Regulators have come under fire by financial service providers in their submissions to the Financial System Inquiry, with the general view being that the system is “competitive but over-regulated, and may be uncompetitive in some internationally”.
Financial services providers also believe that regulators’ tools and expertise might need to be updated to deal with cyber security, online fraud and privacy.
Some regulators themselves believe the system works well, others are asking for more powers.
The inquiry is four months and recently completed a consultation process. The inquiry chairman David Murray attended almost 100 stakeholder events as well as receiving more than 270 submissions, and recognised a number of key themes.
Technology was identified as one of them. While Australia was praised for quickly adopting and adapting new products, submissions noted that the financial system and its regulatory structure need to adapt to the opportunities and risks presented by technology.
Submissions also highlighted product disclosures are falling behind technological innovation and the need for the adoption of technology to promote service standards to remote communities and support for those unable to access technology.
Small financial providers say they disadvantaged, and are asking the inquiry to “level the playing field” on regulation, competition and cost, especially in banking. Big business say the financial system is working well – through domestic bond markets could be a more active part of the capital structure.
“Overall, the most frequent issues raised were regulation, competition, consumer outcomes, ageing and super, banking and technology,” Murray said told the Australian Business Economists
. “We have spent the last few weeks reviewing, analysing and testing the submissions. We have more to do but have a very broad and deep database of empirics and ideas.”
Three fundamental issues are:
- Moral hazard- the expectation that government will stand behind the financial system to prevent or minimise loss;
- Potential consequences of current system settings for the flow of funds in the financial sector and the economy.
- Drivers of change – regional and demographic change, but especially technology and innovation.
“Responding to these issues will require us to balance objectives of the system, and find trade-offs between efficiency, stability, reliability, fairness and accessibility,” Murray said. “It will require policy decisions about appropriate allocation of risk throughout the system.”
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