Australia’s Updated Financial Innovation Strategy

By: Daniel Knight and Jocelyn Lau

The Government has released its Financial Innovation Strategy which sets out government and regulatory proposals to support a more innovative financial system, allowing industry to engage and drive the innovation itself.

This article provides a high-level overview of the focuses. In a range of these focus areas, we anticipate targeted consultation or guidance to follow.

Financial Innovation Committee

A Financial Innovation Committee will be established to act as a bridge between government, regulatory and industry, identifying strategic priorities and opportunities for collaboration between the parties. It will provide a forum for the parties to discuss improvements to regulatory, policy and market settings, and to share insights on market developments in this area.

Enhanced Regulatory Sandbox (ERS)

The existing ERS framework, which allows businesses to trial financial products and services in a regulated environment without obtaining license has faced ongoing criticism resulting in a lack of use by emerging businesses. The independent ERS Review, commissioned by Treasury, has suggested several reforms to bolster the use of the ERS by businesses seeking to test innovative products and services. The existing ERS legislative framework is to be repealed and replaced with a new framework that adopts recommendations from the ERS Review such as thematic sandboxes (which target specific areas such as AI-enabled financial services and tokenised assets) and better integration with ASIC’s broader functions by providing a clearer pathway to licensing for participants.

Consumer Data Right (CDR) and Open Banking

There has been an increased focus on CDR, as framework for data sharing in banking, non-bank lending and other sectors. CDR reforms will focus on reducing compliance costs and increasing consumer uptake, by allowing business consumers to nominate representatives to share data, expanding the range of permitted third-party disclosures and continuing to rollout CDR to the non-bank lending sector. Separately, there is consideration as to how CDR may be used to share ATO-held tax data.

Regulatory Frameworks

Australia has seen in the last 12 months significant change in its digital assets, anti-money laundering and payments frameworks. Adjustments to the regulatory landscape will be identified via the ERS and further consultations, and regulators will finalise guidance in respect of digital assets and payment service providers.

Payments, Money and Settlement Infrastructure

There is an increased focus on tokenised assets, digital money and the infrastructure to support it, with the consideration of a digitally native Australian Government bond, and the rollout of a wholesale central bank digital currency. Though these ideas are still at an early stage, Treasury has announced consultation on using RITS (Australia’s electronic system for settling payments) in a tokenised environment.

Other Focuses

As the National AI Plan, scams prevention framework and review of the Digital ID Act progress, it will be important to watch how these reforms intersect with key financial services priorities, including cyber risk, governance and consumer protection.