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Regulation and Innovation

The changing ecosystem of the financial system brings more opportunities but also introduces new risks as well.

The three forces that are driving innovation in the payments space in Australia are new payments channels, new technologies, and new participants.

This is what Michele Bullock, Assistant Governor said at the Reserve Bank of Australia (RBA) said at the 5th Bund Summit on Fintech in Shanghai.

However, she also mentioned two core concerns around security and resilience of payment systems. “But with more data being stored and shared, data security (and cybersecurity more generally) will be important ongoing issues for the industry and for regulators,” she said.

New technologies and new participants mean risks can meet new vulnerabilities.

Other issues that have been raised by Bullock are the balance of innovation and regulation and the question of efficiency when it comes to payments.

She identified the Australian Securities and Investment Commission (ASIC) and Australian Prudential Regulatory Authority’s (APRA) limited ADI framework as some of the ‘graduated approaches’ that regulators have been taking.

“The strength of the system is only as good as its weakest link so it is essential that all participants in payment systems and the financial system more broadly manage and mitigate these risks. Regulators may have a role to play in encouraging the adoption of minimum standards.” She explained.

The rise of Fintechs internationally and Australia is one of the factors that are reshaping the financial system. “In Australia, we are in the process of implementing an open banking regime that will put consumers in control of their banking data. It is expected that consumers will be able to use these data to access better products and services,” she said.

While the implementation of this reform is proving challenging, the RBA believes in the potential of open banking and the positive impact that it can have on the Australian financial system.

Bullock said that two issues that would be interesting to financial regulators are that new payments system providers need access to the underlying payments infrastructure if they are expected to compete with the incumbent financial institutions.

She added that non-banks would need to access payment clearing systems.

“If incumbent financial institutions control access, they might seek to put up unreasonable barriers to entry. Regulators will need to be alert to potential anti-competitive conduct,” she said.

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