Opening statement at the PC public hearing into Competition in the Australian Financial System

28 February 2018

The ACCC welcomes the Productivity Commission’s (Commission) draft report into Competition in the Australian Financial System and the opportunity to appear at this hearing.

Among the Commission’s recommendations was the need for an existing regulator to be given the role of championing competition in the financial sector. The Commission anticipates that regulator would have a number of functions including, but not limited to, conducting transparent analyses of the impact on competition in the financial sector of prudential regulation and other regulatory measures.

The Commission has made a number of other findings and recommendations in its draft report and we will respond to many of them in our written submission.

We would like to focus our opening remarks on three issues:

  1. Competition advocacy and the ACCC’s role in financial services.
  2. The ACCC’s Financial Services Unit.
  3. Embedding greater transparency in decision-making and a commitment to competition.

1. Competition advocacy and the ACCC’s role in financial services

Competition advocacy reminds policy and law makers that competition drives innovation, choice and better outcomes for consumers.  We agree with the Commission that there is a particular need for greater competition advocacy in the financial system.

In the 2017/18 Budget the Treasurer announced that:

A permanent team will be established within the ACCC to investigate competition in our banking and financial system.

With our strengthened mandate from Government we believe the ACCC is well placed to bring its singular focus on competition to important regulatory decisions in the financial sector. Our approach seeks to be driven by market dynamics and be unfettered by the limitations of regulatory regimes.

We believe there is considerable scope for us to work more closely with APRA, ASIC and the RBA in considering and providing advice on the impact of key measures they take or in helping to inform their decision making in relation to competition issues.

Such an approach would ensure that nothing ‘falls through the cracks’.

Currently, regulatory and macro-prudential measures apply only to those entities subject to such measures, for example, ADIs or financial licence holders. Focusing on competition means that all competitors within a market including those who are outside the remit of specific regulators and potential competitors can be considered.

The ACCC will seek to play an important role in achieving an appropriate balance between the objectives of system stability and competition within the financial sector. 

Open Banking

Access to consumer data is a critical competition and consumer issue. There has been an important development in this area since the Commission published its draft report.

As part of its response to the Commission’s report Inquiry into Data Availability and Use, the Treasurer announced on 9 February 2018 that the government has committed to introducing open banking using a dual-regulator model.

With the ACCC as the lead regulator, we will be strongly supported by the Office of the Australian Information Commissioner.

At the heart of the proposal is giving consumers access to the data that is held about them by business, including the ability to direct that such data be copied and provided to a third party.

International experience, especially in banking, has shown that giving consumers access to their data – known as the ‘right to data’ – increases competition as it gives consumers more scope to compare competing offers, make more informed choices and more easily move their business.

Data portability increases competition, particularly for more complex products and services, and creates scope for businesses to make more tailored offerings, including to innovate new or different products that better meet their needs.

The ACCC welcomes this development and is looking forward to working towards ‘open banking’ for the benefit of competition and consumers.

2. The ACCC’s Financial Services Unit

Following the Treasurer’s 2017/18 Budget announcement, the ACCC established a Financial Services Unit (FSU). Many of the responsibilities proposed by the Commission for the competition champion are aligned with the FSU’s mandate.

The FSU was established in 2017 to undertake regular inquiries into specific financial competition issues. It will facilitate greater and more consistent scrutiny of competition matters in the sector.

The FSU currently comprises 12 staff, but it is supported by in-house expert advisers within the ACCC that provide legal, statistical and economic analyses.

Accordingly, the capacity of the FSU is larger than notional staffing numbers suggest and it has scope to concurrently undertake a mix of market studies and investigations (among other matters) as required.

The Residential Mortgage Price Inquiry is the first task of the FSU and our Interim Report will be issued shortly.

From July 2018 onwards, the FSU will commence its market studies work. The precise scope of that work is still being determined but could include assessing the impact of regulatory measures which affect the ability of smaller banks to compete against the majors, barriers to entry in financial services markets and consumer switching.

3. Embedding greater transparency in decision-making and a commitment to competition

The ACCC supports increased transparency in regulatory decision making impacting the financial system.

Ideally, new or amended regulation would be developed in consultation with, or input from, the competition regulator. That input would be reflected in consultation material or otherwise publicly available information to allow the merits of the proposed regulation to be debated.

The ACCC stands ready to work in this way with APRA, the RBA, ASIC and the Council of Financial Regulators (CFR).

The ACCC is also keen to work with APRA, the RBA and ASIC should they require specialist competition expertise when seeking to balance their respective statutory competition objectives with their other statutory objectives such as financial system stability.

We note the Commission’s view that the “competition champion” should be a member of the Council of Financial Regulators (CFR). Membership of the CFR is appropriately a decision for government.

Whatever mechanism or process is ultimately adopted, the ACCC is firmly of the view that it is important for competition to be given greater significance in the regulatory decision-making process. A threshold question to resolve is which matters should be considered by the regulator with the role of championing competition.

In our view, priority should be given to measures likely to have a significant impact on the competitive process in the market and measures which prevent new competitors from entering a market or otherwise increase barriers to entry.

Closing remarks

Thank you again for the opportunity to appear before the Commission today. We are happy to take any questions.

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