Labor tells bank and corporate regulators to avoid stifling innovation in desperate bid to boost productivity

Anthony Albanese’s Government has instructed the banking and corporate regulators to avoid stifling innovation a day after the Prime Minister outlined a new framework for regulating AI.

With Australia in the grip of a productivity crisis, Treasurer Jim Chalmers has instructed the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission to refrain from over-regulation.

“This is all about enabling our financial regulators to unlock more productivity and more growth in our economy,” Dr Chalmers said.

“We’re making it clear through these Statements of Expectations that we expect the regulators to support growth and productivity through proportionate, risk-based regulation while continuing to promote financial stability, consumer protection and market integrity.”

APRA, which regulates banks, super funds and insurance, and ASIC have been instructed to “balance risk mitigation with the need for efficiency, growth and innovation” which would mean “actively minimising unnecessary burdens on industry”.

The banking regulator has been instructed to modernise rules around digital payments and “focus on the responsible use of artificial intelligence technologies by regulated entities to maintain the safety and stability of the financial system”.

ASIC has been instructed to promote innovation in digital finance so “its capabilities and a culture of innovation are matched to emerging threats”.

The corporate regulator for registered companies was also told to be mindful about how its regulations, and those of other government agencies, were affecting small business and market entrants “ensuring its actions are proportionate and promote the advancement of consumer interests via competition, growth and economic dynamism”.

John Simon, a former research manager with the Reserve Bank of Australia, said over regulation at every layer of government was stifling small business innovation and worsening Australia’s long run of weak productivity.

“That kind of red tape turns out to be a big burden on small and innovative companies,” he told The Nightly on Thursday.

“But larger companies that are already established can usually navigate that quite well, so what that leads to is also a reduction in competition because the large firms retain their dominant position.”

APRA would still remain committed to overseeing a superannuation system which “holds trustees to account for performance and member outcomes”.

Dr Simon said APRA’s annual superannuation performance test, introduced in 2021 under the former Coalition government, was discouraging retirement savings products from offering higher return options.

“The superannuation funds are very worried about failing the performance test because the penalties are very high and so what they do is they take a very low-risk approach, which is appropriate for some but not all and as a consequence, what you don’t get is superannuation funds offering higher risk, higher return products,” he said.

“That also means that companies that are innovative struggle to attract capital to be innovative and improve productivity.”

Australian Banking Association chief executive Simon Birmingham welcomed a move to minimise regulatory burdens on smaller banks.

“We also welcome strengthened commitments to proportional regulation for smaller and mid-sized banks which will support competition and give customers more choice without lowering protections,” he said.

Former ASIC chairman Joe Longo in March acknowledged regulators were to blame for Australia’s dwindling productivity and innovation.

“I don’t shy away from the role of regulators in all this,” he told an Australian Institute of Company Directors summit in Sydney.

Australia’s productivity fell by 0.6 per cent in the March quarter and the Reserve Bank has linked weaker output with higher inflation.

The latest instructions from Dr Chalmers were made seven months after the Productivity Commission recommended the Australian Government instruct the public service to promote “growth, competition and innovation” through regulation.