Financial regulators in Australia may need to adapt their tool kit to respond to "sector-specific risks", a "peer review" of Australia by the Financial Stability Board recommends.The FSB proposes the use of "prudential tools… to manage sector-specific risks stemming from the structural changes in the economy" such as the surge in the terms of trade arising from the investment wave supporting demand for minerals.The FSB review does not spend much time explaining its rationale, but simply notes the "period of structural change in response to the strong demand for commodities from emerging Asian economies", as well as IMF projections that, by 2015, as much as half of all Australian exports will go to China and India.There is also no discussion of the limited lending by banks in Australia to the resources sector (which tends to rely on equity capital and borrowing from offshore banks)."As a result, Australia's terms of trade are at historic levels and the country is experiencing a commodity-inspired private investment surge. "However, the economy's increased exposure to potentially volatile and cyclical commodity prices warrants particular focus", says the FSB review. This could lead to the use of prudential tools.On the other hand, the review notes that "Australia is an example of a jurisdiction that takes an implicit macroprudential orientation to financial system oversight."As reported yesterday, the Reserve Bank of Australia in its own Financial Stability Review, which was released on Friday, argued against separating macroprudential policy from existing financial stability policy and making it too rules-based. The RBA said it fears the new arrangements could disrupt the existing and apparently effective co-operative arrangements between Australia's financial regulators.