriate policy architecture for energy. He says two important influencers in this process will be the final report of the Finkel Review and the creative and innovative approach to regulation likely to happen under Audrey Zibelman as the new managing director of the Australian Energy Market Operator.
