The appointment of former Commonwealth Bank boss David Murray as head of the Government’s financial services inquiry has been welcomed by the banking industry.

However, consumer groups want to see strong representation of customer interests on the yet-to-be announced four-person committee assisting Mr Murray.

Consumer representatives are concerned the inquiry may focus too heavily on the costs of regulation, while overlooking the benefits.

The Government has proposed very broad terms of reference, including competition issues, regulation, taxation and dealing with financial risks.

The Customer Owned Banking Association’s chief executive Louise Petschler wants the inquiry to focus on how to promote competition against the big-four banks.

“Over the past few years we’ve seen an increased concentration in our banking market and we believe there’s a real opportunity for a review of the regulatory and market settings that we hope will put us on the path for a better result for consumers and a better result for competition,” she said.

One thing that all financial institutions and their representatives agree on is a desire for less regulation.

Martin Codina from the Financial Services Council, which represents large wealth managers such as private sector super funds, believes regulation has gone too far.

“Without doubt there is a lot of regulation on the financial services industry and that’s just been compounded with the enormous amount of global regulation that’s been introduced following the financial crisis,” he said.

“So from our perspective, we’re very keen to make sure that that can be rationalised.”

Consumer groups worried about inquiry’s focus

But the Consumer Action Law Centre’s Gerard Brody is concerned that the inquiry may put too much focus on the costs of regulation – without considering the benefits.

“In assessing existing regulation we must remember that they were put in place to promote a desirable social purpose and that we shouldn’t just be about eliminating regulation without looking at the benefits that they can provide the community,” he said.

“It can be very easy for business lobby groups or policy makers to count the compliance costs of regulations, the staff hours that business and the input costs required to comply. But assessing the benefits of regulation is much more difficult.

Mr Brody says the previous Federal Government’s ban on mortgage exit fees is a good example of positive regulation.

“There were many in the industry that said that was going to cause harm to smaller lenders,” he said.

“Nothing could be further from the truth. Those exit fees simply allowed lenders to hide the real costs of loans and that ban in fact encouraged and stimulated competition.”

Murray the ‘right person for the job’

Despite Mr Murray’s background with the big four banks, Ms Petschler is confident he is a good person for the job.

“We know that Mr Murray has a background with one of the major banks but also an extensive background in business and he’s obviously eminently qualified to lead this type of enquiry and he’ll be supported by a panel of other experts as well as extensive industry consultation,” she said.

She wants the four-person panel to include people coming from a consumer point of view.

“We think that this enquiry has the potential to deliver those same long term benefits as long as all the voices including particularly consumer voices are part of the review and part of the debate,” she said.

The financial system inquiry’s draft terms of reference are open for comment for the next two weeks.