Strengthening the focus on competition in the financial system

Recommendation 30

Review the state of competition in the sector every three years, improve reporting of how regulators balance competition against their core objectives, identify barriers to cross-border provision of financial services and include consideration of competition in the Australian Securities and Investments Commission's mandate.


Through their annual reports, regulators should demonstrate that they have given explicit consideration to trade-offs between competition and other regulatory objectives when designing regulations. The effect of regulatory proposals on competition should be explained explicitly in consultation documents and annual reports, which would then feed into Assessment Board examination of overall regulator performance.

Government should commission periodic external reviews of the state of competition in the financial system every three years, including regulatory barriers to foreign and domestic entrants.

As an immediate first step, regulators should examine their rules and procedures to assess whether those that create inappropriate barriers to competition can be modified or removed, or whether alternative and more pro-competitive approaches can be identified.42 Each regulator should report back to Government prior to the first external review of the state of competition.

Government should update ASIC's mandate to include a specific requirement to take competition issues into account as part of its core regulatory role.43

These proposals are in addition to the recommendations in this report addressing sectoral issues in banking, payments and financial markets.


  • Increase the focus on competition in the financial sector.
  • Deliver more explicit reporting about the competition implications of regulatory decisions.
  • Highlight areas where there may be opportunities to strengthen competition.


Problem the recommendation seeks to address

The benefits of competition are central to the Inquiry's philosophy. While competition is generally adequate in the financial system at present, the high concentration and steadily increasing vertical integration in some sectors has the potential to limit the benefits of competition in the future. Licensing provisions and regulatory frameworks can impose significant barriers to the entry and growth of new players, especially those with business models that do not fit well within existing regulatory frameworks. Financial services businesses competing across national borders can find themselves subject to duplicated and sometimes conflicting obligations. In some cases, these rules reflect different local circumstances. However, they can limit competition in Australia as well as impede Australian-domiciled firms' ability to participate in global financial markets.

Australian Competition Law provides an economy-wide framework for promoting competition and addressing anti-competitive behaviour. However, the effectiveness of the framework depends on the ACCC's capacity to enforce its provisions — and the ACCC must prioritise its work across the entire economy. Also, Australian Competition Law does not provide a framework for removing regulatory barriers to competition through improved regulatory practices and rules.

At present, regulator mandates adopt an inconsistent approach to competition. The PSB has a clear competition objective. APRA is required to consider competition and contestability in its decisions, although the industry frameworks do not adopt a consistent approach to this issue. ASIC lacks an explicit competition mandate. Furthermore, there is no current requirement for regulators to explain how they balance competition considerations with other regulatory objectives in reaching decisions.44

Finally, there is currently no process for regularly assessing the state of competition in the financial system, as there is for assessing stability in the form of the Financial Stability Review. This creates the risk that broader competition issues will 'fall between the cracks' as regulators focus on their specific mandates for stability or consumer protection. For example, no regulator has direct responsibility for removing barriers to consumers switching products.


The recommendation would deliver a stronger focus on competition in the financial system. In the absence of change, there is a risk that regulators and policy makers will not place sufficient emphasis on competition when making decisions. This is a significant issue given the:

  • Extent of market concentration in some parts of the system, and its potential to limit competition in the future.
  • Disproportionate effect that regulation can have on smaller firms.
  • Potential benefits to the Australian economy of disruptive innovation from new market entrants in the financial system, and improved depth and international connectivity of financial markets from cross-border competition.

The Inquiry considered two alternative options for strengthening the focus on competition: appoint an additional APRA member to focus on competition, or give the ACCC exclusive responsibility for competition matters (that is, remove it from the mandates of APRA and ASIC). In relation to the first option, the Inquiry concluded that strengthening consideration of competition issues as part of ordinary regulatory processes was likely to have more effect than appointing a separate competition member.

In relation to the second, the Inquiry considered it would be counterproductive to remove competition and efficiency considerations from the mandates of APRA and ASIC because this would reduce pressure on them to consider these issues. The ACCC also lacks the power to intervene in regulation making by APRA or ASIC. Its focus is on enforcing the prohibitions against anti-competitive conduct by businesses in Australian Competition Law.

42 Some of this is underway. Australian Prudential Regulation Authority (APRA) stated in its second round submission that it is considering whether a more graduated approach to authorisation may be warranted for established foreign institutions. APRA 2014, Second round submission to the Financial System Inquiry, page 87.

43 The Australian Securities and Investments Commission Act 2001 (ASIC Act) requires ASIC to promote commercial certainty and economic development and efficiency while reducing business costs. However, there is no explicit reference to competition in the ASIC Act (or the objects clause for Chapter 7 of the Corporations Act 2001).

44 The Interim Report noted this is currently done on an ad hoc basis: Commonwealth of Australia 2014, Financial System Inquiry Interim Report, Canberra, page 3-122.