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Will fifth pillar be good news for Australia?

Will fifth pillar be good news for Australia?

When I heard that the Australian Competition and Consumer Commission have blocked National Australia Bank’s bid for the purchase of the AXA Asia Pacific and has instead given the go-ahead to the rival bid from AMP my first reaction was that regulatory interference in the market has got to be good for the consumer. But on reflection, I think this is a good example of how government bodies can occasionally get things badly wrong by trying too hard to get it right.

The Aus$13.3bn (€9.25bn) bid would have made NAB the dominant player in the superannuation market with over 19% market share. In combination with Westpac (18%), this still only leaves barely over third of the market in the hands of the big two. As monopoly situations go, this is a pretty weak position.

However, the commission felt that this was sufficiently restrictive of competition and innovation and that the solution was to allow AMP to go ahead and provide the so-called ‘fifth pillar’ in the financial services arena. With the acquisition of AXA, AMP will jump from 12% to around 16%, leaving NAB behind on 15%. This, the regulator believes will allow the level of choice they believe Australia needs. But does this really meet the needs of Australia as a whole?

The biggest surprise in the ruling is that the commission made it at all. Up to the very end, it was assumed in the market that the NAB purchase would be allowed, albeit with minor conditions attached. The ruling looks like the commission is firing a warning shot across the bows of the bigger financial institutions that it won’t allow any expansion of their position in the local market, under the guise of maintaining competition. And in an election year, tighter regulation of the major financial players is definitely going to be popular.

But popularity shouldn’t be the goal of the ACCC. Although the idea of global financial institutions is somewhat out of fashion at the moment, it is bound to re-emerge. And when it does, Australia doesn’t want to be in the position where its institutions are the minnows ready to be swallowed up instead of having some global players who can compete globally with the big fish.

The superannuation market spends its time trying to focus consumers on their longer term security rather than their short term goals. Maybe the ACCC should take a tip from the industry on lengthening its own focus. Or they could be left trying to run a market that is made up of companies that are based outside of their control.

Tom Murray

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