Competition in the financial system will be examined in a Productivity Commission inquiry.

The review – announced in last week’s Federal Budget – aims to improve consumer outcomes, increase productivity and competitiveness and support innovation while balancing financial stability aims, the Government says.

The Financial System Inquiry three years ago found concentration and vertical integration could limit competition benefits in some areas and should be monitored.

“In response, the Government agreed to implement periodic reviews of competition in the financial system and to task the Productivity Commission [this year],” Treasurer Scott Morrison says in the review terms of reference.

The commission will release a consultation paper after the inquiry starts in July, and will deliver its final report 12 months later.

Financial Services Council CEO Sally Loane says increasing competition in any industry is proven to produce better consumer outcomes.

“We are pleased to see the terms of reference cover barriers and enablers to innovation,” she said.

“There is the potential for greater consumer benefits to be unleashed if archaic regulations are updated to be technology-neutral, because this will allow better use of technology solutions to service customers.”