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FSI Report: Technology presents business opportunities, consumer risks and regulatory headaches

FSI Report: Technology presents business opportunities, consumer risks and regulatory headaches

July 16, 2014 8:54 AM | Posted by Harry Aitken | Print this page

Technology is having a dramatic influence on the state of the Australian financial system. Developments in consumer forums, data collection methods, transactional mechanisms and cloud technology have spawned new products, services and market entrants.

The FSI Report navigates the panoply of opportunities and risks created by technology advancements and identifies key issues for further exploration. Three issues are particularly insightful.

1. Regulatory neutrality facilitates innovation and mitigates risk

The FSI Report identifies that laws which are not technology neutral stifle business innovation. For example, legislation which requires physical documents to be used for data storage, lodgement or evidentiary purposes provides a disincentive for businesses to develop new and more efficient e-service models. Such restrictions are needless and are usually attributable to a failure by regulators to anticipate advancements in business functionality.

The advantages of technology neutral drafting far outweigh the risks identified in the FSI Report, which focus on the potential for interpretative ambiguity for regulators. Regulators need to be dynamic when administering legislation and should be more open to new business and service models. On this basis, the FSI Report's policy proposals to amend outdated regulation and impose a new principle of technology neutrality for future regulation should be welcomed.

2. Businesses must appreciate privacy risks when exploiting customer data

Businesses are beginning to exploit vast reserves of online customer data – especially payment information – to predict behaviour and to enhance marketing and cross-selling opportunities. Privacy is a concomitant risk for companies in this area. The new Australian Privacy Principles (APPs) are the key mechanism to govern the collection, use, disclosure and management of personal information by certain private sector organisations. Importantly, the FSI Report recognises that particular types of data used to predict consumer behaviour may constitute 'sensitive information' for the purposes of the Privacy Act 1988 (Cth). This means that businesses must obtain the necessary consents when collecting personal information as well as exercising particular caution when disclosing that information.

3. The government must provide greater cyber security protection to the private sector

The FSI Report underscores the severity of the cyber security risk facing Australian businesses. It also sets out the present inability of the government's outdated Cyber Security Strategy (CSS) to protect the private sector. Disappointingly, however, the FSI Report does not touch on the effectiveness of new offences in the Criminal Code Act 1995 (Cth) which target cyber crime.

The key takeaway for businesses from the FSI Report is that under the CSS, cybercrime is conceptualised as a 'shared problem' for business and government. The goal is to empower businesses to look after themselves. In the absence of a strong policy and legislative response from the government, the burden falls on companies to implement their own cyber defences.

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