The Financial System Inquiry has commissioned further analysis of the costs and benefits of regulation, after submissions complained about the compliance burden.

“Evidence suggests there is no case to make significant changes to Australia’s regulatory framework,” the inquiry’s interim report says.

“However, submissions and stakeholders suggest a wide range of refinements.”

The impact on smaller institutions of the fixed cost of regulation is among the issues for further study.

The inquiry does not specifically address the life and general insurance capital regime, but it notes insurance failures can contribute to systemic risk and are a focus of new global measures.

“Although in broad terms financial market losses do not affect the magnitude of insurance liabilities, insurers do write business and conduct activities that are connected to the financial markets,” it says.

“Thus, the disorderly failure of a large insurer and the consequent cessation of coverage can damage the economy, as seen in the case of HIH.”

The International Association of Insurance Supervisors is finalising measures for global systemically important insurers, which are unlikely to include Australian groups.

The inquiry report says it is not clear if arrangements will be made for domestic systemically important insurers, and asks for submissions on the costs, benefits and trade-offs of further capital requirement increases.

It supports the “twin peaks” model, based on the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission (ASIC), but flags potential changes to their funding.

“There is a case for moving to an industry-funding model for ASIC, based on approaches taken in the UK, Canada and other jurisdictions.”