Australia’s fintech landscape goes under the microscope

Bringing disclosures into the modern era

Antiquated legislation governing how financial services bodies are required to communicate product disclosures to customers is stopping issuers from offering modern approaches and meeting consumer expectations, the report found.

The sector needs more flexibility to provide such information so it is more effectively used - the panel said offering shorter documents and using plain English and graphics would improve consumer understanding.

Financial institutions are currently required to physically or electronically mail sometimes lengthy information disclosures to customers. ASIC along with industry firms AMP and Vanguard recently announced they would work to modernise the approach through a pilot of digital product disclosures.

The Murray panel endorsed the pilot but said the Government should nevertheless move now to remove regulatory impediments to innovative product disclosures, and consider the ASIC test results when they are released.

The Government also needs to adopt a technology-neutral approach to regulation across the wider financial services sector lest it discourage innovation, the panel said.

“Technology-specific regulation can impede innovation by preventing the adoption of best technology or innovative approaches. For example, regulation may entrench the use of cheques or paper-based disclosure documentation, creating inefficient outcomes," the report found.

“Regulation should only be technology specific where selecting a common standard would improve overall system efficiency. Review mechanisms are needed to ensure technology-specific regulation does not become an impediment to innovation over time.”

It recommended the Government establish a working group in partnership with industry to identify areas of regulation that needed to be amended to achieve technology neutrality.

For those limited areas of regulation that may need to remain technology-specific, the Government should implement review mechanisms to ensure such regulation does not impede future innovation, the panel said.

The big four react

Australia’s banks - and the Government - now have until March 31 next year to formally respond to the report.

While the big four said they would need more time to properly digest the 320-page document, the Commonwealth Bank has already endorsed the report a “significant milestone for the industry” and commended the process for being “wide-ranging and consultative".

“Throughout the process we have welcomed the opportunity to work with the inquiry to develop constructive ideas and tangible outcomes to address the opportunities and challenges faced by the financial system,” a spokesperson for the bank said.

“We believe that the Treasurer's decision to now continue the next phase of this consultation is the right approach for achieving the best outcomes for the financial system and all its stakeholders. We look forward to participating fully in this next phase between now and March 2015.” 

Westpac said the document marked an important step in the review of Australian financial services sector. 

“We are encouraged that the FSI and Treasurer have laid out a sensible timetable for the remaining process to be undertaken, as well as appropriate transitioning to avoid any unnecessary negative impacts on growth and returns,” deputy CEO Phil Coffey said in a statement.