|In late 2019, the Australian Senate formed a Select Committee to explore ways to better support the country’s nascent Fintech and RegTech industry. |
As an initial step, the committee published a discussion paper and solicited comments from bank regulators, and industry participants as to how the government could provide more effective support.
Starling was one of the 100 organizations to provide responsive remarks. We focused on regulatory and industry dynamics that hinder adoption of new RegTech technologies.
For instance, as the prudential regulator, APRA’s engagement with the Fintech and RegTech communities has most often emphasized the potential risks that these technologies may represent, and APRA’s role in mitigating those in the course of its mandated prudential duties.
This posture comes through quite clearly in APRA’s submission to the Australian Senate. It writes, “The introduction of new technology or outsourcing or adoption of services, will change the risks the institution must manage.”
The regulator’s tendency towards caution may naturally conflict with the priorities of hard-driving Fintech and RegTech innovators, who are unlikely to find APRA willing to engage in innovative undertakings. Nevertheless, it is in the interest of such innovators to make themselves fully aware of APRA’s legitimate concerns as well as the potential benefits it may bring to the industry.
We were pleased to see APRA indicate some willingness to support Fintech and RegTech firms through greater investments in data and information exchange — a key development we’ve seen taken by other leading regulators including the UK’s Financial Conduct Authority, the Monetary Authority of Singapore, and the European Central Bank.
A string of highly public banking scandals and a year-long Royal Commission inquiry that uncovered astonishing market abuses has sparked punitive fines and unprecedented turnover among the C-suites and boards of Australia’s major banks.
It is clear that simply doing more of the same will not lead to better outcomes. Australian firms would be ill advised to double down on an industry-wide reliance on surveillance & monitoring tools that have proven inadequate, or on HR-driven staff surveys and ethics training measures that are clearly ineffectual in driving behavior change. Instead, Starling argues that the industry needs new solutions that focus on the cultural drivers of misconduct.
New developments in RegTech make this possible. However, as we point out, unless barriers to adoption are addressed, banks have little incentive to make significant investments in these emergent solutions. What is needed is a coordinated strategy between private firms, regulators, investors, and the banks to encourage Regtech innovations to take hold and flourish.
Australia has an opportunity to look beyond its current challenges and take advantage of public sentiment to introduce real, substantive reforms to the management of operational risk. We look forward to supporting the process established by the Australian Select Committe and to engaging with banks and regulators to make these reforms a reality.
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