Collaborative committee needed for IT disruptors

The effects of innovation, while disruptive, have the potential to deliver large-scale efficiency benefits, notwithstanding costs associated with adjustment for industry, the final report of the Financial System Inquiry observed.

The inquiry, quoting a KPMG report published earlier this year, estimated that A$27 billion of current banking industry revenue was "under threat of digital disruption", so a "considered, timely and co-ordinated" response was needed.

The inquiry further acknowledged that rapid changes in the fintech industry would create uncertainty for some consumers, but said this was a risk worth managing.

"At times, this may increase risks for some consumers, but it is expected to improve consumer outcomes overall," the report noted.

That is, while the pace of technology-driven market developments can make it difficult for regulators and consumers to adapt with sufficient speed, the inquiry said it "believes the innovative potential of Australia's financial system and broader economy can be galvanised by taking action to ensure policy settings facilitate future innovation that benefits consumers, businesses and government."

To deal with this problem, the inquiry recommended setting up a permanent public-private sector "collaborative committee" to "facilitate financial system innovation", while allowing "timely and coordinated policy and regulatory responses."

Apart from formalising links between government, regulators, academia and the financial services sector, the inquiry suggested attention needed to be given to creating a way for the fintech industry, through its own representative body of innovators and new entrants, "to speak with a unified voice" and have direct access to government and regulators. A model for this could be along the lines of Project Innovate, which is overseen by the UK's Financial Conduct Authority.

The inquiry further suggested that government and regulators remove "unnecessary impediments" to innovation by "graduating" regulation - that is, "providing lower-intensity regulation for new entrants that pose smaller risks to the system."

One example given was in payments, where regulation was characterised as "complex and fragmented."