In its second submission to the Financial Services Inquiry, KPMG started off with a suggestion that the cumulative impact of regulation be calculated first. The firm raised the importance of a cost benefit analysis across all regulatory agencies. This assessment would include compliance costs, deflection of management time and efficiency impacts for each sector of the financial services industry.The firm also suggested that taxation issues specifically relevant to the financial system should be dealt with by the Financial Services Inquiry, rather than palmed off to the mooted tax White Paper process. For example, KPMG recommended that the Inquiry examine the benefits of lower cross-border funding for financial institutions if interest withholding tax reform is undertaken. KPMG also reminded the inquiry of the need to "form a view in relation to the Islamic finance reforms" that were recommended by the Johnson report but have been buried since 2012.When it came to ring-fencing the riskier operations of Australia's large local banks, KPMG's submission stayed in lockstep with many other industry players' comments made in the first round of submissions to the FSI, and also several second round submissions seen by Banking Day.It began with a respectful acceptance of the underlying reasons for ring-fencing outlined by international groups, before moving to a familiar riff.  KPMG said APRA's policies on risk governance, capital adequacy, risk exposure limits and liquidity management across conglomerate groups, along with "the measurement and management of large exposures on a whole of group basis significantly reduces the need for ring fencing."KPMG's submission to the Murray Inquiry also raised concerns over the "arbitrariness of separation boundaries" and the risk that, if ring-fencing were adopted in Australia, some activities would be driven into 'shadow banking', and therefore "outside of the regulatory framework". These activities were not specified.In addition, KPMG said that it saw stress testing "as an important tool to inform the adequacy of risk management and capital settings across banks and other financial institutions." While KPMG supported Apra's approach it warned that "there is a need for consideration of the compliance burdens associated with stress testing requirements."