The federal government's financial systems inquiry has highlighted that a whole-of-government technology strategy is needed to deal with the significant impact technology has had on the financial system, which has presented both opportunities and risks.
The Murray Inquiry was established by Treasurer Joe Hockey, and it is expected to layout a "blueprint" for the financial system over the next decade. It is the first review since the Wallis Report in 1997 that was responsible for streamlining financial services regulation, the creation of the Australian Prudential Regulation Authority (APRA), and the current form of the Australian Securities and Investments Commission (ASIC).
The interim report (PDF) highlighted the Inquiry's observation that technology, including smart automated teller machines, online and electronic banking applications, contactless near-field communication payments, and cloud, are major drivers of efficiency for the Australian financial system, which in turn is benefiting consumers.
However, the 460-page document also raised concerns that technology has heightened privacy and data security risks. It draws on Facebook and Google as examples to show how firms, including those outside of the financial sector, are seeking regulatory approval to collect, hold, and use customer data, especially payment data, for their advantage.
"Firms are collecting and storing growing volumes and types of customer data. As they seek to harness the commercial value of the data, it increasingly raises concerns about the way in which personal information is handled and used," the report said.
As a result, the Inquiry suggests a strategic body should be set up to oversee technology policy and to promote innovation in the financial system.
"Various bodies, such as the Council of Financial Regulators (CFR) and the Financial Sector Advisory Council (FSAC), already monitor developments in the financial system. However, while CFR and FSAC consider the efficiency and effectiveness of regulation, they do not have particular mandates to consider innovation," the report said.
The Inquiry also hinted that a comprehensive government strategy needs to be developed, in consultation with industry, to ensure the regulatory framework supports technological innovation, while managing risks, including requirements for electronic disclosures, consumer protection, regulatory perimeter, maintaining a flexible principles-based framework, and updating and implementing the National Cyber Security Strategy.
"Government already has various technology-related policies and strategies on issues such as e-Government and the digital economy, cloud computing, and the uptake of mobile technologies. However, it does not have a single overarching technology strategy in place," the report said.
A total of 28 observations on how the current financial system is operating were made. For each of those observations, the report sets out a range of options for change, including the option of no change.
Chairman of the inquiry, David Murray, highlighted the extent to which the financial crisis has changed the way vulnerabilities and threats to financial stability are thought about.
"Given developments and lessons learned since the Wallis Inquiry and, in particular, the events of the financial crisis, it seems to us that we are embarking on a phase when confidence will have to be sustained in light of some new realities in the world," he said.
"Sustaining confidence in our financial system has been central to the work of the Inquiry."
First round submissions have now closed and invitation for second round submissions seeking feedback on its initial observations are now open. The close date for second round submissions is 26 August 2014. A final report is expected to be tabled up in November.
Last month, the financial sector was shaken up after the final report of a Senate inquiry into the performance of the ASICto be launched to further investigate the Commonwealth Bank's wealth management arm for forgery and the attempt to cover up its wrongdoing.