Panel Participation
Panel Participation at the 2025 International Institute of Finance (IIF) Australia Forum
Brad Jones
Assistant Governor (Financial System)
2025 International Institute of Finance (IIF) Australia Forum
Sydney
–
13 March 2025
Audio
37.4MB
Watch video: Panel participation by Brad Jones, Assistant Governor (Financial System) on 13 March 2025
Transcript
Tim Adams
Brad, Joe, thank you very much. I know you guys are very busy. A lot on your plate and you’re
very important players here in the financial scene. The topics this morning all focus - are
principally focused on risk and there’s a wide range of risk and how risk has evolved and become
more intense in many ways and the breadth about what we think about risk for the system has become
much broader. So how did the two of you think about global risks and domestic financial stability,
the connection between the two. What worries you and are we focused on the right things? We’ll
start down and work our way this way. Joe.
Joe Longo
Do you want me to go first?
Tim Adams
Please.
Joe Longo
Well, I think in the short time I’ve been Chair, I think one of the key things that have changed
and really got a much higher priority, we’ll call it geo-political risk, I think we’re
talking a lot more now about geo-political risk than even three to five years ago. The international
situation seems to be just getting more and more complex and fraught. We’re living in times
where old assumptions about what happens in an economy and how - what’s expected of regulators
and what’s expected of governments, it’s all changed in ways that are very challenging, I
think. I’d start with geo-political risk and I think the other one, which was always there but I
think now has to be a top two or three and that’s cyber security. Anything to do with cyber
resilience and cyber security. I think that’s something I’m - ASIC is very concerned about.
In fact, today we commenced proceedings against an AFSL for failing to have proper resources and
systems in connection with a cyber attack.
Tim Adams
Brad, what about you?
Brad Jones
Yeah. The way that I would frame it is for basically the last three or four decades, the period where
we’ve had the peace dividend paying off. Most of the risks in the financial system were
internally generated. So central banks and regulators worried a lot about borrowers maybe taking on
too much debt, defaulting on those loans, creating a capital problem for banks and maybe setting off
a bank liquidity run. That would be the causality chain, if you like. The way that - and we will
always worry about those risks and we do. But as Joe just intimated, what’s fundamentally
changed now is that we have moved into a different type of a regime where certainly the risks that
most - keep me awake at night are those that are generated from outside of the system and the two
that loom large, really there’s three, geo-political risk is one, operational risk, and that
includes cyber in that, but even more broadly than just cyber, and the third would be climate. And
what makes this complex is because they’re generated - these risks are generated from outside
the system, we need a different type of toolkit. Right. And they’re cutting across the economy
and the financial system in very complex ways and the playbooks that we do have are largely being
built for those internally within-system disruptions and so these risks that are bearing on us from
outside the system just demand a whole different framework.
Tim Adams
So to this point, I agree with you. So the nature of how you gather information, the type of
information. You have your dashboard. How you conceptualise risk has changed. Right. It’s now
outside. So how do you prepare? What resources do you rely on now that you didn’t five or
10 years ago? How’s the nature of the job changed?
Joe Longo
Well, within ASIC we have a whole range of teams that feed into that, trying to answer that question.
But I think from my perspective the primary answer is gatherings like this. Is engaging externally.
And so we spend a lot of time talking to the banks, to our colleagues and the Commonwealth, to
superannuation funds who are investing offshore now. So it’s really a lot of engagement. I
think, for example, we’re engaging with the chief risk officers of a number of major
institutions around Australia to get their insights. So I think it’s a real - and we’re
doing a lot of work internationally. So ASIC, not just overnight, there’s been a report on AI
just published for consultation that one of my colleagues reminded me of a moment ago. So that’s
another dimension. And I started the day with a call with a regulator in the US. So I think it’s
all of these things. You’ve got to be really engaged and I really like Brad’s word about
being externally focused, I think particularly Australia. We need to be really engaged externally and
I think that gives us our best chance of figuring out what’s going on and acting in our own
interest.
Tim Adams
And just playing on that, has that changed what you read, what you listen to, where you go, who you
talk to, in terms of gathering insights?
Brad Jones
It has. I think it’s had to broaden everyone’s field of vision and now we’re bringing
industry along on that journey as well and a good example would be now when we have forums with
industry. We will bring in folks from our national security agencies in a way that never used to
happen before. So we’re creating a bit more connective tissue. Another thing that’s changed
is we are engaging with our counterparts outside of the financial system more. So having discussions
with counterparts in different sectors of the economy to better understand, how do you think about
resilience, given the nature of the threat landscape we’re moving into? What lessons can we
learn from some of you that have spent a long time thinking about the issues like geo-political risk?
Tim Adams
One of the topics that we’ve been working on this morning is just the super summit in
Washington, the role of super funds. The sheer size. The outward looking nature, in terms of the
investment. How do you think about - I’ll start with you, Brad, the super funds in terms of
financial stability? They’re incredibly large, right. So how do you think about them in terms of
their size and the way in which you think about their interconnectedness with financial stability?
And then I’ll go to Joe.
Brad Jones
So there’s two things there. The first thing is historically, and even just at a conceptual
level, our super fund industry should be good for financial stability. You’re talking about
long-term investment horizons. The system is closed loop, so there’s more liquidity going in
than is coming out structurally. There’s very limited leverage. And so these factors - and of
course our super fund system, unlike some other pension fund systems, we don’t guarantee
returns. The investment risk is passed through to end investors. So conceptually that should mean our
system is a net plus for financial stability. The challenge or what’s new is the point that you
just made, the sheer size, the footprint, the scale of these institutions now means that there’s
a different risk dimension and a different way that the industry could transmit, not be the source of
systemic risk, but transmit or propagate stress if there was some other shock imposed on the system.
So if we found ourselves in another crisis, say, where there’s a liquidity shortage out there in
the financial markets. Let’s say early withdrawals of the system were allowed again, so you had
a net liquidity withdrawal from the system. If you had a number of things happen simultaneously you
could see a world where super funds might have to, say, sell down their significant holdings of bank
securities and that could create transmission risk. So I just want to be really clear. We don’t
see them as a source of systemic risk by themselves. We are doing more work, however, to better
understand if a shock were to occur, how they could inadvertently potentially transmit a stress
through the system. That’s not a forecast. That’s just an area we’re doing work in.
Tim Adams
Could they play the opposite role of dampening volatility? Could you rely - turn to them and say,
look, I need you to do A, B and C in times of a crisis?
Brad Jones
Well, a regulator is not going to tell the super funds how to manage their portfolio.
Joe Longo
They’re not a bank, are they?
Brad Jones
Our job is to alert them to the need to have the most robust liquidity risk management practices,
given the world that we spoke about earlier is incredibly uncertain, and for that reason what
you’ve seen our colleagues at APRA have really leant in over the last couple of years and have
demanded a significant uplift in liquidity risk management and governance more generally to make sure
that our system is as fortified as possible against these risks and hopefully they will continue to
be a source of stability.
Tim Adams
Joe, you’ve just put out a new report. Haven’t had a chance to read it but it was sent to
me just two days ago. Tell us a little bit about what’s your findings in terms of
public/private markets?
Joe Longo
Yeah. Well, I think this is really a very major part of the report. It’s actually a discussion
paper. We raise a lot of questions but I’ll try to share some preliminary thinking. When you
really step back there’s been really dramatic growth in our private markets in Australia over
the last several years but from a relatively low base. Nowhere near as huge as they are in the US but
there are a number of drivers for our interest. One is the whole superannuation story. So between a
quarter and a third of the ASX is super, either self-managed or APRA-regulated, and in fact
they’re beginning to hit a cap on that so we’re likely to see more investment offshore
which is fine. So we’re talking about very significant sums of money and growing. And so
they’re looking for investable assets. And so - we want to understand that from a markets
perspective. The other issue with private and public markets, and the person I was talking to earlier
this morning was grappling with this as well, is what some commentators call de-equitisation. In
other words the idea that, why aren’t we tapping the public markets more? What’s so
attractive? Well, what’s become unattractive, allegedly unattractive, about the public markets
and what’s driving people into the private market? And so what the discussion paper tries to do
is sort of unpack that a little bit and ask some questions. The other question I would - really would
like to see answered, and I go to a lot of meetings and no doubt someone may ask us today, that
regulation is the reason why we’re not seeing more public listings. There’s something wrong
with the listing rules or there’s something wrong with our approach to governance. So
that’s another aspect of the work we’ll be doing in the next six months. Our initial
research suggests that clearly regulatory settings are always going to be relevant but we don’t
- at the moment we don’t see that as the decisive factor in the decline in listings. We’ve
seen, not only in Australia by the way, but in other markets. So I might just pause there. It’s
a big subject. We’re concerned about the valuations, conflicts of interest in the private
markets and - so there’s a number of things going on there and my basic position is we need to
understand it here.
Tim Adams
And you see that globally and in the US and the number of publicly traded companies is about half
what it was 25 years ago.
Joe Longo
That’s right.
Tim Adams
So it’s shrunk and we see a tremendous amount of capital in the private markets.
Joe Longo
But the overall market cap is huge.
Tim Adams
That’s correct.
Joe Longo
So a smaller number of entities but the entities that are there are trading at extraordinary amounts.
Tim Adams
But now we’re seeing retail products being marketed to give households access.
Joe Longo
Exposure, yeah.
Tim Adams
Is that a good thing?
Joe Longo
Well, I think that that’s another big question that we sort of pose. In Australia we want all
Australians to have some access to investing and making their own decisions about that. Now, clearly
our legal regime, as in other countries, tries to protect retail investors or consumers, and
so-called sophisticated or wholesale investors have more freedom of movement, but there’s a deep
philosophical issue in there somewhere that says, oh well, why are we treating retail that way?
Tim Adams
Right.
Joe Longo
And so the bottom line is, I think, we can talk about whether the regulatory settings are about right
between retail and wholesale, and retail and sophisticated but the bottom line is, I think, from a
policy perspective there are some interesting questions to raise about to what extent can we
facilitate or encourage - my words safely - retail exposure to some really interesting things going
on in the private markets. So unless products are developed in a way that enable that to happen,
there will be a lot of retail investors who won’t get that chance.
Tim Adams
But then there’s the question, do they know what they’re buying and is it opaque and is it
liquid?. Right.
Joe Longo
That’s right. They’re the right questions.
Tim Adams
Brad, let’s shift to payments. You said there’s never been a more exciting time to be in
payments. We live payments. My colleague, Jess, I think she thinks about payments 24 hours a
day. I don’t but I know it’s very exciting. So what are your top priorities with respect to
the payment system and what are you hearing from your stakeholders?
Brad Jones
That was a rip off from a former Prime Minister, by the way. The payment system has become a real
hotbed of innovation. So that’s making it super interesting and we see that just in terms of the
types of people who are entering the industry and even who want to come and be policy-makers in this
space. So it’s gone from an area that was kind of, I think, quite opaque to a lot of people and
just sort of happened in the background. Now, people really want to get involved in this space and I
think the technology aspect of it, there’s a lot of disruption and innovation. It’s making
things exciting. The fintech industry has taken off. There’s obviously a huge amount of interest
in areas like tokenisation, digital assets. We’re doing work at the RBA on the future of digital
money and the different ways that that could evolve. And then you’ve got even bigger questions
where we don’t have good answers: what does the future of AI and quantum computing and these
sorts of innovations mean? So its become a really intriguing space to work in.
Tim Adams
And are you doing sandboxing or are you meeting with start-ups, fintechs, answering their questions,
understanding where the technology is going? I know we often, get the engineers in the room with
certain international standard-setters just to ask the question, what are you whiteboarding,
what’s in the pipeline, what are we going to see 24 months from now? Are you doing that?
Brad Jones
Yeah, we are and we do that in different ways. The two that really stand out we have - every year the
Payments Systems Board, that just met last week, invites representatives from the fintech community
to come and spend an afternoon with us and talk to us about, what are you working on, what’s
interesting, what are the road blocks to making the payment system more efficient, more innovative?
So that’s - we do do a lot of industry consultation, as do our colleagues at ASIC, I should add.
The other really tangible element of that, and maybe I can speak about this a bit later, is
we’re just in the process of standing up a new pilot for central bank digital currency and
stablecoins and tokenised bank deposits. So that’s a very practical way that we’re sort of
trying to engage right on the frontier and work out how could some of these innovations support
competition, efficiency and resilience in the Australian financial system.
Tim Adams
Let me come back to CBTs, so that’s a whole another area in itself. Joe, your entity is on a
journey to be much more digitally savvy and technologically at the cutting edge. Tell us about that
journey.
Joe Longo
Well, we’re at the early stages of my dream of a digital transformation for ASIC. We had, I
think historically, a bit of a technology debt and we’re trying to catch up there. We’ve
assumed responsibility now for the business and corporate registries for over a year now. They came
back to us from the Tax Office after three years there and that’s created a really complex,
challenging set of issues for us. For those of you who want to know more about it there’s a
gentleman called Damon Rees who did a report for the Government and that’s on the internet. So
some of the systems we’re relying on for critical infrastructure are aged and we’re in the
process of stabilising and modernising those. As far as the agency itself is concerned there’s a
range of investments and the way in which we interrogate data, there’s some AI, what you would
call an AI-like technology that’s helping us with that and we’re about to embark on some
significant new investments to support our enforcement activities. But I suppose, and I’ve said
this at another conference earlier in the week, I think this whole question for us as a regulator,
and I would suggest for any institution, public or private, is that an underinvestment in data
systems technology, if that is sustained then you risk becoming basically irrelevant, and I think
that’s really - as a modern regulator, an ambitious regulator, I don’t want that to happen.
Tim Adams
And can you find the talent you need in-house to get you there?
Joe Longo
There’s a real war for talent, isn’t there? In this space the - particularly anything to do
with AI. There’s only so many people who really know what they’re talking about. I think
we’ve had some really good success hiring some excellent people. But one of the things I feel
strongly about when it comes, say, to AI is that it’s a classic example of collaboration. So we
have excellent relationships with some of the country’s leading universities. We have good
connections overseas and in the private sector we share knowledge and information with our fellow
regulators and within the public sector because developments in that area, I’m sure I don’t
have to tell this audience, are sort of happening daily almost. And so it’s really beyond the
kin, I think, of any regulator to really stay on top of it. Your best chance is to have a really
robust network, if I can put it that way.
Tim Adams
Brad, we share your excitement about tokenisation. It’s a topic that’s front and centre of
our digital team’s daily efforts. Central bank digital currency, every central bank I see around
the world and I see a lot of them. Everyone is engaged in the R&D process. Some are adamant about
moving forward. Our friends in Europe are adamant we’re going to get a digital Euro. In the
United States, they’ve now signed an executive order no CBDCs for a variety of reasons.
It’s become a toxic term. So where are you in the spectrum of we’re ready to go. We’re
going to make this work to, we have concerns, and then there are other places inbetween who say,
we’re going to be very cautious and see how the rest of the world develops.
Brad Jones
Yeah. We’re somewhere in the middle of that spectrum. We have a very open mind. What we have
come out and said, in fact a few months ago, was to say that where we see potentially the biggest
uplift to the functioning of the payment system and the financial system more generally and the least
number of challenges is more in the wholesale space, rather than in the retail space. So Australia,
we already have a fast payment system. Some of these countries that are looking at a retail CBDC
don’t, for instance. And when we look at costs in our system, our system - retail payment system
fares pretty well internationally. We also know that if we ever pushed into that space there’s a
whole host of challenges. You know, you bring into the frame the possibility of digital bank runs and
all sorts of things. It’s not to say that we’re never going to go there. We are continuing
to do more work there but at the moment our present assessment is the upsides are a bit more obvious
in the wholesale space and the challenges are a bit less pressing, so we’re channelling more of
our research, more of our resources into thinking about how could we uplift the functioning of our
wholesale markets, that’s wholesale infrastructure, as well as looking at new forms of money
that could be used as a settlement asset to facilitate trading on different types of platforms.
Tim Adams
Let’s take that a little bit deeper. So let’s say you achieve what you want to achieve. How
does the world look? How is it different 24 or 36 months to now, given what you would like
to see in terms of tokenisation, wholesale CBDC? What are the benefits and the daily application
differences in what we have today?
Brad Jones
Part of the reason that we’re focusing more of our effort on the wholesale side is we can see
some potential upsides from areas like atomic settlement in tokenised assets, which would reduce
counterparty risk, and it would free up collateral. So instead of having your capital tied up for two
days, in the T+2 system, potentially with atomic settlement you have automatic exchange of
funds. Programmability. Having money be able to do things, like facilitate trade invoice transactions
based on where a parcel is at certain points in the world is really interesting, particularly for a
trading economy like ours. So there’s a really interesting cross-border element to it. To the
extent that we could have more active trading, more liquidity, more informational transparency that
tokens would allow for. These are all - there’s enough in there that suggests to us, okay,
we’re going to kick the tyres on this and we’ve got to engage with industry to better
understand, both the upsides but also the challenges. We’re not drinking the Kool-Aid on the
tokenisation side. We’re having a very deliberative careful look and that’s really a big
part of the reason why we’ve just launched this Project Acacia, which is our next pilot project
to better understand what upsides there could be for the Australian financial system but also the
challenges, and hence put ourselves in a better position to make a determination about, is that where
we want to go?
Tim Adams
What is the timeframe?
Brad Jones
So this project will be concluded by the end of the year. We’ll write a report at the end of the
year, as we did with our first major pilot a couple of years ago, and that will set out, I guess, our
high-level reflections on what we’ve learnt and articulate a path forward. There’s not
going to be any imminent decision. We have - late last year we set out a three-year roadmap, however,
for how we’re thinking about different priorities on this sort of CBDC investigative journey and
there’s some other elements to that as well. We’re standing up new industry advisory
groups, academic advisory panels. We’re going to do a public, deliberative consultation on
retail CBDC. So we’re going to get together some focus groups and better understand how the
public are thinking about these sorts of things. So there’s a whole list of things we’re
going to do. And our counterparts at Treasury have also committed to assisting work on a review of
the regulatory sandbox. And there’s potentially some lessons we can learn internationally. So
there’s a whole lot of things that will be going on over the next couple of years.
Tim Adams
Sounds fabulous. Joe, crypto assets are a huge issue. It feels like we’re at an inflection
point. This is about accelerate at a fairly fast pace in a variety of places, certainly here in
Australia. What’s the vision for crypto assets here?
Joe Longo
Stepping back there’s definitely been a renewed interest in crypto politically in Australia,
both major parties have views and obviously there’s been some very significant developments in
the US. But just putting all that to one side our job is to administer the law the way it is. It
sounds very boring but somebody has to do it. And the law we have today has been in place a long
time. And so we take a technology-neutral approach. Having said that, I think the arrival of crypto
assets wasn’t envisioned under our current framework. So crypto assets came along and it was a
real regulatory challenge for us, as to whether to use the jargon "where they sat" and what kind of
activity associated with investing in crypto, whether that was a financial product or service, a
so-called regulatory perimeter issue. So we’ve been grappling with that for some time and
there’s been - we’ve published some regulatory guidance about that some time ago and we
also ran some court cases, about four or five of them, and testing that regulatory perimeter. Some of
those cases have gone on appeal. In more recent times, and this is probably what you’re getting
at, there was a real appetite, I think, in the sector to us saying, look, we want more guidance. We
want more certainty about what ASIC’s approach will be. So we published for consultation a
revised information sheet because at this point in time our knowledge and understanding of how these
activity work and our understanding of the legislation had improved through experience and through
the court cases. So that’s what we did. Now, that’s generated some interest. Some elements
of the sector, sort of, welcome the guidance. Other people were surprised to get the guidance they
got. Other people were right in the middle of these consultations and will clearly be publishing a
report but I think the key message is our job at the moment is to administer the law the way it is
fairly for everybody. And I think we’re agnostic. We’re technology neutral. I think for the
retail punter and investor, I think if you’re going to invest in crypto assets I think it’s
only sensible for me to be cautious. It’s a risky, speculative activity. But putting that to one
side from a regulatory perspective our approach to crypto regulation is the same as it is to
everything else. We’re constantly revising our guidance. We’re constantly consulting but
there’s no doubt at this point in time the interest in crypto has sort of returned in Australia,
I think would be the word I would use. And, secondly - and that’s coincided with ASIC’s
attempts to try to help the sector get clarity around whether they need a licence or not or whether
something is a financial product or not.
Tim Adams
And stable coins.
Joe Longo
I beg your pardon?
Tim Adams
Stable coins.
Joe Longo
Yeah. Well, stable coins are part of the fabric of what we’re talking about. I think the real
issue for me is investing in a whole range of cryptocurrencies and the financialisation of that
activity. So sometimes it’s a financial product or a financial service which will require a
licence. Other times it’s not regulated at all. And so it’s - and it’s a broad sector,
the whole range of approaches to this activity. But as I keep saying, we try to be technology
neutral. We’re trying to administer the law the way it is. We’re trying to treat everybody
the same fairly. Now, the crypto, I know part of the feedback we got, and I was reading it about it
overnight, is inviting ASIC to call for law reform. And that - we sometimes do call for law reform
but we’ve engaged with Treasury. Under the current Government there are proposals, we’ve
made submissions. If people - if the sector doesn’t like what’s coming or if there’s a
better way of doing things, well then no doubt parliament will respond to that.
Tim Adams
Brad, you’ve offered to take a few questions from the audience. Before I get there, so be
thinking about good questions, let me just turn to the issue of AI. I was going to say a day, an hour
that doesn’t go by there’s some new headlines, some new service, some new breakthrough. It
really feels events are moving at a breathtaking pace. I’m struggling to keep up. How do you see
AI, in terms of your day job? Setting aside the technology but just in the world of central banking.
Is it pro-stability, anti-stability, it gives you a greater window into new sectors, the economy.
It’s a powerful tool. How do we use it?
Brad Jones
Well, with that framing in mind I think my first reaction to that question is to be very humble in
your ability to forecast in this area. So we don’t but just step back a little bit from the
technology and from a first principles perspective. So for a central bank the two main areas that are
going to look at this is, what’s the effect on the real economy and what’s the effect on
the financial system? For the real economy, the two threshold questions are, what does this mean for
productivity growth, and hence trend growth? And number two, what does it mean for the labour market?
Now, what’s different about this technology is it will probably be the first one in human
history that potentially disintermediates white collar jobs. We haven’t been there before. Most
- you know, since the industrial revolution for 250 years, it’s typically been the
lowest-skilled workers that - where you’ve seen most of the churn in the labour market from new
technology. This technology is different and so working through the disruptive impact, here’s
going to be some fantastic upside for some skills, some professions. There’s also going to be a
lot of disruption and a lot of churn. So that’s, I would say broadly, how central banks think
about this.
Tim Adams
On a macro level.
Brad Jones
On a macro level. And then there’s the financial side. The financial side I would say
you’re right. There’s two sides to that coin. There’s clearly going to be huge scope
for efficiency uplift and so on. But central bankers are paid to worry and so if your question is
really, what do I worry about in this space for the financial system? My answer would be, number one,
the risk that similar sorts of models are being trained on similar sorts of datasets producing
similar sorts of actionable signals and so that leads you into a world where you have even more
herding, for instance, you know, particularly in a stress environment. That would be one thing to
worry about.
Tim Adams
And correlated events.
Brad Jones
Highly correlated. That would be one area. Another would be to what degree is this obfuscating risk
that’s being built up, say, in how institutions are managing risk or arriving at credit
allocation decisions. Just think about the opacity that led to the structured credit cycle prior to
the GFC. I mean, it was impenetrable for regulators to see what was going on. Most people within
those financial institutions didn’t even know what was going on so that’s another - the
opacity around it is a bit of a worry. And then the issue just around generative AI, in particular,
and the risk of generative AI being weaponised to really undermine confidence in the financial
system, especially in a time of great stress. That’s a really, sort of, uncomfortable issue and
one that I certainly worry about a bit.
Tim Adams
So we need to game that out. I remember during the great financial crisis asking for the legal
documentation for a CDO squared. It was about 1,800 pages. It was -
Brad Jones
Impenetrable.
Tim Adams
Yes. That’s when I knew we were in trouble. Joe, what about you, in terms of AI? How are you
employing it at ASIC and how do you see it as a potential game changer?
Joe Longo
As a Commonwealth agency we’ve published a statement of our use of AI on the 1st of April. So we
use it in a range of areas around the data analysis. We get data from reportable situations and from
other sources. So that’s an obvious, sort of, place for using AI. I think it’s early days
for ASIC. I think it’s part of the - my digital dream that we will be harnessing these
technologies far more than we are at the moment. I think there are a couple of other points I’d
like to make though. One is we have some litigation that’s testing some aspects of this subject
and I think one of the big risks or issues with AI is explainability. And so the technology does
something, let’s say it does something bad, and the question is who is responsible for that. If
something goes wrong, how do we find out? So we’ve got a couple of cases running against
insurance entities where we’re testing their pricing promises. And so what that’s basically
jargon for you get an insurance premium renewal and it says, you’ve got a 10 per cent
discount or you’ve got a loyalty program discount, and I’m sure we’ve all seen
renewals like that. But then you say, well, prove it. So we go in there and we investigate and no-one
can really explain how the algorithm produced the insurance premium. And so we’re running some
cases on that topic. And it’s pretty fundamental stuff because if something does go wrong
we’re a conduct regulator. How do we hold the entity responsible? And that then leads to
questions of governance. How does the entity itself, because most entities most of the time are
trying to do the right thing. That’s always been my operating assumption. So what sort of
governance do you need to satisfy yourself that the product or service you’re providing is
lawful? That it’s not misleading or deceptive. It’s not going to cause harm. And that
it’s resilient. So there’s that issue. As far as regulating AI is concerned, I think what I
like to remind people of, it’s regulated now in the sense there are general principles of law
that apply. It might be hard to apply but there’s still some law there. Having said that,
I’m personally not a supporter of a bespoke AI regulator. I think that’s not a very good
idea at all. There probably is a need for some form of additional regulation, some overlay, and a lot
of clever people have been thinking about that but there’s really no - no-one’s come up
with a simple framework and so as things stand I think the acceleration of change and innovation in
this area, and wanting to keep on top of the risks and opportunities it’s really, I think,
almost unprecedented, just the rate of change. So - but we’re all in it together and we’ll
have to figure it out.
Tim Adams
That’s a good way of putting it. Ladies and gentlemen, we have about three minutes. Happy to
take a couple of questions from the audience. If you just want to raise your hand and we’ll
bring a microphone to you. No questions for once.
Questioner
-
name redacted
is asking Brad Jones about prospects for payment system reform. Obviously
we’re in the last gasp of this parliament so assuming the existing legislation gets carried
over. What’s the roadmap look like around payment system reform?
Brad Jones
We obviously would have liked the PSRA reforms to have gone through. We’re strongly supportive
of it and we remain so. So irrespective of what happens over the next couple of months on the other
side of that, we will be just as full-throated in our support for those reforms, as we are today. It
will really be a matter for the Government to take that up. But we think there’s some really
important reforms in there because the central piece of legislation for payments was drafted for
another era. It’s no longer fit-for-purpose. You’ve got to pull it into the 21st century.
Tim Adams
That’s from so many of our real book items. One last question. Right there in the back, please.
Questioner
Thanks for your comments, guys. Just a very quick one, Mr Longo, you talked about taking a technology
neutral approach with crypto assets and so on and so forth. How is this done when - like how do you
divorce the technology from it when it underpins the product itself in such a fundamental way? Like
what kinds of things are you talking about there to take a neutral approach?
Joe Longo
Yeah. Well, the way the legislation works, the policy underlying it doesn’t prefer one
technology over another. And so the - so crypto comes along and says, we’re special. We’re
very innovative. We’re special. We want to be regulated differently. And that may be true. Maybe
we do need to regulate crypto differently. But as things stand we have a very well complex financial
services and products regulatory framework and that framework is technology neutral. So when you read
it, and by the way I wouldn’t recommend you read it, it’s actually really turgored, the
worst drafted parts of the legislation but that’s three and a half years of the Australian Law
Reform Commission of chapter 7. So that’s what I mean by technology neutral. It’s not the
regulator’s job to prefer one technology over the other. The way the legislation is intended to
work is to create good outcomes for investors and consumers and that’s usually a
disclosure-driven thing. And depending on the activity you may need a licence. But as I think
Brad’s noted and I’ve noted, certainly crypto just wasn’t in the contemplation of the
drafters of chapter 7 when it was put together. And so we’re doing our best to make that
legislation work for everybody fairly, technology neutral. So sometimes some of the crypto
activities, they’re not regulated at all, but some of them are. And so we’ve spent quite a
bit of time over the last three to five years trying to help everybody figure out what’s
regulated and what isn’t and in the meantime try to do that in a sensible way for retail
investors. But there’s no doubt that - you know, I think some law reform would be helpful to
everyone. The current Government has some proposals. With an election coming I don’t know
what’s going to happen to those. Both sides of politics have got ideas about what to do in this
space but in the meantime we’re trying to administer the law fairly for everybody is the way I
would put it.
Tim Adams
All right. That’s a nice way to conclude. A very interesting conversation, Joe and Brad. Thank
you so much for taking time out of your busy day. Ladies and gentlemen, a round of applause, please.