Media Release Number: 2024-02 11 June 2024

Quarterly Statement by the Council of Financial Regulators – June 2024

The Council of Financial Regulators (the Council) held its regular quarterly meeting on Friday, 7 June. The Council discussed a range of current and emerging vulnerabilities in the financial system. Members discussed actions the Council agencies are taking to mitigate these vulnerabilities and to strengthen resilience in the financial system. This approach involves increased engagement with industry, including in scenario planning exercises, and addressing existing information gaps.

Australian households and businesses

The Council continues to closely monitor risks to the Australian financial system from lending to households and businesses, and assesses that they remain contained. While budget pressures from inflation and interest rates continue to be widely felt, with many households making adjustments to their finances, most borrowers have continued to meet their debt repayments. Members observed that the share of borrowers falling behind on mortgage payments has continued to rise, as have financial hardship applications, but from a low level. Risks from domestic lending to commercial real estate (CRE) were also discussed. Members observed that these remained contained due to banks' low exposures, conservative lending practices and the relatively strong financial positions of CRE owners. However, Council agencies continued to monitor the challenging conditions in global and Australian CRE markets, particularly given the potential for stress in overseas CRE markets to be transmitted to domestic markets through foreign ownership and common sources of funding.

The geopolitical environment

The Council discussed progress in its work program aimed at enhancing the resilience of the Australian financial system in light of a more complex geopolitical environment. Risks to fragmentation in the global economy and financial system have risen as a result of heightened geopolitical tensions. Council agencies continue to engage with industry and across government on the importance of financial institutions incorporating geopolitical risk into their wider risk-management frameworks.

The adoption of new technologies

The Council discussed developments related to the use of new technological applications in the financial system, particularly in relation to the expected increased adoption of artificial intelligence (AI). The Council noted that recent advances in the capabilities of AI presented an opportunity for increased productivity for both the financial system and the broader economy. However, members also discussed the potential for AI to create or amplify risks in the financial system. Council agencies agreed to continue their engagement with industry and monitoring of the adoption of AI in the period ahead within their existing regulatory frameworks.

Supervisory lessons learned from the CHESS replacement project

The Council discussed the findings and recommendations from a Parliamentary Joint Committee report into competition in clearing and settlement and the ASX Clearing House Electronic Subregister System (CHESS) Replacement Project. Members considered the report's specific recommendations for the Council. They supported agencies' work in contributing to the Government's response to these recommendations.

Other initiatives

Council agencies were also monitoring the ongoing challenges in the cash-in-transit industry and will continue to work with the Government and industry participants to ensure sustainable arrangements for cash distribution, particularly in regional and remote Australia. In relation to regulatory coordination, the Council received an update on progress in the introduction of a forward-looking financial sector regulatory initiatives grid.

Annual meeting with regulators of the financial sector

The Council also held its annual meeting with the Australian Competition and Consumer Commission (ACCC), the Australian Taxation Office (ATO) and the Australian Transaction Reports and Analysis Centre (AUSTRAC). The Attorney-General's Department (AGD) and the Australian Financial Security Authority (AFSA) also participated in this year's meeting. The main issues discussed included recent developments in personal and corporate insolvencies, changes in the financial services industry landscape and progress in tackling scams and money laundering activities in Australia:

  • The ATO updated the Council on its debt recovery actions, which are shifting to a more regular stance.
  • AFSA updated the Council on recent developments in insolvencies in the Australian economy. While personal insolvencies remained near historically low levels, the Council noted that there had been an increase in insolvencies for both individuals and companies, particularly small and medium sized enterprises, over the previous twelve months. This followed a period where insolvencies had been well below usual levels reflecting the significant support measures put in place during the pandemic, including those from the ATO. The Council noted that some businesses are experiencing challenging conditions due to slowing demand, continued domestic input cost pressures and higher interest expenses. Members agreed on the importance of monitoring trends in insolvencies over the period ahead.
  • The Council also discussed the activities of the ACCC's National Anti-Scam Centre (NASC) over its first year of operation. The NASC provided an update on planned initiatives to strengthen cooperation and monitoring, including a new system to improve data sharing on scams across government agencies, law enforcement and industry. Members noted related work by Council agencies and industry to combat scams, and reiterated the importance of improving Australia's ability to detect, disrupt and deter scams and online frauds.
  • The AGD and AUSTRAC updated the Council on progress in the government's proposed reform to the Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) regime. Stakeholder consultation on detailed reform proposals is underway. The Council discussed the importance of an effective AML/CTF regime that helps Australian businesses and financial markets combat money laundering, terrorism financing and other serious financial crimes. The Council will continue to work with the AGD and AUSTRAC to support the modernisation of the AML/CTF regime to ensure the regime remains fit for purpose and complies with international standards.

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.