Westpac warns against licensing IT providers

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Westpac warns against licensing IT providers

Big four bank says proposal could threaten market innovation.

Westpac has warned that a proposal to license IT providers who serve financial markets would potentially catch more suppliers than intended and hamper innovation in the sector.

Westpac on Friday put forward its second submission to a range of recommendations made as part of the Government's financial systems inquiry, otherwise known as the Murray Report, which is tasked with investigating whether the country's financial system is keeping pace with Australia's evolving needs and economic growth.

In its interim report released last month, the inquiry panel put its support behind the mandatory notification of data breaches, an update to the country's out of date national cyber security strategy, and a requirement for IT providers supplying the financial services sector to hold an Australian Financial Services License.

The licensing proposal has so far received the support of the Australian Securities and Investment Commission.

It targets third-party service providers of popular business systems used by stockbrokers and exchanges, as opposed to retail banks.

The bank highlighted its opposition to the recommendation [pdf], which it said would impact commercial offerings in the market, hamper innovation by deterring new entrants, and potentially capture a larger number of IT providers than currently regulated under the APRA prudential standard for outsourcing (CPS 231).

"In Westpac’s view, the requirements of CPS 231 are pragmatic and appropriate in applying only to APRA regulated entities for outsourcing arrangements involving material business activities," the bank argued.

"A broader application of these requirements has the potential to impact on efficiency, given the scale of providers that could be brought within the framework.

"For example, Westpac has sourcing relationships with up to 10,000 suppliers at any given time. Westpac’s experience is that our material technology providers understand the current regulatory framework, and Westpac has a policy of requiring suppliers to be contractually liable to meet the requirements of CPS 231."

Fellow big four bank ANZ said that it supported an approach that "regulates similar types of economic activity in an equivalent way for all providers".

The interim FSI report, while suggesting the proposal would help manage the risk of failure and allow for monitoring and minimum standards of the systems, admitted there would be practical implementation issues.

It has therefore approached industry for feedback ahead of the release of its final report - and recommendation on the proposal - in November.

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