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Groundhog day: inquiries commence into open banking and competition in financial services
Competition in Australia’s financial system is again subject to review and inquiry. As part of the 2017-18 Budget, following the release of a Productivity Commission (PC) report (discussed here), the Government announced a plan to introduce an open banking regime in Australia beginning with an inquiry into implementation of such a regime. In the Budget, the Government also announced that the PC would commence an inquiry into competition in Australian financial services (previously discussed in our update here).
The Government has since commissioned an independent review regarding the implementation of the open banking regime to be led by Scott Farrell, while the PC inquiry under Commissioners Peter Harris AO, Stephen King and Julie Abramson has also commenced. In July, the open banking inquiry’s terms of reference were released and the PC released a consultation paper on the scope of its inquiry. Both are discussed below.
The open banking inquiry
The purpose of the proposed open banking regime is to provide customers greater access and control over their banking data. The intention is for transparency to be increased. Banks will be required to share product and customer data with customers and third parties, provided customers consent. Comparison services are also set to be better tailored under the regime, as they will be able to more accurately assess product costs based on consumer behaviour and recommend appropriate products.
The Treasurer has recently released the terms of reference for the review. Under the terms, the review will make recommendations to the Treasurer based on:
- the most suitable model for open banking in Australia, accounting for advantages and disadvantages of different data-sharing models;
- a regulatory framework and any necessary legislation or other instruments required to support the regime; and
- an implementation framework including a roadmap and timeframe, as well as the Government’s ongoing role in the regime’s implementation.
The recommendations will examine:
- banking data sets to be shared (including any standards) and the parties which will provide and receive them;
- technical data transfer mechanisms, including those regarding customer consent;
- key issues and risks such as customer usability and trust, data security, liability and privacy; and
- implementation costs of the regime and how they will be imposed on the industry.
The review will also have regard to best practice developments internationally and in other industries, as well as key financial system outcomes including competition, innovation, efficiency and regulatory compliance costs. The PC report on Data Availability and Use and any government response, will also be considered. Representatives from the banking, consumer advocacy and fintech sectors will be consulted as part of the review.
Competition in the Australian Financial System
The PC has released a consultation paper which outlines how the PC views the scope of its inquiry into competition in the Australian financial system. The consultation paper expands on the terms of reference provided by the Treasurer to the PC.
Scope of the inquiry
The inquiry will be broad, taking a ‘holistic view’ of financial services extending to products and services provided to households, small businesses and large corporations, as well as financial system infrastructure (such as the payments system and online banking). The inquiry will consider competition in funds management, financial planning, investment banking (including equity and debt issuers, corporate advice, market making and risk management), business banking, personal banking and insurance. The PC will only consider superannuation and insurance products insofar as they affect competition with banks and other financial services providers (including where sold as part of a vertically or horizontally integrated business) due to other ongoing reviews in these areas.
Key issues in the inquiry
The consultation paper does not set out particular topics the inquiry will address but outlines a range of themes which the inquiry will consider. Amongst the themes in the consultation paper are:
- whether barriers to innovation in financial services exist, and whether innovation’s benefits are directed towards consumers;
- the degree of competition across different personal banking products and markets, with the inquiry noting competitive pressure in personal banking compared to the difficulties faced by small businesses accessing finance due to low competition;
- whether there is a need for more responsive regulation to manage new entrants (faced with limited contestability and barriers to entry) and existing firms, in order to both mitigate risk and ensure desirable community outcomes. The inquiry will also consider inequitable regulatory arrangements for similar products, with the consultation paper noting that payday lenders and credit cards both involve lending money to individuals but within significantly different regulatory regimes;
- how products in a competitive financial system can be tailored for consumers to fit their needs whilst also maintaining accessibility and flexibility; and
- ensuring a balance is struck between competition and maintaining stability in the operation of financial markets, especially balancing the need for regulation which encourages competition with the need to maintain community trust and confidence in the financial system, protect consumers’ rights and offer pathways to address grievances.
In conducting the inquiry, the PC will examine what consumers (both individuals and businesses) expect in their interactions with providers, intermediaries and regulators. It will also aim to establish and understand the challenges required to be overcome to achieve the benefits of competition in the future.
The PC has invited submissions to be made in response to the consultation paper by 15 September 2017.