​Report calls for Australian financial innovation committee

The Australian government should establish a public-private sector committee, dubbed the "Innovation Collaboration" (IC) to help Australia's financial system infrastructure keep pace with emerging technology, according to the Financial System Inquiry's final report.

The report (PDF), which was released on November 8, recommended that the proposed committee consist of senior industry, government, regulatory, academic, and consumer representatives.

"The pace of innovation in the financial sector is rapid," the report said. "Estimates suggest AU$27 billion of current banking industry revenue is under threat of digital disruption. Accordingly, government and regulators need to be aware of innovative developments to respond in a considered, timely, and coordinated manner.

"With a mix of stakeholders, the recommended IC model merges industry and policy expertise to help identify innovation opportunities. Innovators could access a forum that offers them a better entry point to financial sector regulators and improves their potential to influence across agencies," it said.

Ronald Tucker, chairman of the Australian Digital Currency Commerce Association (ADCCA), welcomed the recommendation, suggesting that such a move would allow Australia to be at the forefront of financial technology.

"ADCCA is keen to participate in the 'Innovation Collaboration' -- a committee recommended by the report to work on policy responses to financial innovation," said Tucker in a statement. "If these recommendations are acted upon in a timely and coordinated manner, Australia has the opportunity to lead the world in financial innovation."

Tucker also welcomed the report's recommendation that the government develop a national strategy for a "federated-style model of trusted digital identities", which he said would help reduce e-fraud.

"We welcome the recommendation to develop a national identity strategy, which if implemented would cut down on e-fraud, boost consumer confidence, and reduce compliance costs," said Tucker. "The digital currency industry in Australia is growing, but being held back by outdated regulations, something that is recognised by the report.

Tucker also argued that the use of bitcoin, and its block chain algorithm, could help in the development of such a national digital identities framework, saying that "bitcoin is a stable, secure, and transparent payments system, which stands to lead the way in developing consumer safety measures, including in the area of digital identification".

Just last week, Australian tax professionals' association The Tax Institute called on the government to establish a voluntary bitcoin register using the block chain to de-anonymise ownership of the digital currency in Australia in a bid to help crack down on e-fraud.

"Enhanced digital identity processes improve efficiency and security across the digital economy," the report said. "Even in the current fragmented identity environment, one firm's shift to electronic methods for identity verification has reduced costs by more than 30 percent."

The report also recommended graduated fundraising regulation in order to facilitate crowdfunding for both debt and equity, and eventually other forms of financing.

"The inquiry recommends that government should graduate fundraising regulation to facilitate securities-based crowdfunding and consider more holistic regulatory settings to facilitate internet-based financing," the report said.

The recommendation received support from Australian peer-to-peer lender SocietyOne, which last week completed a new funding round led by News Corp Australia and Consolidated Press Holdings, reportedly worth more than AU$10 million.

"With the release of the Murray Financial System Inquiry report, SocietyOne ... welcomes the explicit acknowledgement by the Murray Inquiry of the role that technology-based innovation and particularly online lenders could play in boosting competition and consumer choice," the company said in a statement.

SocietyOne CEO and co-founder Matt Symons also expressed his support of, and interest in being involved with, the report's proposed Innovation Collaboration committee.

Murray said that not only would such a move encourage greater competition in Australia's lending landscape, it could also provide support for the local venture capital sector -- good news for startups.

"Our focus has been on boosting competition, for example, by encouraging the emergence of rival lenders and new techniques such as crowdfunding and peer-to-peer lending," said Murray at an event held in Sydney on December 8 by the Committee for Economic Development of Australia (CEDA). "Some of these recommendations will also assist the development of the venture capital market."

Additionally, the report recommended that the government -- in partnership with the financial sector -- work to identify and amend areas of regulation to be technology neutral. The report said that the government should, "embed consideration of the principle of technology neutrality into development processes for future regulation".

"Government should establish an industry working group to identify the priority areas of regulation to be amended for technology neutrality. A number of stakeholders have indicated their support for and willingness to be involved in such an initiative," the report said. "A technology-neutral approach to regulation enables regulators and government to adapt to innovative developments and manage risks."

Murray said that more technologically neutral regulation would facilitate full online service delivery more quickly.

Among the report's 44 recommendations was a call for the update of the 2009 Cyber Security Strategy (CSS) in a bid to reflect changes in the threat environment, and improve cohesion in policy implementation.

The report recommended the establishment of a formal framework for cybersecurity information sharing and response to digital threats.

"Submissions indicate the CSS is out of date and not suited to today's threat environment," the report said. "Given the rapidly changing nature of cyberspace and the threat environment, government should act to ensure Australia has an updated and cohesive CSS."

The report also made recommendations for the review of the costs and benefits of increasing access to improving the use of data, which should also take into account community concerns about appropriate privacy protections.

"Government should commission the Productivity Commission to commence, by the end of 2015, an inquiry into the costs and benefits of increasing access to, and improving the use of, data, subject to privacy considerations," the report said.

At the CEDA event in Sydney, Murray urged the government and industry to embrace the recommendations in Australia's "national interest".