19 November 2018

Strengthening competition in the financial system

The Morrison Government continues to demonstrate its commitment to improving competition in the financial sector, with legislation relaxing the restriction on ownership of banks and insurers as well as introducing a new streamlined approval path under the Financial Sector (Shareholdings) Act 1998 (FSSA) passing Parliament.

These changes significantly reduce barriers to entry that are preventing the innovation that our financial system needs, while still prioritising the safety of consumers and the broader financial system.

New and recent entrants will now have the time that they need to test and grow their business before they need to consider diversifying ownership. This will be complemented by changes to the Banking Act 1998 to support APRA’s announced dual-phase licensing regime, together encouraging greater participation and competition in the financial system.

The new framework provides for:

  • An increase in the general FSSA ownership cap from 15 per cent to 20 per cent, in line with the requirements of the Foreign Acquisitions and Takeovers Act 1975; and
  • owners of domestically incorporated companies to hold more than 20 per cent of an institution’s shares as long as:
    • the owners are ‘fit and proper’; and
    • if applying to become an authorised deposit-taking institution (ADI: broadly, banks; credit unions; and building societies) or a life insurer, or licensed as such for fewer than five years, the entity has assets of less than $200 million; or
    • if applying to become a general insurance company, or licensed as such for fewer than five years, the entity has assets of less than $50 million.

These changes build on a number of reforms the Coalition Government has implemented in recent years to improve competition in the financial system by opening up the path for challenger banks, increasing participation in the comprehensive credit reporting system and introducing an Open Banking regime.