Quarterly Statement by the Council of Financial Regulators – December 2021
The Council of Financial Regulators (the Council) held its quarterly meeting on Monday, 13 December. Key items of discussion included housing market risks and the Council's work on payments and crypto-assets, cyber security and the financial risks related to climate change.
Since the previous Council meeting, restrictions associated with the Delta outbreak have been eased and a robust recovery in the economy has been underway, despite increased uncertainty arising from the emergence of the Omicron strain. The financial system remains strong, and is well placed to meet the needs of the re-opening economy as businesses expand and adapt.
The Council discussed housing credit conditions and associated risks. Housing credit growth has remained strong in the second half of the year. Commitments for new housing loans have eased but remain at a high level, suggesting that credit growth will continue to be relatively strong, with further increases in new lending to investors. Housing prices are still rising briskly in most markets, albeit at a slightly slower rate overall than earlier in the year. Council members reiterated their support for APRA's decision in October to increase the interest rate serviceability buffer for home lending. They agreed that, given the risks that had been building, this measure will help to support the resilience of both new borrowers and lenders. It remains too early to assess the effects of the measure; members will continue to monitor developments closely.
The Council undertook its annual review of non-bank financial intermediation. After a period of slowing growth in the early stages of the pandemic, non-bank lending for housing has been accelerating, which could increase risks if lending standards were to weaken. Nonetheless, members consider that risks arising from non-banks continue to be limited given the sector's small size overall and its limited links with the banking system.
The Council discussed developments with technology and financial regulation, including the payments and crypto-asset reforms announced by the Government on 8 December. The Council endorsed the Terms of Reference for the Working Group on the Regulation of the Crypto-Ecosystem, which will help to progress some of the crypto-asset reforms. A separate working group will focus on de-banking in the fintech, crypto-asset and remittance sectors, and the Government's request for advice on the underlying causes and policy responses. This group includes the Council agencies, along with the Australian Competition and Consumer Commission, the Australian Transaction Reports and Analysis Centre and the Department of Home Affairs.
The Council endorsed a new Cyber-attack Communication and Coordination Protocol designed and tested by the Council's Cyber Security Working Group. The Protocol sets out co-ordination mechanisms, points of engagement and actions to be taken by Council agencies. Other cyber-related work planned for the coming year includes completion of the implementation of the threat intelligence based testing framework (CORIE) and a payments contingency exercise.
The Council discussed developments related to the financial risks from climate change, particularly in light of the recent COP26 summit. Members agreed that the establishment of the International Sustainability Standards Board (ISSB) was a major step forward in setting global climate and sustainability reporting standards. ASIC is monitoring developments in these standards and consulting with stakeholders to understand the implications for Australian firms. ASIC has released a statement encouraging listed companies to use the Task Force on Climate-related Financial Disclosures (TCFD) recommendations as the primary framework for voluntary climate-related disclosures. ASIC has indicated that listed companies reporting climate-related information under TCFD are expected to be well placed to transition to any future standard. Council members expressed support for ASIC's approach. Members also discussed the development of sustainable finance taxonomies overseas. They supported the work underway by the Australian Sustainable Finance Institute (ASFI) to develop an industry-led taxonomy, with involvement from regulators, that suits the structure and trajectory of the Australian economy.
The Council discussed a number of other policy issues, including developments with financial market infrastructure regulation, the availability and affordability of insurance for businesses, the phasing-down of the Committed Liquidity Facility, and work requested by the Government on the use of derivatives by superannuation funds.
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.