A number of Australia’s biggest financial institutions have called on the Government to overhaul legislation they claim is stifling innovation and leaving them trailing international peers.
In submissions to the federal inquiry into the financial services industry, the likes of Macquarie Group, Westpac, ANZ, NAB, ING, Suncorp and QBE argued consumer protection regulation was not currently keeping pace with advancing technology, which could deliver services to customers the way they increasingly demand.
The banks want to be unshackled from onerous regulations - like only being able to contact customers with disclosure information by post or email - and restrictions on the methods by which they approach cloud computing, identification and authentication protocols.
“If the industry is prohibited from employing new technologies, efficiency gains are impeded to the detriment of the consumer and the industry,” QBE global CEO John Neal and Australian CEO Colin Fagen argued in their submission.
The insurance company cited societal changes including increasing use of portable devices, more demand for online services, and a related demand for more prompt complaint resolution and effective communication as challenges the industry is currently facing.
Neal and Fagen's submission described the industry as "decades behind the times" in some areas, and singled out laws that only allow product and policy disclosures to be sent by post - an issue also raised by the Commonwealth Bank in its own inquiry submission.
“More significantly, it also creates the impression for consumers and customers that the insurance industry is lagging badly behind in terms of the speed of society when in fact, it is impeded by restrictive and outdated regulation,” QBE's executives argued.
“Banks are responsible for innovation in their businesses. However, regulation can impede development of capabilities that would improve business processes or value to customers,” ANZ deputy CEO Graham Hodges added in the bank's submission.
An uneven playing field?
Suncorp CEO John Nesbitt similarly argued the banking industry is keen to embrace new technology and respond to changing consumer demands, but was being held back by rigid regulatory and legislative frameworks benefiting new entrants to the market - a claim also made by the Commonwealth Bank.
“Given legislative and regulatory handbrakes, the banking industry has been impeded in adopting new technology and customer fulfilment processes such as electronic forms and online documentation," Nesbitt said.
"This has opened up the market to new entrants that do not face the same regulatory requirements.”
He said the Government needed to ensure regulators were flexible and agile in their response to developing trends in technology and consumer preferences, and make sure such regulation - while appropriately managing associated risks - did not impede the ability of technology to meet changing needs.
Westpac similarly urged the Government to address an ‘uneven playing field’ through equivalent regulation for all financial industry participants.
In its submission the bank warned against a “major loss in confidence in the financial systems from any disruption to a service resulting from inappropriately regulated participants”.
Security in an evolving technological landscape
The Westpac submission argued that here were “numerous” examples of potential fixes to current legislation, including oral consent or digital consent to replace written consent, and opportunities for electronic identification and verification - an initiative ING is also keen to explore.
“Electronic verification relies on availability of and access to public databases. As customers move from simple savings accounts to more complex banking products, the identification requirements increase,” ING CEO Vaughn Richtor said in the bank's submission.
“To meet the requirement banks need access to a wider range of databases. Globally other jurisdictions have met the challenge.”
Changes to identification and authentication protocols are changing rapidly on a global scale, the financial institutions argued.
Attempted fraud against Westpac exceeds $500 million per year, the bank revealed, an industry-wide trend which the bank's analysts expect will grow towards $1 billion a year within the next five years.
“Given the vital role the financial system plays in the broader economy, cyber crime needs to be treated as a matter that affects security at a national level. In addition to the risk of customer funds and information being compromised, cyber crime has the potential to impact on the public’s confidence in the financial system.”
The Westpac submission echoed calls by its peers for the Government to update the national cyber security strategy to improve security resilience within the industry.
Innovation in such areas as cloud computing - which Macquarie Bank CFO Patrick Upfold said offered the opportunity to improve service quality and reduce costs - should be accommodated by regulation, while being balanced aginst appropriate risk management, he said.
“There is likely to be an increase in technology implemented through or supported by third party providers. On a system-wide basis, there needs to be an understanding of the impact of increased reliance on third party providers,” Upfold said.
“These mechanisms may soon become the norm, delivering greater convenience to consumers. Regulation should accommodate such innovations. At the same time, their implementation should be monitored to ensure security and reliability.”
Recognising and promoting a move towards cloud computing would occur both through active encouragement of new technology, and by removing existing behavioural barriers to technology adoption, Westpac said in its submission.
The bank suggested supervised pilots of new technologies to test functionality and resilience with a small sample of customers.
The NAB said regulatory guidelines for cloud computing, such as those currently being created by the Australian Prudential Regulation Authority, needed to encourage and not limit industry advancement of such technology, and take a principles-based approach over prescribed guidelines that would “unnecessarily restrict the use of cloud computing".