The prudential regulator is considering adopting a “two-phased” licensing approach in order to foster financial services competition.
APRA chairman Wayne Byres appeared before a public hearing of the Productivity Commission's inquiry into competition in Australian financial services yesterday in Melbourne.
Mr Byres told the inquiry APRA does not believe there is a trade-off between stability and competition in the financial system.
"Competition in the financial sector can bring welcome innovation and enhanced outcomes for customers," he said.
''Good regulatory settings can deliver financially strong competitors, creating both financial stability and a dynamic and innovative marketplace for financial services."
APRA looks to promote "sustainable competition" that results in competitors who remain with the system for "the long-term", he said.
"The 2008 financial crisis revealed too many business models that only worked in the good times, and ceased to provide services to consumers when adversity arose," Mr Byre said.
The long-term outcome, he said, has been a "more concentrated system".
Acknowledging that competition often comes from new entrants, Mr Byres discussed APRA's current review of its licensing processes.
"We are considering the benefits and risks of adopting a two-phased approach to licensing for certain types of new entrant," he said.
"Such an approach could bring new sources of competition by allowing new entrants time to establish the full complement of resources and systems necessary to be able to comply with all aspects of the prudential framework."
APRA will still need to "assure the community that their bank deposits, insurance policies or superannuation funds placed with these new entrants are adequately safeguarded", he said – "not create competitive advantages for small new entrants over small incumbents".
Technology will also be a "critical driver" of the future shape of the Australian financial system.
"We are very keen to see investment in new technology by financial firms – both newcomers and existing players – because it has the potential to achieve multiple objectives, by offering considerable benefit to the soundness, the efficiency and the competitiveness of the financial system," Mr Byres said.
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