1DWLRQDO&RPSHWLWLRQ&RXQFLO $XVWUDOLDQ6RFLHW\RI&HUWLILHG 3UDFWLVLQJ$FFRXQWDQWV :HVWHUQ$XVWUDOLD 6WDWH&RQIHUHQFH 0D\ 1DWLRQDO&RPSHWLWLRQ3ROLF\± ,VVXHVDQG3URJUHVV $SUHVHQWDWLRQE\6WXDUW+RKQHQ &RXQFLO0HPEHU1DWLRQDO&RPSHWLWLRQ&RXQFLO  RI  ,1752'8&7,21 7KH1DWLRQDO&RPSHWLWLRQ3ROLF\SDFNDJHDJUHHGWRE\DOOQLQH$XVWUDOLDQ*RYHUQPHQWV LQ $SULO  FRQWDLQV D UDQJH RI UHIRUPV GHVLJQHG WR UHDS WKH EHQHILWV ZKLFK FRPSHWLWLRQ LQ WKH PDUNHWSODFH FDQ EULQJ  7KH SDFNDJH LQFOXGHV VRPH RQHRII FKDQJHV WR WKH 7UDGH 3UDFWLFHV $FW DV ZHOO DV VHYHUDO ³ZRUN LQ SURJUHVV´ RQJRLQJ UHIRUPVVWUHWFKLQJZHOOLQWRWKHQH[WGHFDGH VHHDWWDFKPHQW  $VDQDWLRQDOSURJUDPDOOWKH6WDWHV DQG 7HUULWRULHV ZHUH LQYROYHG LQ QHJRWLDWLQJ WKH UHIRUP SDFNDJH  6LPLODUO\ LW LV WKH 6WDWHV DQG 7HUULWRULHV ZKLFK QRZ QHHG WR LPSOHPHQWWKHEXONRIWKHUHIRUPVDQGZKLFKQHHGWRPDQDJHWKHSROLWLFVRIFKDQJHWR DFKLHYHWKHEHQHILWVRQRIIHU :KHQ DGRSWLQJ WKH SDFNDJH JRYHUQPHQWV DOVR HVWDEOLVKHG WKH 1DWLRQDO &RPSHWLWLRQ &RXQFLO WR DVVLVW ZLWK WKLV SURFHVV  7KH &RXQFLO DGPLQLVWHUV VRPH DVSHFWV RI WKH UHIRUPV DVVHVVHV JRYHUQPHQWV¶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¶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¶V FRPSHWLWLYH FRQGXFW SURYLVLRQV DUH DGPLQLVWHUHG E\ WKH $XVWUDOLDQ &RPSHWLWLRQ DQG &RQVXPHU &RPPLVVLRQ $&&&   RI  ¾ FUHDWHQDWLRQDOHQHUJ\PDUNHWV ¾ LQWURGXFHLQFHQWLYHVIRUWKHHIILFLHQWDQGVXVWDLQDEOHXVHRIZDWHUDQG ¾ UDWLRQDOLVHURDGWUDQVSRUWUHJXODWLRQVDFURVV$XVWUDOLD Y UHIRUPJRYHUQPHQWEXVLQHVVHQWHUSULVHVWR ¾ DFKLHYHJUHDWHUHIILFLHQF\ ¾ HQVXUHWKDWFRPSHWLQJSULYDWHVHFWRUEXVLQHVVHVDUHQRWGLVDGYDQWDJHGDQG ¾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²RXUUHFHQWUHYLHZRI$XVWUDOLD3RVWIRUH[DPSOH Y LQFUHDVLQJ WKH XQGHUVWDQGLQJ RI WKH 1&3 SURFHVV DQG SURYLGLQJ DGYLFH JHQHUDOO\  'LVFXVVLRQVVXFKDVWRGD\¶VDUHDQLPSRUWDQWSDUWRIWKLVWDVN7KH&RXQFLOKDVDOVR UHOHDVHGDQXPEHURISXEOLFDWLRQVDQGKDVLWVRZQLQWHUQHWVLWH DQG UHSRUWLQJLWVDVVHVVPHQWWRWKH&RPPRQZHDOWK7UHDVXUHU Y DVVHVVLQJ HDFK MXULVGLFWLRQ¶V SHUIRUPDQFH LQ PHHWLQJ LWV 1&3 FRPPLWPHQWV DQG  KWWSZZZQFFJRYDX  RI  7KH &RXQFLO¶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¾ GHYHORSHGWKHLUUHYLHZVFKHGXOHV ¾ HVWDEOLVKHG PHFKDQLVPV WR YHW QHZ RU DPHQGHG OHJLVODWLRQ WR HQVXUH WKDW LW GRHV QRWXQGXO\UHVWULFWFRPSHWLWLRQ ¾ FRPPHQFHGWKHLUUHYLHZSURJUDPVDQG ¾ LPSOHPHQWHGWKHILUVWUHIRUPV 0RVW RI WKH HDUO\ ZRUN RI JRYHUQPHQWV IRFXVVHG RQ FRPSLOLQJ WKH VFKHGXOHV ²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¾ WKH EHQHILWV RI FRPSHWLWLRQ UHVWULFWLRQ WR WKH FRPPXQLW\ DV D ZKROH RXWZHLJK WKH FRVWVDQG ¾ WKHREMHFWLYHVRIWKHOHJLVODWLRQFDQRQO\EHDFKLHYHGE\UHVWULFWLQJFRPSHWLWLRQ ,Q 0DUFK ODVW \HDU MXULVGLFWLRQV SURYLGHG WKHLU ILUVW 1&3 SURJUHVV UHSRUWV WR WKH &RXQFLO  :KLOH RQO\ DERXW  UHYLHZV KDG EHHQ FRPSOHWHG DQG LQ PDQ\ LQVWDQFHV  RI  JRYHUQPHQWV ZHUH VWLOO FRQVLGHULQJ WKH UHFRPPHQGDWLRQV WKHUH ZHUH VRPH SRVLWLYH HDUO\RXWFRPHV)RUH[DPSOH ¾ DQ H[DPLQDWLRQ RI EXVLQHVV OLFHQFHV LQ 16: UHYHDOHG VLJQLILFDQW RYHUODS DQG XQQHFHVVDU\ UHJXODWLRQ  6RPH  OLFHQFHV DUH H[SHFWHG WR EH DEROLVKHG RXWULJKW DQGDIXUWKHUOLFHQFHFDWHJRULHVFROODSVHGLQWRMXVWWKUHH ¾ LQ WKH $&7 UHVWULFWLYH DQG GLVFULPLQDWRU\ WUDGLQJ KRXUV OHJLVODWLRQ KDV EHHQ UHSHDOHG DIWHU D SUHOLPLQDU\ H[DPLQDWLRQ VXJJHVWHG WKDW WKH FRVWV WR WKH FRPPXQLW\ FOHDUO\ H[FHHGHG WKH EHQHILWV  9LFWRULDQ WUDGLQJ KRXU UHVWULFWLRQV KDYH DOVREHHQOLIWHG ¾ LQ VLPSO\ FRPSLOLQJ WKHLU UHYLHZ VFKHGXOHV MXULVGLFWLRQV IRXQG QXPHURXV SLHFHV RI OHJLVODWLRQWKDWDUHFRPSOHWHO\UHGXQGDQW7KHVHDUHEHLQJDEROLVKHGDQG ¾ DWWKHVDPHWLPHVRPHUHYLHZVUHFRPPHQGHGUHWDLQLQJDQWLFRPSHWLWLYHSURYLVLRQV IRU JHQXLQH SXEOLF LQWHUHVW UHDVRQV ²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¶ DFFHSWDQFHRIWKHQHHGWRWDFNOHERWKVLPSOHDQGFRQWHQWLRXVUHIRUPLVVXHV 1HYHUWKHOHVV WKHUH KDYH EHHQ VRPH GHILFLHQFLHV LQ UHYLHZ SURFHVVHV WR GDWH  7KH &RXQFLO LGHQWLILHG VHYHUDO RPLVVLRQV IURP WKH UHYLHZ VFKHGXOHV LQ LWV ILUVW WUDQFKH DVVHVVPHQW)RUH[DPSOHWKH:HVWHUQ$XVWUDOLDQ*RYHUQPHQWGLG QRW OLVW IRU UHYLHZ LWVµDJUHHPHQW$FWV¶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¶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µUXEEHUVWDPS¶RUJDQLVDWLRQDQGDV,KDYHQRWHG ZH KDYH UDLVHG PDWWHUV RI FRQFHUQ UHJDUGLQJ OHJLVODWLRQ UHYLHZV ZLWK WKH UHOHYDQW MXULVGLFWLRQV:HZLOOEHWDNLQJWKHLUUHVSRQVHVLQWRDFFRXQWZKHQXQGHUWDNLQJIXWXUH DVVHVVPHQWVRIMXULVGLFWLRQV¶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¶V UHVRXUFHV DUH XVHG LQ WKH DUHDV WKDW WKH\ DUH PRVW YDOXHG DQG DUH QRW DUWLILFLDOO\DWWUDFWHGWRSDUWLFXODUDUHDVRUEXVLQHVVHVEHFDXVHWKHVHEXVLQHVVHVRSHUDWH XQGHUIDYRXUHGFRQGLWLRQV *RYHUQPHQWV DUH DSSURDFKLQJ FRPSHWLWLYH QHXWUDOLW\ LPSOHPHQWDWLRQ WKURXJK FRUSRUDWLVDWLRQ RI WKHLU ODUJHU EXVLQHVV HQWHUSULVHV DQG µFRPPHUFLDOLVDWLRQ¶ RI RWKHU VLJQLILFDQW EXVLQHVV DFWLYLWLHV  $Q HVVHQWLDO IDFWRU LV SULFH VHWWLQJ VXFK WKDW SULFHV RI WKH JRRGV DQG VHUYLFHV SURYLGHG E\ WKH JRYHUQPHQW EXVLQHVVHV UHIOHFW IXOO FRVWV RI  RI  SURGXFWLRQ2IUHOHYDQFHWRWRGD\¶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µRZQHUVKLS QHXWUDO¶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µIURQWHQG¶ EHQHILWV WR EXVLQHVV  6RPH RWKHU EHQHILWV RI 1&3 ZLOO EHFRPH PRUH HYLGHQWLQWKHPHGLXPWRORQJWHUP 7KH RSSRUWXQLWLHV IURP FRPSHWLWLYH QHXWUDOLW\ VKRXOG EH UHDGLO\ DSSDUHQW  )RU H[DPSOH WKH W\SHV RI VHUYLFHV \RX SURYLGH VXFK DV DFFRXQWLQJ DXGLWLQJ DQG RWKHU ILQDQFLDO VHUYLFHV ZLOO QRW EH ORFNHG LQWR LQWHUQDO DQG FXUUHQW H[WHUQDO JRYHUQPHQW SURYLGHUVZKHUHFRPSHWLWLYHQHXWUDOLW\LVEHLQJH[HUFLVHG 7KH &RPPRQZHDOWK *RYHUQPHQW¶V UHFHQW GHFLVLRQV WR RSHQ WKH SXEOLF VHFWRU VXSHUDQQXDWLRQ DQG ZRUNHUVFRPSHQVDWLRQ FODLPV PDUNHWV WR FRPSHWLWLRQ DUH RWKHU H[DPSOHV:RUWKELOOLRQVRIGROODUVWKHVHPDUNHWVZLOOEHRSHQWRWKHSULYDWHVHFWRUE\ WKH \HDU   /HJDO VHUYLFHV SURSHUW\ PDQDJHPHQW FDU SDUNLQJ DQG OHDVLQJ FOHDQLQJ HQJLQHHULQJ VHUYLFHV DQG SULQWLQJ DUH RWKHU DUHDV ZKHUH QHZ RSSRUWXQLWLHV IRUEXVLQHVVHVZLOODULVHDVDUHVXOWRIFRPSHWLWLYHQHXWUDOLW\DQG1&3 7KH VFRSH IRU QHZ FRPSHWLWLRQ LQ WKHVH PDUNHWV VKRXOG GULYH GRZQ FRVWV IRU JRYHUQPHQW HQWHUSULVHV ZKLOH PDNLQJ LW HDVLHU IRU SULYDWH RSHUDWRUV WR ZLQ FRQWUDFWV DJDLQVW JRYHUQPHQWRZQHG FRPSHWLWRUV LQ FRPSHWLWLYH WHQGHUV  7KLV FRPSHWLWLYH DFWLYLW\ ZLOO EULQJ DGYDQWDJHV WR EXVLQHVVHV DQG FRQVXPHUV ZKLFK XVH WKH VHUYLFHV RI JRYHUQPHQW HQWHUSULVHV DQG WR WKH SULYDWH RSHUDWRUV WKDW VHUYLFH WKHP  7KXV WKH EHQHILWVRIFRPSHWLWLYHQHXWUDOLW\ZLOOEHRQJRLQJ ,QRZWXUQWRWKHUHJXODWLRQRISURIHVVLRQDOVHUYLFHVZKLFKLVDVLJQLILFDQWHOHPHQWRI WKHOHJLVODWLRQUHYLHZSURFHVV  RI  2&&83$7,21$/$1'352)(66,21$/5(*8/$7,21 *RYHUQPHQWV¶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µ3UDFWLFLQJ &HUWLILFDWH¶ WKURXJK WKH 6RFLHW\ RI &HUWLILHG 3UDFWLVLQJ $FFRXQWDQWV¶ GLVWDQFH OHDUQLQJ SURJUDP 7KLVHQVXUHVWKDWFRQVXPHUVFDQH[SHFWWKDWDSHUVRQXVLQJWKHWLWOHKDVDWWDLQHGWKH SUHVFULEHGTXDOLILFDWLRQV7KHDSSURDFKWDNHQE\WKHDFFRXQWLQJSURIHVVLRQSURYLGHVD XVHIXOPRGHOIRURWKHUSURIHVVLRQV2WKHUDOWHUQDWLYHVIRUFRQVLGHUDWLRQLQFOXGH ¾ UHOLDQFHRQJHQHUDOFRPSHWLWLRQODZ ¾ HQKDQFLQJ WKH LQIRUPDWLRQ DYDLODEOH WR FRQVXPHUV DERXW SURIHVVLRQDO VHUYLFHV DQG VHUYLFHSURYLGHUV ¾ FHUWLILFDWLRQ VFKHPHV ZKLFK UHTXLUH SUDFWLWLRQHUV WR LQIRUP D FHQWUDO DXWKRULW\ RI FHUWDLQ GHWDLOV LQFOXGLQJ HGXFDWLRQDO TXDOLILFDWLRQV DQG LQGXVWU\ H[SHULHQFH ZLWKRXW VSHFLI\LQJDPLQLPXPVWDQGDUGDQG ¾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¾ UHVWULFWLRQV RQ HQWU\ ZKLFK UHGXFH WKH QXPEHU RI SRWHQWLDO SURYLGHUV DQG ZHDNHQ FRPSHWLWLRQ ¾ UHVWULFWLRQVRQVHUYLFHVSURYLGHGVXFKDVUHVWULFWLRQVRQDGYHUWLVLQJDQGSDUWQHUVKLS FRQWUROVZKLFKRSHUDWHDJDLQVWWKHLQWHUHVWVRIHIILFLHQWSURYLGHUV  RI  ¾ UHTXLUHPHQWV IRU PLQLPXP OHYHOV RI H[SHUWLVH ZKLFK UHVWULFW WKH VXSSO\ RI VHUYLFHV DQG UDLVH WKHLU SULFH  IRU H[DPSOH LQ 4XHHQVODQG XQOLNH LQ RWKHU 6WDWHV DQG 7HUULWRULHVUHJXODWLRQVUHTXLUHWKDWFRQYH\DQFLQJEHSURYLGHGRQO\E\ODZ\HUVDQG ¾ DGPLQLVWUDWLYHFRVWVWRJRYHUQPHQWLQYROYHGLQHVWDEOLVKLQJDQGRSHUDWLQJOLFHQVLQJ VFKHPHVRUWRFRQVXPHUVLIOLFHQVLQJIHHVDUHSDVVHGRQDVKLJKHUSULFHV /LFHQVLQJ FRQWUROV VKRXOG EH UHVWULFWHG WR GHDOLQJ ZLWK LQIRUPDWLRQ IDLOXUH  7KDW LV ZKHUH FRQVXPHUV KDYH D IXQGDPHQWDO LQDELOLW\ WR REWDLQ LQIRUPDWLRQ VXIILFLHQW WR HQDEOH WKHP WR PDNH DQ LQIRUPHG GHFLVLRQ DERXW ZKHWKHU D SURIHVVLRQDO LV DEOH WR SURYLGH WKH UHOHYDQW VHUYLFH  $Q REMHFWLYH DVVHVVPHQW RI WKH H[WHQW RI WUXH LQIRUPDWLRQ IDLOXUH LV DQ HVVHQWLDO SUHFRQGLWLRQ WR LPSRVLQJ DQ\ UHVWULFWLRQ RQ WKH SURYLVLRQRISDUWLFXODUVHUYLFHV$VQRWHGHDUOLHUUHPRYDORIXQMXVWLILHGUHVWULFWLRQVRQ DGYHUWLVLQJZLOOGLPLQLVKWKHSURVSHFWRILQIRUPDWLRQIDLOXUH 5HJDUGLQJ SULFH HIIHFWV OLFHQVLQJ VFKHPHV ZKLFK UHVWULFW WKH QXPEHU RI SUDFWLWLRQHUV XVXDOO\UHVXOWLQWKHVHUYLFHSULFHEHLQJVHWDWDKLJKHUOHYHOWKDQLWZRXOGLQDPDUNHW ZKHUH WKHUH LV UHODWLYH IUHHGRP RI HQWU\  6LPLODUO\ OLFHQVLQJ VFKHPHV ZKLFK LPSRVH XQMXVWLILDEO\ KLJK HQWU\ VWDQGDUGV SRWHQWLDOO\ UDLVH WKH FRVW RI HQWU\  DQG XOWLPDWHO\ FRVWVWRJRYHUQPHQWVHUYLFHSURYLGHUVRUFRQVXPHUVDERYHZKDWLWVKRXOGEH $ NH\ TXHVWLRQ IRU JRYHUQPHQWV UHYLHZLQJ OLFHQVLQJ DUUDQJHPHQWV LV ZKHWKHU RU QRW HQWU\VWDQGDUGVDUHVHWDWWKHULJKWOHYHO,IHQWU\VWDQGDUGVDUHVHWDWDOHYHOKLJKHU WKDQ QHFHVVDU\ WR SURYLGH WKH OHYHO RI TXDOLW\ QHHGHG E\ FRQVXPHUV WKHQ ZH KDYH µJROGSODWLQJ¶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¶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¾ SHUVRQVZLWKIRUPDOTXDOLILFDWLRQVUHVWULFWHGLQWKHQXPEHURIRXWOHWVWKH\FDQRZQ ¾ SHUVRQV ZKR GR QRW KROG IRUPDO TXDOLILFDWLRQV SUHYHQWHG IURP RZQLQJ EXVLQHVVHV DQG ¾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¾ UHVWULFWLRQV RQ WKH DGYHUWLVLQJ RI OHJDO VHUYLFHV KDYH EHHQ OLIWHG LQ PRVW MXULVGLFWLRQVDQGFRQYH\DQFLQJLVQRZ PRVWO\ RSHQWRQRQODZ\HUV ¾ PXWXDOUHFRJQLWLRQRIHQWU\VWDQGDUGVKDVDOVRUHGXFHGVRPHSUHYLRXV6WDWHEDVHG EDUULHUVWRFRPSHWLWLRQZLWKLQSURIHVVLRQV ¾ WKHLPSOHPHQWDWLRQRIWKH&RQGXFW&RGH$JUHHPHQWKDVH[WHQGHGWKHUHDFKRI3DUW ,9 RI WKH 7UDGH 3UDFWLFHV $FW WR SURIHVVLRQDO SDUWQHUVKLSV DQG LQGLYLGXDO SUDFWLWLRQHUVDQG ¾ VRPH SURIHVVLRQDO DVVRFLDWLRQV VXFK DV WKH ,QVWLWXWLRQ RI (QJLQHHUV $XVWUDOLD DQG WKH5R\DO$XVWUDOLDQ,QVWLWXWHRI$UFKLWHFWVKDYHUHYDPSHGRUDUHUHYDPSLQJWKHLU DFFUHGLWDWLRQVFKHPHV %XWDV,KDYHRXWOLQHGWKHUHUHPDLQVDVLJQLILFDQWERG\RIDQWLFRPSHWLWLYHOHJLVODWLRQ UHODWLQJWRVSHFLILFSURIHVVLRQV1RQHWKHOHVVLWLVDFNQRZOHGJHGE\WKH&RXQFLOWKDWIRU VRPH VHUYLFHV WKH QRUPDO FRPPHUFLDO GLVFLSOLQH SURYLGHG E\ PDQ\ FRQVXPHUV  RI  µVKRSSLQJ DURXQG¶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µPD[LPXPYLVLEOHUHJXODWLRQ¶DSSURDFK RIWKHSDVWWRZDUGVµPLQLPXPHIIHFWLYHUHJXODWLRQ¶1HYHUWKHOHVVWKHUHDUHULVNVLQWKH SURFHVV  ,Q WKH &RXQFLO¶V YLHZ WKLV VLPSO\ DGGV VXSSRUW WR WKH FDVH IRU  QDWLRQDO UHYLHZVDQGDQDWLRQDODSSURDFKWRUHJXODWLRQRISURIHVVLRQV 0RYLQJ RQ IURP WKH UHJXODWLRQ RI SURIHVVLRQDO VHUYLFHV , ZLOO QRZ GLVFXVV VRPH RWKHU NH\1&3UHIRUPV 620(27+(55()250$5($6 2WKHUHOHPHQWVRIJRYHUQPHQWV¶UHJXODWRU\UHYLHZSURJUDPVDUHOLNHO\WREHRILQWHUHVW WR WRGD\¶V DXGLHQFH  2QH PDMRU DUHD IRU H[DPSOH LV WKH UHYLHZ RI WKH UHJXODWRU\  RI  IUDPHZRUN RI WKH ILQDQFLDO VHFWRU  WKH :DOOLV ,QTXLU\  ZKLFK UHSRUWHG ODWH ODVW \HDU $QRWKHULVWKHUHYLHZRISRVWDOVHUYLFHVFRPSOHWHGE\WKH&RXQFLOHDUOLHUWKLV\HDU :DOOLV ZDV RQH RI WKH ILUVW RI WKH PDMRU 1&3 UHYLHZV  %URDGO\ VSHDNLQJ WKH LQTXLU\ UHFRPPHQGHGKDUPRQLVDWLRQRIWKHUHJXODWRU\DUUDQJHPHQWVFRYHULQJDOOFRPSRQHQWV RI WKH ILQDQFH LQGXVWU\ LQFOXGLQJ EDQNV DQG RWKHU ILQDQFLDO LQVWLWXWLRQV LQVXUDQFH LQWHUPHGLDULHV DQG VHFXULW\ DGYLVHUV  :DOOLV VRXJKW DQ HQYLURQPHQW ZKLFK ZRXOG DFFRPPRGDWH QHZ PDUNHW GHYHORSPHQWV LQFOXGLQJ WKH WUHQG WRZDUGV ILQDQFLDO FRQJORPHUDWLRQ  ZKHUH JURXSV RI FRPSDQLHV SURYLGH D UDQJH RI ILQDQFLDO VHUYLFHV VXFKDVEDQNLQJDQGLQVXUDQFH XQGHURQHFRUSRUDWHEDQQHU5HFHQWPHJDPHUJHUV RI86EDQNVLOOXVWUDWHWKHQHZILQDQFLDOPDUNHWHQYLURQPHQWDQWLFLSDWHGE\:DOOLV 7KH NH\ HOHPHQWV RI WKH UHIRUPV SURSRVHG DV D UHVXOW RI WKLV LQTXLU\ DUH D QHZ RUJDQLVDWLRQDO IUDPHZRUN IRU WKH UHJXODWLRQ RI WKH ILQDQFLDO V\VWHP DQG D QXPEHU RI PHDVXUHV WR LPSURYH HIILFLHQF\ DQG FRQWHVWDELOLW\ LQ ILQDQFLDO PDUNHWV DQG WKH SD\PHQWVV\VWHP &RQVLVWHQW ZLWK 1&3 WKH :DOOLV ,QTXLU\ FRQFOXGHG WKDW SUXGHQWLDO UHJXODWLRQ VKRXOG PDLQWDLQ VDIHW\ ZKLOH EHLQJ VXIILFLHQWO\ IOH[LEOH WR UHVSRQG WR ILQDQFLDO V\VWHP GHYHORSPHQWV)XUWKHUSUXGHQWLDODUUDQJHPHQWVVKRXOGDOVRPLQLPLVHDGYHUVHHIIHFWV RQFRPSHWLWLRQFRPSHWLWLYHQHXWUDOLW\DQGHIILFLHQF\7KH&RPPRQZHDOWK*RYHUQPHQW KDV DFFHSWHG WKLV DSSURDFK DQG KDV VWDWHG LW ZLOO SXW LQ SODFH DUUDQJHPHQWV WR HQFRXUDJH QHZ HQWU\ DQG HIIHFWLYH FRPSHWLWLRQ LQ ILQDQFLDO VHUYLFHV PDUNHWV ZKLOH HQVXULQJWKDWVWDQGDUGVRIILQDQFLDOVDIHW\DUHQRWGLPLQLVKHG 2Q$XVWUDOLD3RVWDIWHUDFRPSUHKHQVLYHUHYLHZWKH&RXQFLOKDVUHFRPPHQGHGVRPH VLJQLILFDQWFKDQJHVLQFOXGLQJDOORZLQJFRPSHWLWLRQIRUWKHGHOLYHU\RIDOOEXVLQHVVDQG LQWHUQDWLRQDO PDLO  /LNH :DOOLV WKLV ZDV DQRWKHU PDMRU 1&3 UHYLHZ ZKLFK FRQVLGHUHG KRZWRLPSURYHDNH\VHFWRURIWKH$XVWUDOLDQHFRQRP\/LNHILQDQFLDOVHUYLFHVSRVWDO VHUYLFHVDUHXVHGE\DOPRVWHYHU\EXVLQHVVLQ$XVWUDOLD7KHUHIRUHWKHFRVWRISRVWDO VHUYLFHVLVQRWRQO\LPSRUWDQWIURPWKHSHUVSHFWLYHRIWKHSRVWDOLQGXVWU\EXWDOVRLWV LPSDFWRQDOOLQGXVWULHVLQ$XVWUDOLD/RZHUSULFHVIRUWKLVHVVHQWLDOVHUYLFHZRXOGIORZ WKURXJKLQWRORZHUFRVWVDFURVVWKHZKROHHFRQRP\ ,QVXPPDU\WKH&RXQFLO¶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¶VDYHU\EULHIVQDSVKRWRIRXUSDFNDJH7KHLPSRUWDQWLVVXHLVKRZHYHUZKDWGR ZHH[SHFWLWWRGR" 7KH UHIRUP SDFNDJH ZLOO DIIHFW EXVLQHVVHV ZKLFK DUH XVHUV RI SRVWDO VHUYLFHV DQG EXVLQHVVHVZKLFKDUHVXSSOLHUVRISRVWDOVHUYLFHV,WZLOOSXWSUHVVXUHRQDOOSURYLGHUV WR PHHW FXVWRPHU QHHGV  7KH &RXQFLO¶V UHFRPPHQGDWLRQ WR LQFUHDVH FRPSHWLWLRQ IRU EXVLQHVV PDLO ZLOO DOORZ FXVWRPHUV JUHDWHU FKRLFH RI ERWK SURGXFW DQG VXSSOLHU LQFUHDVHGIOH[LELOLW\ORZHUSULFHVDQGWKHDELOLW\WRQHJRWLDWHWHUPVDQGFRQGLWLRQVDQG HYHQ VSHFLDO SURGXFWV DQG VHUYLFHV  5HIRUP ZLOO DOORZ FRPSHWLWRUV WR RIIHU D ZLGHU UDQJH RI VHUYLFHV WKDQ DW SUHVHQW  :KLOH VRPH RI WKHVH VHUYLFHV DQG SURGXFWV PD\ EHDUDUHVHPEODQFHWR$XVWUDOLD3RVWSURGXFWVWKHUHZLOOEHVFRSHIRUQLFKHSURGXFWV SDUWLFXODUO\DWWKHORFDOOHYHODQGSURGXFWVWDLORUHGWRFXVWRPHUV¶QHHGV 6PDOO EXVLQHVV ZLOO KDYH D FKRLFH RI XVLQJ WKH  FHQW OHWWHU VHUYLFH DQ DOWHUQDWLYH SRVWDOSURYLGHURUDGLVFRXQWHGVHUYLFHWKURXJK$XVWUDOLD3RVW$WSUHVHQWDQXPEHU RISRVWDOVHUYLFHVXVHUVLQFOXGLQJVPDOOEXVLQHVVHVGRQRWJHQHUDWHVXIILFLHQWPDLOWR WDNHDGYDQWDJHRI$XVWUDOLD3RVW¶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¶V GHFLVLRQ RQ WKH &RXQFLO¶V SURSRVDOV LV QRW NQRZQ VWDWHPHQWV E\ WKH 7UHDVXUHUDQG0LQLVWHUIRU&RPPXQLFDWLRQVDERXWRXUSURSRVDOVKDYHEHHQSRVLWLYH &21&/86,216 :KLOHDQH[WHQVLYHWDVNOLHVDKHDGERWKIRUJRYHUQPHQWVDQGWKH&RXQFLOWKHJDLQVIURP 1&3DUHQRZEHJLQQLQJWRHPHUJH )RUH[DPSOHPLFURHFRQRPLFUHIRUPLVGHOLYHULQJEHQHILWVLQWKHIRUPRIJRRGHFRQRPLF JURZWKVXVWDLQHGORZLQIODWLRQDQGQRPLQDOLQWHUHVWUDWHV ZKLFKDSSHDUHGRXWRIUHDFK D GHFDGH DJR  LPSURYHG H[SRUW SHUIRUPDQFH VLJQLILFDQW MREV JURZWK DQG KLVWRULFDOO\ KLJKSURGXFWLYLW\JURZWK7KHVHDUHWKHHFRQRPLFIXQGDPHQWDOVZKLFKZLOOXQGHUSLQRXU IXWXUHSURVSHULW\ :H DUH QRZ DOVR EHJLQQLQJ WR ZLWQHVV WKH EHQHILWV IURP UHIRUP DW WKH PLFUR OHYHO 7KHVH DUH WKH EHQHILWV WKDW ZLOO IORZ WKURXJK PRUH GLUHFWO\ WR EXVLQHVVHV DQG FRQVXPHUV)RUH[DPSOHLQWKHSURYLVLRQRIHQHUJ\VHUYLFHV ¾ HOHFWULFLW\ SULFHV IHOO E\ DURXQG  SHUFHQW LQ WKH ILUVW \HDU RI WKH LQWHULP FRPSHWLWLYHPDUNHWLQ9LFWRULDDQG16:DQGVLJQLILFDQWVSRWGLVFRXQWLQJKDVVLQFH EHHQ SUHYDOHQW  )XUWKHU EHQHILWV DUH OLNHO\ DV WKH FRPSHWLWLYH PDUNHW LV H[WHQGHG WRPRUHHOHFWULFLW\FRQVXPHUVDQGRWKHUMXULVGLFWLRQVDQG ¾ XQGHU WKH UHFHQWO\ DSSURYHG $*/ XQGHUWDNLQJ JDV DFFHVV WDULIIV LQ 16: ZLOO IDOO WR DERXWSHUFHQWEHORZWKHLUOHYHOVE\WKH\HDU  RI  ,QWKHSURYLVLRQRIWUDQVSRUWVHUYLFHV ¾ DYHUDJH DLUIDUHV DUH  SHUFHQW EHORZ WKHLU SUHGHUHJXODWLRQ OHYHOV DQG WRWDO GRPHVWLFDLUWUDYHOKDVLQFUHDVHGE\PRUHWKDQSHUFHQW DQG ¾ UDLO IUHLJKW UDWHV EHWZHHQ 0HOERXUQH DQG 3HUWK IHOO E\  SHUFHQW IROORZLQJ WKH LQWURGXFWLRQRIFRPSHWLWLRQRQWKDWURXWHLQ 7KHUHDUHDOVRVLJQVWKDWWHOHFRPPXQLFDWLRQVSULFHVKDYHIDOOHQVLQFHWKDWPDUNHWZDV FRPSOHWHO\RSHQHGWRFRPSHWLWLRQODVW\HDU )XUWKHUDQGDVGLVFXVVHGSUHYLRXVO\LPSOHPHQWDWLRQRIFRPSHWLWLYHQHXWUDOLW\SULQFLSOHV DGGUHVVLQJ DQWLFRPSHWLWLYH SUDFWLFHV DQG WKH IUHHLQJ XS RI PRQRSRO\ PDUNHWV ZLOO SURYLGH QHZ RSSRUWXQLWLHV IRU EXVLQHVVHV  7KH RXWFRPH RI WKLV LV OLNHO\ WR EH PRUH FRPSHWLWLYH DQG G\QDPLF PDUNHWV FDSDEOH RI GHOLYHULQJ EHQHILWV IRU EXVLQHVVHV FRQVXPHUVJRYHUQPHQWVDQGWD[SD\HUVDOLNH7KDWLVLQHDFKPDUNHWVXEMHFWWRJUHDWHU FRPSHWLWLRQWKHPRVWHIILFLHQWDQGFRPSHWLWLYHILUPVVKRXOGEHDEOHWR RXWFRPSHWH WKH OHVV HIILFLHQW  $PRQJ RWKHU WKLQJV WKLV VKRXOG VHH LPSURYHG SURGXFWLYLW\ DQG ORZHU SULFHVLQWKRVHPDUNHWV%XVLQHVVHVLQGRZQVWUHDP PDUNHWV VKRXOG DOVR EHFRPH PRUH FRPSHWLWLYHDVWKH\GHULYHWKHEHQHILWVRIORZHUSULFHVDQGEHWWHUVHUYLFHV)XUWKHUZLWK ORZHUSULFHVFRQVXPHUVDQGJRYHUQPHQWVZLOODOVR KDYH PRUH PRQH\ WR VDYH WKHUHE\ ERRVWLQJ QDWLRQDO VDYLQJV  2U WKH\ ZLOO EH DEOH WR VSHQG PRUH RQ RWKHU JRRGV DQG VHUYLFHVWKHUHE\ERRVWLQJGHPDQG0RUHRYHUDVRYHUDOOSURGXFWLYLW\OLIWVVRVKRXOGWKH OHYHORIHFRQRPLFJURZWKWKDWRXUHFRQRP\FDQVXVWDLQLQWKHORQJHUWHUP ,QWKRVHPDUNHWVGLUHFWO\DIIHFWHGE\UHIRUPLWLVDFNQRZOHGJHGWKDWWKHUHZLOOEHERWK ZLQQHUV DQG ORVHUV  7KDW LV ZKLOH WKH FRPSHWLWLRQ SROLF\ LV GHVLJQHG WR HQKDQFH WKH SHUIRUPDQFH RI WKH $XVWUDOLDQ HFRQRP\ RYHUDOO LW LV QRW GHVLJQHG WR LPSURYH WKH SURILWDELOLW\ RU YLDELOLW\ RI VSHFLILF EXVLQHVVHV RU LQGXVWULHV WKHPVHOYHV  5DWKHU LW LV LQWHQGHG WR IRVWHU FRQGLWLRQV LQ ZKLFK WKH EXVLQHVVHV DQG LQGXVWULHV WKDW PRVW EHQHILW WKHFRPPXQLW\SUHYDLO 7DNHXQHPSOR\PHQWZKLFKLVDPDMRUHFRQRPLFSROLF\FRQFHUQLQRXUFRPPXQLW\WRGD\ ,W LV UHDGLO\ DSSDUHQW WKDW ZH ZLOO QRW EHQHILW LQ WKLV DUHD E\ MHWWLVRQLQJ WKH PHDVXUHV ZKLFKKDYHGHOLYHUHGJRRGHFRQRPLFRXWFRPHVWRGDWH7KHEHVWZD\IRUZDUGLVWRWDNH RQ WKH FDXVHV RI XQHPSOR\PHQW GLUHFWO\ WKURXJK HGXFDWLRQ DQG WUDLQLQJ DPHOLRUDWH LWV LPSOLFDWLRQV WKURXJK DSSURSULDWH VRFLDO SROLF\ ZKLOH DGGUHVVLQJ WKH HFRQRPLF IXQGDPHQWDOV WKDW ZLOO GHOLYHU VXVWDLQDEOH HPSOR\PHQW JURZWK LQWR WKH IXWXUH  ,Q D FRPSHWLWLYHPDUNHWWKHPRUHSURGXFWLYHMREVZLOOH[SDQGZKLOHWKHOHVVSURGXFWLYHRQHV ZLOOFRQWUDFW2QWKLVPDWWHULWKDVEHHQUHDVVXULQJIRUWKH&RXQFLOWRNQRZWKDWVHFWRUV ZKHUH PLFURHFRQRPLF UHIRUP SURFHHGHG VWURQJO\ RYHU WKH ILUVW KDOI RI WKLV GHFDGH ILQDQFH FRPPXQLFDWLRQV FRQVWUXFWLRQ WUDQVSRUW DQG SURSHUW\ DQG EXVLQHVV VHUYLFHV GHOLYHUHGWKHEHVWMREJURZWKLQWKRVH\HDUV &OHDUO\ ZH DUH JHWWLQJ HDUO\ UXQV RQ WKH ERDUG IURP WKH UHIRUP SURFHVV  ,W LV WKH &RXQFLO¶VWDVNWRKHOSLPSURYHWKHUXQUDWH:LWKWKLVJRDOLQPLQGWKH&RXQFLOZLOORYHU WKHQH[WWKUHH\HDUVIDFLOLWDWH ¾ ULJRURXVSULQFLSOHVRIFRPSHWLWLYHQHXWUDOLW\EHLQJDSSOLHGZLWKWKHDLPRIHQVXULQJ WKDW VLJQLILFDQW *RYHUQPHQWRZQHG EXVLQHVVHV KDYH QR DGYDQWDJHV RU  RI  GLVDGYDQWDJHV RYHU WKHLU SULYDWH VHFWRU FRPSHWLWRUV EHFDXVH RI WKHLU *RYHUQPHQW RZQHUVKLS ¾ RQJRLQJ VFUXWLQ\ DQG UHIRUP RI OHJLVODWLRQ UHJXODWLRQV DQG FRGHV JRYHUQLQJ SURIHVVLRQDOVHUYLFHVDJDLQVWWKHSULQFLSOHVRI1&3 ¾ DGKHUHQFH WR D FRPPLWPHQW E\ JRYHUQPHQWV WR LPSOHPHQW UHIRUPV LQ NH\ DUHDV VXFKDVHQHUJ\WUDQVSRUWDQGZDWHUDQG ¾ JHQHUDODZDUHQHVVRI1&3DQGLWVEHQHILWV 7KH &RXQFLO ZLOO EH ZRUNLQJ FORVHO\ ZLWK JRYHUQPHQWV WR HQVXUH 1&3 UHIRUPV DUH LPSOHPHQWHGLQDWLPHO\PDQQHUDQGWRHQVXUHEHQHILWVDUHQRWGHOD\HG$WWKHVDPH WLPH ZH ZLOO EH FRQVXOWLQJ ZLWK QRQJRYHUQPHQW VWDNHKROGHUV RQ DOO DVSHFWV RI WKH UHIRUPSURFHVVZKHUHFODULILFDWLRQRI1&3LVUHTXLUHG,WLVWKH&RXQFLO¶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he National Competition Policy reforms The NCP reform package involves: • closing gaps in laws dealing with anti-competitive business practices: Part IV of the Trade Practices Act was amended and it was agreed to apply it to all business activities. Previously, certain types of businesses were exempt __ some State government businesses for example. vetting anti-competitive laws: the package provides for the review and, if appropriate, reform anti-competitive legislation and regulation. Examples of anti-competitive laws include those which sanction government monopolies, and those which establish occupational licensing schemes. Each Australian government has developed its own schedule and timetable for the reviews. Anti-competitive laws are to be retained only if they confer a net benefit to the community and if their objectives cannot be achieved in a less restrictive way. restructuring government monopolies: the package involves processes where competition is introduced into markets traditionally supplied by government monopolies, or where government monopolies are privatised. The package indicates that, before this is done, the “natural monopoly” elements of the government business should generally be separated from those parts which are amenable to competition. It also provides that any regulatory functions the government business may possess should be given to a separate government agency. putting public and private businesses on an equal footing: under the package’s “competitive neutrality” provisions, where government businesses compete with private businesses, governments must remove unfair advantages enjoyed by their government businesses, such as tax exemptions or exemptions from regulation. monitoring prices of government businesses: the package provides that, where government businesses retain a significant degree of market power, independent prices oversight should be considered to constrain their prices. facilitating access to “nationally significant” infrastructure services: the package provides for a national access regime so that businesses which want to use the services provided by other businesses infrastructure can do so, on reasonable terms and conditions. For example, under the regime, a business may be able to get access to a rail network and operate trains on that network, in competition with the existing train operator. • • • • • The package requires that reforms be implemented not only at Commonwealth and State/Territory level, but also at local government level. The package also incorporates pre-existing Council of Australian Government (COAG) agreements on reforms in the areas of electricity, gas, water and road transport.