Technology Poses a New Challenge to Financial System Inquiry

The landscape of the Australian financial sector has dramatically evolved since the 1997 financial system inquiry. The playing field has grown and technology has taken a huge leap between the inquiry led by Stan Wallis and the current one which is being chaired by David Murray.

In the series of articles published by Asia-Pacific Banking & Finance, Professor Ian Harper, a partner at Deloitte Access Economics and a member of the 1997 financial system inquiry panel, predicted that the significant changes in terms of technology will pose a serious challenge to the new panel.

The professor noted that the worldwide web was only switched on in 1996. Now, the financial system is dominated by Internet banking, Smartphones, tablets and apps. He added that during the 1997 financial system inquiry, their main concern was about bank branches. But today, we have a whole generation of people who wouldn't have a clue on what to do if they stepped on a bank branch. To sum it up, a lot has happened since then and technology has really revolutionised the way individuals access basic financial services.

New Players are Invading the Banking System

Harper stated that newcomers like Google and Bitcoin are presently entering the domain that used to belong exclusively to banks. He explained that the two have been operating outside the scope of the banking sector using devices to electronically copy how transactions are being done in the banking system.

So, he recommended that one of the concerns of the new financial system inquiry should be how to treat these new entrants. Then, he posed a question regarding the matter-"Are you going to oblige Google to get a banking licence and how could you licence Bitcoin even if you wanted to?"

How to Regulate the New Entrants

The 1997 financial inquiry veteran also pointed out that crowd-sourcing and deposits is no longer a minor subject. In addition to the other players that he mentioned (like Google and Bitcoin), he advised that these should be regulated.

Harper opined that it is no longer a question of what should regulators do. It is already a question about what they can do about it. Quoting from the AB+F article, the professor said, "things will be much worse than Banksia Securities if those fall over."

Lastly, the 1997 financial system inquiry member reminded everyone that there is a good reason why banks are strictly regulated when looking back at the painful lessons that the financial system has learned in the past. Therefore, Harper declared that the new digital financial service providers should not be allowed to entirely roam within the financial system without the appropriate controlling mechanisms set forth by regulators.