September 15, 2017

APRA published its submission to the Productivity Commission’s (PC) Inquiry into competition in the Australian financial system. The submission focuses on the role of APRA in the financial system, potential indicators of competitive dynamics within the industries APRA supervises, and APRA approach to balancing the objectives of financial safety and stability with considerations of competition and competitive neutrality. The PC’s Inquiry offers a valuable opportunity to reflect on efficiency and competition within Australia’s financial marketplace and potentially improve long-term consumer outcomes.

The prudential framework of APRA and its approach to supervision have been informed by the outworkings of the global financial crisis, which saw less financially strong competitors that were unable to maintain their viability through a period of adversity forced to leave the industry, leading to a more concentrated industry as a result. APRA recognizes that its prudential requirements may affect the relative position of competitors in regulated industries by imposing differential costs in some areas. Therefore, over the recent years, APRA has been developing its framework for more explicitly considering the effects of competition and efficiency in reviewing and updating the prudential framework. A number of recent and forthcoming prudential developments are likely to support increased competition in the financial sector, without unduly compromising the stability of the financial system.

 

Most APRA-regulated industry sectors display relatively high levels of concentration, with a small number of large entities holding a significant combined share of the market. However, industry concentration may not, on its own, be a comprehensive measure of the level of competition in individual markets for financial services products. There appear to be strong indicators of competition in certain financial services product markets (such as residential mortgages). Other segments, however, appear less competitive, given a reduced number of providers, which appears driven in part by a lack of expertise and systems capabilities, along with an aversion to higher risk activities by certain entities. This submission has been guided by the focus areas of the PC outlined in the consultation paper. In particular, APRA has focused on the issues associated with competition in the banking industry.

 

Related Link: Submission (PDF)

Keywords: Asia Pacific, Australia, Banking, Competition, Productivity Commission Inquiry, Prudential Framework, APRA