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On Wednesday, Treasury released the Australian Prudential Regulation Authority’s (APRA) Capability Review, in which it provided an assessment of the regulator’s performance and outlined recommendations for reform.
Among the criticisms levelled at APRA from industry stakeholders was its management of technological innovation in the financial sector.
Industry stakeholders told Treasury that APRA has not been prepared to facilitate the transition of unconventional business models, which do not align with its regulatory framework.
“APRA has attempted to assist new entrants establish themselves through its revised licensing arrangements,” Treasury stated.
“Yet feedback from industry experts and other regulators suggests that APRA is slow to embrace new entrants.
“They suggest that it is risk-averse, preferring technologies it knows and trusts and business models that are aligned with its supervisory powers and mandate.”
Treasury added: “This could hamper firms’ ability to innovate and adopt technologies that could enhance their competitive position.”
According to Treasury, the regulator is seen by the industry as “slow in providing guidance on new technologies” and “not sufficiently cognisant of commercial perspectives”, which it said point to the broader question of how APRA “embeds competition, competitive neutrality and efficiency in its mandate”.
“This is a difficult task and requires nuanced judgement,” Treasury observed.
“APRA could be said to have a ‘do no harm’ approach to competition: support competition when it can but not at the expense of any perceived risk to financial stability.
“This may seem a reasonable proposition given the necessity of financial stability. However, there should be greater recognition of the nature of any trade-off and the strategic importance of facilitating competition for the incumbent institutions.”
Therefore, Treasury has recommended that APRA create a competition champion in the organisation and embed a regular assessment of competition into its quality assurance process.
However, the government agency stressed that APRA’s role is “not to actively promote competition”, dismissing calls by some industry stakeholders for an approach that would help “level the playing field” in the financial sector.
Despite acknowledging the need for a greater emphasis on competition from APRA, Treasury noted that its research suggests that the regulator has adequately balanced its responsibilities.
Treasury pointed to its survey of industry stakeholders, which found that 73 per cent of respondents agree or strongly agree that APRA “effectively pursues financial safety, balanced with considerations of efficiency, competition, contestability and competitive neutrality, and promotes financial stability”.
[Related: APRA urged to increase competition outside of mortgages]
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