In its submission to the Productivity Commission's inquiry into competition in the Australian financial system, APRA said there are "strong indicators" of competition in certain markets.
The most notable example of competition is within residential mortgages, said APRA – despite the fact that a "small number of large entities hold a significant combined market share".
"Other segments, however, appear less competitive given a reduced 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," said APRA.
"APRA’s mandate requires it to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality and, in balancing these objectives, to promote financial system stability in Australia.
"A strong prudential framework contributes to strong financial entities and these, in turn, help create robust competitors and intermediaries that are able to support economic growth and activity, throughout the economic cycle."
The prudential regulator pointed to 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 exit or merge, leading to a more concentrated system.
"APRA has been developing its framework for more explicitly considering the competition and efficiency impacts in reviewing and updating the prudential framework," said the regulator.
"Consequently, there are a number of recent and forthcoming prudential developments which are likely to support increased competition in the financial sector without unduly compromising the stability of the financial system.
"APRA also aims to ensure that its approach to supervision is proportionate to the risk profile of each regulated entity so that, amongst other things, smaller regulated entities are not subjected to unreasonable expectations or regulatory burden."
FASEA appoints new chief executive
David Murray starts as AMP chairman
ANZ names new group treasurer
Super shouldn’t be a lottery
Can infrastructure equities cope with rising rates?
Is this as good as it gets?