Australia’s financial system must be strong and stable but equally, it should ensure that the households and businesses who use the financial system are well served, finds the Productivity Commission’s report into competition in the financial services sector.
The report says Australia’s larger financial institutions have the ability to exercise market power over their competitors and consumers, thanks largely to persistently opaque pricing; conflicted advice and remuneration arrangements. It is most often competition that can deliver the price rivalry between providers that is necessary for consumers to share fully in the benefits of having a strong financial system.
More than just price rivalry, competition drives innovation and overall value for customers. Some innovation in Australian financial services is clear. Australians have ready access to funds at all hours of the day, can get rapid home loan approvals, quickly and safely move money between accounts, pay for products with the tap of a card, smartphone or watch, and have investment portfolios managed by robo-advisers.
Value for customers is less obvious. Prices are not transparent and product choice is often vague or overwhelming. Regulation is dense and it may act against customers’ interests. Those who advise and assist customers face conflicting, unclear incentives.
In brief, the Productivity Commission found that households and businesses may be paying, through unnecessary fees and low-value products, for a system that is exposed to use of entrenched market power.
Among other things, the report recommends that the Australian Competition and Consumer Commission (ACCC) should be given the jobs of promoting competition inside regulator forums, to ensure the interests of consumers and the costs imposed on them are being considered.This inquiry focusses on competition in Australia’s financial system as a means to improve consumer outcomes, enhance the productivity and international competitiveness of the financial system and the broader economy, and support ongoing innovation — without undermining financial stability objectives.
The recommended reforms are aimed at getting Australia’s financial markets to be workably competitive, with higher standards of respect for customer interests.