Calls for technological neutrality in Financial System Inquiry

The government has published the submissions it has received for the 2014 Financial System Inquiry. Over 200 industry stakeholders, including the Commonwealth Bank of Australia, ANZ, Westpac, Eftpos, and PayPal, have weighed in on the discussion.

A number of submissions call for a balanced approach to new technologies and technological neutrality in the regulation of Australia’s digital financial services.

One of the nation's biggest financial players, the CBA, warned that new technologies introduced potential risks.

In its submission, CBA proposed that a balanced approach must be taken to regulating digital delivery of financial services that will encourage innovation and competition while also ensuring the integrity, stability, and security of the financial sector.

CBA also called for technology neutrality in the decision-making process behind the regulation of the country's financial industry.

"Financial services disclosure requirements should be modernised to be technology neutral while still accommodating disclosure," it said.

According to CBA, regulations and industry codes on disclosure have failed to keep pace across all methods of disclosure, particularly for "electronic disclosure".

Additionally, CBA expressed concerns about digital security issues, saying that Australia's national cyber security strategy had not been updated since 2009, in an environment characterised by increased cyber threats.

"Australia's national cyber security strategy should be updated with a focus on private-public sector co-operation to ensure continued cyber security resilience across the financial services industry and critical infrastructure sectors," it said. "Customers and their data must be protected."

The CBA submission comes following CIO Michael Harte's comments last week that governments should legislate technology in principle rather than in hard-defined rules.

"There's always a lag between the evolution of technology and the rules around protecting consumers. They have to be principle based, but recently they tend to go to rules based legislation," he said last week at the A5 Agility forum in Queensland.

"The regulators find it hard to keep pace, or they apply generic rules, and that just increases the cost of compliance."

Also calling for technological neutrality in the creation of Australia's regulatory policy is online electronic payment platform, PayPal, which has been growing locally in popularity since it began operating in Australia during 2005.

In its submission (PDF), PayPal emphasised that the regulatory framework should "focus on the result and determine the objective, but not prescribe any particular procedure or method to achieve the objective".

It must be left to the payment schemes how to fill the regulatory framework to achieve the regulatory target, said the company, which last week announced the Australian launch of its revamped mobile credit card reader, PayPal Here.

"PayPal therefore also argues that any regulatory framework should bind only the payment schemes, but not the individual members of the payment schemes.

"It follows that any regulatory framework must cover all payment systems and strictly maintain technological neutrality. It is essential that any regulation is principle-based, sufficiently flexible, and not prescriptive, so as to accommodate the continuous developments in business and technology innovation," the company said.

PayPal Australia is currently regulated by both ASIC and APRA. PayPal is also a subscriber to the ePayments Code.

Meanwhile, local electronic transaction industry stalwart, Eftpos Payments Australia — which operates the Eftpos PIN debit system in Australia — called on the government to level the regulatory playing field, claiming that not all payment systems are regulated.

"Eftpos encourages further consideration of means to achieve greater transparency of price and choice to both merchants and consumers with regard to payment card acceptance," said the company in its submission (PDF). "Eftpos observes that only some payment schemes are regulated while others are not."

"Functional regulation is superior, in our view, to regulation based around institutions. We believe that the levelling of the regulatory playing field would be aided by the continued requirement for two-payment networks to be available on debit cards.

"The key to a healthy, secure, competitive and innovative payments industry is a level playing field. Without a competitive, viable, domestic payments system, innovations and the speed and price at which they are offered in Australia may suffer," it said.

The Murray Inquiry — as it is also known — named after the head of the inquiry, David Murray, former CEO of the Commonwealth Bank of Australia, was announced by the Prime Minister Tony Abbott late last year.

"The Government intends to reduce the regulatory burden on the financial services sector wherever the benefits to competition, efficiency, market stability or consumer protection are questionable," the government said in a statement last November.

The Inquiry will continue to consult both locally and internationally, and expects to publish an interim report in mid-2014 setting out its initial findings and seek public feedback.

A final report is due to be provided to the Treasurer by November this year.