Quarterly Statement by the Council of Financial Regulators – June 2022
The Council of Financial Regulators (the Council) held its regular quarterly meeting on Monday, 20 June. It also held its annual meeting with other regulators, including the Australian Competition and Consumer Commission (ACCC), the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Taxation Office. The Australian Financial Complaints Authority (AFCA) also participated in the meeting.
The main issues discussed at the annual meeting of regulators were de-banking and developments related to crypto assets.
As requested by the former government, the Council agencies are preparing advice on the causes of the withdrawal or refusal of banking services for certain sectors. A working group has been examining the issue, consulting with the industry and considering possible policy options. At the meeting, participants discussed how banks' risk aversion in dealing with these sectors might be addressed, along with ways to improve transparency around banks' decision processes. Advice is expected to be provided to the Government in August.
The meeting discussed recent developments related to crypto assets, including recent price volatility and the increasing number of scams associated with crypto assets. Participants agreed on the importance of a robust regulatory framework to protect investors and guard against potential financial stability risks. The meeting also discussed the increased interest by industry participants in the issuance of Australian dollar stablecoins and the regulatory implications. Treasury's recently completed public consultation on the licensing of crypto asset secondary service providers and the possibility of incorporating payment stablecoins into the proposed framework for regulating stored value facilities were highlighted.
The annual meeting of regulators also discussed AFCA's activities and trends in financial complaints. AFCA noted increased investment in internal dispute resolution, particularly among some of the large financial institutions. AFCA reported increased complaints in relation to crypto asset scams and other investment scams. Participants discussed the importance of action being taken by banks and other financial institutions, to block scams, build awareness and remediate losses by customers.
The meeting also discussed the pass-through of RBA cash rate increases to retail interest rates. Participants noted that, given the cash rate remains at a low level, there has been much less pass-through to deposit interest rates than to lending interest rates so far. It was agreed to continue to monitor pass-through closely.
The main items on the agenda for the meeting of the Council of Financial Regulators were the ongoing work on cyber resilience, developments with ASX Group, housing market risks and the use of derivatives by superannuation funds.
Following the completion of a successful pilot of Cyber Operational Resilience Intelligence-led Exercises (CORIE) by Council agencies and a number of financial institutions, the Council endorsed a plan for the wider roll-out of the testing program. The revised framework will be published on the Council's website in July 2022.
The Council discussed ASX Group's response to a number of operational outages over recent years, the further delay in delivery of the critical CHESS Replacement system, and recent supervisory engagement, including on governance arrangements. ASIC, the ACCC and the RBA are engaging closely with ASX Group and will continue to do so, particularly in relation to the delivery of the CHESS Replacement system.
Members considered how risks in the housing market might evolve as rising interest rates flow through to mortgage repayments and households' borrowing capacity. Housing market indicators suggest that activity has weakened in the major cities in recent months and housing price growth nationally has slowed, although housing lending is only just starting to ease. The Council will be closely monitoring the effects of rising interest rates on the household sector. Members emphasised the additional resilience provided by the substantial housing equity and payment buffers built up by households since the onset of the pandemic.
Members considered an assessment of the use of derivatives by superannuation funds following a request for advice by the former government. The Council's advice will be provided to the Government in the near future.
In relation to climate change, members discussed the exposure draft of the International Sustainability Standards Board's (ISSB) sustainability and climate disclosure standards. They agreed to provide a joint submission to the ISSB consultation. The Council's Climate Working Group is now being chaired by APRA Deputy Chair, Helen Rowell, who replaced former Reserve Bank Deputy Governor Guy Debelle.
Council of Financial Regulators
The Council of Financial Regulators (the Council) is the coordinating body for Australia's main financial regulatory agencies. There are four members: the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the Reserve Bank of Australia (RBA). The Reserve Bank Governor chairs the Council and the RBA provides secretariat support. It is a non-statutory body, without regulatory or policy decision-making powers. Those powers reside with its members. The Council's objectives are to promote stability of the Australian financial system and support effective and efficient regulation by Australia's financial regulatory agencies. In doing so, the Council recognises the benefits of a competitive, efficient and fair financial system. The Council operates as a forum for cooperation and coordination among member agencies. It meets each quarter, or more often if required.