Anti-fragility and the Financial System

Speech

Notes

Anti-fragility and the Financial System Brad Jones * Assistant Governor (Financial System) Opening Remarks to FINSIA: The Regulators Sydney – 12 September 2025 Audio 10MB Q&A Transcript Watch video: Brad Jones, Assistant Governor (Financial System), Opening Remarks to FINSIA: The Regulators, Sydney Thank you to FINSIA for the opportunity to be here with you. For industry and those of us in the policymaking community charged with the responsibility of promoting
stability, structural change in the external operating environment is making for unusually challenging
times. I am not talking about standard business cycle uncertainty here, but rather a new era of
strategic, technological and operational disruption that is cutting across the financial system and wider
society in complex ways. But my main point today is that while these challenges will require a laser-like focus on resilience over
the coming years, this does not have to come at the expense of innovation, competition and efficiency.
Far from it – these objectives can be mutually reinforcing. As industry and regulators, our
challenge here is to work creatively to build a financial system that has an ‘anti-fragile’
character. A system that is vulnerable to disruption – geopolitical, technological, or otherwise
– has inherent fragility and is more likely to break when stressed. By contrast, and to invoke
Nassim Taleb’s characterisation, an anti-fragile system is one that can not only weather most storms
but stands to benefit from disruptive change. A new era of disruption? The international system is undergoing seismic adjustment – on a scale and speed unseen in eight
decades. The wheels of globalisation are grinding with more friction. Key tenets of the rules-based
international order are being challenged. The strategic environment is becoming more contested and
complex. And for financial institutions, and even nations, self-insurance against a wide range of
scenarios is assuming more prominence than at any time since the end of the Cold War. In short, the era
of the peace dividend is over. We are also navigating a period of rapid technological transformation. As the financial system is
increasingly digitalised, the surface for cyber-attacks is expanding, fuelling a new cyber arms race.
Cloud computing is helping to alleviate single points of failure, but concentration risk in cloud and
other advanced technology service offerings risks amplifying third-party dependencies. Quantum computing
will also raise its own set of challenges and opportunities. And while artificial intelligence (AI) could
unleash a burst of productivity across industries and economies, my discussions with international
counterparts reveal concerns about its potential to accelerate fraud, misinformation and other sources of
financial instability. One example is contagion and herding risk, where parties could come to rely on
similar models trained on similar data that therefore generate similar actions – including in a
crisis. Moreover, the complexity of AI systems developed outside the regulatory perimeter means that
systemic vulnerabilities could grow in a way that is not obvious to the boards of financial institutions
or supervisors. The resilience of the financial system to disruptions to critical infrastructure – the electrical
grid and telecommunications network – is also a growing focus internationally. These challenges are
not just limited to cyber intrusions, surging energy demands from big data and extreme weather events. In
April, cascading power outages on the Iberian Peninsula affected 50 million households and prompted
the Spanish Government to declare a national emergency. While economic activity declined by almost half
its daily level, these disruptions would have been worse still had the functioning of key financial
infrastructure also been compromised. And small, low orbit satellites are increasingly being viewed as an
important source of ‘all hazard’ redundancy when mainland telecommunications capabilities are
stressed, as seen in Ukraine and elsewhere. Anti-fragility – building resilience through innovation and dynamism Confronted with extreme-but-plausible sources of systemic disruption, it might be tempting for financial
system regulators to prioritise resilience over all else, including innovation, competition and
efficiency. But I’m not persuaded that casting these objectives as a trade-off – resilience on
the one hand, or innovation, competition and efficiency on the other – is a helpful framing.
Rather, the opportunity we must grasp is to have these concepts mutually reinforce one another. To that end, the RBA’s Payments System Board has long had a mandate to support competition and
efficiency in a manner that is consistent with stability in the financial system. My colleagues and I are
well aware of the regulator curse, otherwise known as ‘the stability of the graveyard’, where
an excessive desire to minimise risk in the system could come at the cost of robbing it of all vitality
and therefore its ability to support economic growth over the long term. With that in mind, our recently updated Strategic Plan places considerable emphasis on harnessing the
forces of innovation, dynamism and competition to better promote resilience in the Australian payments
system and across our financial market infrastructure more generally. 1 It is in this sense that we are
striving to give our system an ‘anti-fragile’ character. Let me provide some recent examples. First, under a rebooted Industry Resilience Initiative, the RBA and APRA are working with the major banks,
Australian Payments Plus and AusPayNet to enhance existing capabilities and develop new ones to ensure
essential payment services can continue to operate in the event of a significant disruption to our
payments system. This ‘all hazards’ initiative is one of the key pillars of a significant
program of work the Council of Financial Regulators are progressing with industry to strengthen the
resilience of our financial system to geopolitical and operational risk. This includes a system-wide
mapping of potential vulnerabilities. Second, as the vision for Australia’s future account-to-account (A2A) payments takes shape, the RBA
is engaging with industry to ensure that resilience is baked into new technological solutions. Following
our Risk Assessment in March, we recently set out a Public Interest Framework to guide industry in their
strategic planning for the future A2A system. 2 This is a technology agnostic, principles-based
framework that prioritises the reliability of the payments system through robust contingency and
recoverability arrangements, alongside new functionality spurred by competitive tension and innovation.
As a practical example, we view interoperability – the ability for systems to connect to each other
– as integral to promoting resilience, competition and efficiency. In good times, end users will
have greater choice over service providers; when systems go down, contingency options will be available. Third, given advances in quantum computing will pose a risk to the secure exchange of payment details, we
are strongly supporting industry efforts to migrate to the Advanced Encryption Standard (AES), which is
viewed as a quantum-safe solution. Nefarious actors are already storing vast amounts of data with the
expectation of breaking current encryption standards down the track – a strategy known as
‘harvest now, decrypt later’. In the absence of greater urgency and effective industry
coordination, there is a risk that the migration to the AES for card payments will occur too slowly,
leaving end users exposed to increased risk of fraud. This could undermine trust in card payments and the
wider financial system. Fourth, in an effort to promote more competition in financial market infrastructure (FMI), the Payments
System Board recently raised the threshold beyond which firms are required to comply with the Financial
Stability Standards for Securities Settlement Facilities. This step, where the annual settlement activity
threshold increased from $200 million to $40 billion, has already helped to streamline clearing
and settlement facility licence applications for small firms, and we hope to see more entrants emerge to
stimulate competition and diversify risk across the FMI landscape. Fifth, we have been engaged in two projects – Acacia and Mandala – aimed at strengthening the
efficiency and resilience of wholesale and cross-border payments. In Project Acacia, we are working
alongside the Digital Finance Cooperative Research Centre, industry partners and regulators to better
understand how innovation in financial infrastructure and digital money, including central bank digital
currency, might uplift the functioning of Australia’s wholesale financial markets. 3 We are
also preparing to support Treasury and ASIC in a review of the enhanced regulatory sandbox to ensure it
best supports innovation and resilience across the payment and FMI ecosystem. At the same time, we are
collaborating with central bank partners on Project Mandala, which aims to develop protocols to automate
regulatory compliance processes in cross-border payments using new types of ledger arrangements. The aim
here is to make cross-border payments more transparent, faster and safer. Finally, we are assisting the Government to advance and implement its payments regulatory reform agenda
– including reforms to the Payment Systems (Regulation) Act and licensing arrangements. These
reforms will boost regulatory clarity for industry and strengthen the ability of financial regulators to
promote innovation, competition and resilience in the system. Without this, network and other effects
mean that the payments industry could tend towards anti-competitive outcomes, where dominant players
impose barriers to entry that raise costs for businesses and consumers and stifle the sort of positive
disruption that startups often introduce. Concluding remarks To conclude, ensuring our financial system remains strong and resilient has never been more important. If
we are to meet this challenge head on, we will need to harness the forces of innovation, competition and
dynamism more fully and more creatively. My colleagues and I at the RBA and on the Payments System Board
are committed to working constructively with industry to make this happen. Australians are depending on
all of us here to get this right. Thank you, and I look forward to your questions. Endnotes Thanks to colleagues in Payments Policy
Department for their assistance in preparing these remarks. * Payments Systems Board (2025), Annual
Report 2025 (forthcoming). 1 RBA (2025), ‘ Decommissioning
of the Bulk Electronic Clearing System: RBA Risk Assessment ’, March; RBA (2025),
‘ Public
Interest Framework for a Successful Account-to-Account Payments System ’, July. 2 RBA (2025), ‘ Project Acacia: RBA and DFCRC Announce Chosen
Industry Participants and ASIC Provides Regulatory Relief for Tokenised Asset Settlement
Research Project ’, Media Releases No 2025-18, 10 July. 3