Australia's financial services sector is in danger of falling behind other countries in the region, says IAG Head of Government and International Relations Nola Watson.

She told last week's ICA regulatory seminar over-regulation could prevent Australia becoming the region's pre-eminent financial services centre.

"We have to think much more strategically about what is going to make us a hub," Ms Watson said. "We must avoid a regulatory regime that will act as a disincentive."

She says competition is fierce from countries such as Malaysia, which has moved ahead with innovative product development in areas like Moslem-oriented "takaful" insurance.

The skills and talent crisis is a major impediment, she says. "We need to think much more creatively about how we are going to resource that."