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Financial regulation in Australia is extensive and detailed.
| | This article needs additional citations for verification .(March 2015) |
Financial regulation in Australia is extensive and detailed.
In 1984 the Government of Australia established the Financial System Inquiry following a period of financial deregulation that started in the early 1970s.
In 1997, leading business figure Stan Wallis [1] produced a report of his inquiry into Australia's financial system, entitled the Final Report of the Financial System Inquiry and commonly referred to as "the Wallis report." [2] Wallis recommended that the best structure for Australia at that time would involve two regulators: one responsible for prudential regulation of any entity that needed to be prudentially regulated; and one responsible for market and disclosure regulation of any financial products being offered to Australian consumers.
Financial regulation in Australia is split mainly between the Australian Securities & Investments Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA). The Australian Securities Exchange has also played a role in regulating market conduct.
ASIC has responsibility for market integrity and consumer protection and the regulation of investment banks and finance companies. However, in practice it manifests this function in the oversight of External Dispute Resolution schemes (EDRs). [3] [4] There is now one ASIC approved EDR scheme operating in Australia, the Australian Financial Complaints Authority (AFCA) was formed to take over from the two previous schemes. Previously there were two ASIC approved EDRs currently operating in Australia. [5] The most prominent is the Financial Ombudsman Service (Australia) (FOS) which receives over 30,000 complaints per year. [6] The second is the Credit and Investment Ombudsman (CIO), which received 4,760 complaints in the 2015/16 financial year. [7] Both the FOS and CIO are not for profit, non governmental organisations funded by members including banks, financial advisers and other financial service providers. Thus, Banking regulators have a significant private and self-regulatory element. The Australian Bankers' Association Inc. is responsible for drafting of the Code of Banking Practice. [8] In 2016 ASIC admitted to the Joint Committee on Financial Services and Corporations that ASIC does not have the power to oversee FOS on a day-to-day basis. [9]
APRA is responsible for the licensing and prudential supervision of Authorised Deposit-taking Institutions (ADIs), life and general insurance companies and superannuation funds. All financial institutions regulated by APRA are required to report on a periodic basis to APRA. APRA has issued capital adequacy guidelines for banks which are consistent with the Basel II guidelines. Investment banks (which do not otherwise operate as ADIs) are neither licensed nor regulated under the Banking Act and are not subject to the prudential supervision of APRA. However, most investment banks are required under the Financial Sector (Collection of Data) Act 2001 to provide statistical information to APRA.
The Reserve Bank of Australia (RBA) retains its central banking functions including responsibility for most payment systems and setting of monetary policy.
The Australian Competition & Consumer Commission (ACCC) regulates anti-competitive behaviour. However, it has an agreement with ASIC that ASIC oversees the majority of bank and financial service product and services providers.
All of these regulators are independent statutory authorities without direct oversight by a government department. Both the RBA and APRA are managed by boards comprising ex officio and independent non-executive directors or governors appointed by the Treasurer, while ASIC and the ACCC are governed by executive commissioners who also have day-to-day responsibility for its operations. The directors and commissioners have security of tenure, and senior personnel face regular scrutiny by parliamentary committees and are bound by statute to act properly. Nonetheless, there is little direct supervision of the regulators' activities.
Senior representatives of the RBA, APRA, ASIC and the Department of the Treasury comprise the Council of Financial Regulators.
The Corporations Act 2001 sets up a uniform approach to the regulation of financial services through a uniform licensing and disclosure regime. The general regulatory position is that a person (whether an individual or corporate entity) carrying on a financial services business in Australia must, unless exempted, hold an Australian financial services licence (AFSL) issued by ASIC.
A financial services business, for which an Australian financial service licence is required, includes:
Central to the regulation is the concept of a "financial product". Under Australian law, the term is defined very broadly to cover facilities through which a person making a financial investment, manages financial risk or makes non-cash payments. There are also a number of financial products that are currently not regulated as "financial products" such as many credit facilities.
The licensing provisions in the Corporations Act 2001 are expressed to have extraterritorial effect, so as to capture regulated financial services activities conducted outside Australia, which are intended to or likely to have the effect of including persons in Australia to use those services.
The Corporations Act draws a clear distinction between the provision of products and services to retail clients and wholesale clients. There are extensive disclosure requirements when financial services are provided to retail clients.
The operation of financial markets (such as exchanges, liquidity pools, crossing systems and other trading platforms) and clearing and settlement facilities in Australia (including clearing houses and other central clearing counterparties), or targeted at Australian users, is subject to a separate licensing regime through the Australian Securities Exchange (ASX).
Most foreign exchange transactions are free from regulation. The RBA has delegated its control to authorised money market dealers and foreign exchange dealers.
Foreign investment in the Australian banking sector is subject to review by the Foreign Investment Review Board, and needs to be consistent with the Banking Act, the Financial Sector (Shareholdings) Act 1998 and banking policy, including prudential requirements. Any proposed foreign takeover or acquisition of an Australian bank will be considered by FIRB on a case-by-case basis and judged on its merits.
Financial service providers (and others) are required by the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 [10] to identify and monitor customers using a risk-based approach, develop and maintain a compliance program, report suspicious matters and certain cash transactions and file annual compliance reports.
The Financial Services Authority (FSA) was a quasi-judicial body accountable for the regulation of the financial services industry in the United Kingdom between 2001 and 2013. It was founded as the Securities and Investments Board (SIB) in 1985. Its board was appointed by the Treasury, although it operated independently of government. It was structured as a company limited by guarantee and was funded entirely by fees charged to the financial services industry.
The Australian Prudential Regulation Authority (APRA) is a statutory authority of the Australian Government and the prudential regulator of the Australian financial services industry. APRA was established on 1 July 1998 in response to the recommendations of the Wallis Inquiry. APRA's authority and scope is determined pursuant to the Australian Prudential Regulation Authority Act, 1998 (Cth).
The Australian Securities and Investments Commission (ASIC) is an independent commission of the Australian Government tasked as the national corporate regulator. ASIC's role is to regulate company and financial services and enforce laws to protect Australian consumers, investors and creditors. ASIC was established on 1 July 1998 following recommendations from the Wallis Inquiry. ASIC's authority and scope are determined by the Australian Securities and Investments Commission Act 2001.
The Financial Services and Markets Act 2000 is an act of the Parliament of the United Kingdom that created the Financial Services Authority (FSA) as a regulator for insurance, investment business and banking, and the Financial Ombudsman Service to resolve disputes as a free alternative to the courts.
Banking regulation and supervision refers to a form of financial regulation which subjects banks to certain requirements, restrictions and guidelines, enforced by a financial regulatory authority generally referred to as banking supervisor, with semantic variations across jurisdictions. By and large, banking regulation and supervision aims at ensuring that banks are safe and sound and at fostering market transparency between banks and the individuals and corporations with whom they conduct business.
The Australian financial system consists of the arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims in Australia, comprising:
Banking in Australia is dominated by four major banks: Commonwealth Bank, Westpac, Australia & New Zealand Banking Group and National Australia Bank. There are several smaller banks with a presence throughout the country which includes Bendigo and Adelaide Bank, Suncorp Bank, and a large number of other financial institutions, such as credit unions, building societies and mutual banks, which provide limited banking-type services and are described as authorised deposit-taking institutions (ADIs). Many large foreign banks have a presence, but few have a retail banking presence. The central bank is the Reserve Bank of Australia (RBA). The Australian government’s Financial Claims Scheme guarantees deposits up to $250,000 per account-holder per ADI in the event of the ADI failing.
In general, compliance means conforming to a rule, such as a specification, policy, standard or law. Compliance has traditionally been explained by reference to the deterrence theory, according to which punishing a behavior will decrease the violations both by the wrongdoer and by others. This view has been supported by economic theory, which has framed punishment in terms of costs and has explained compliance in terms of a cost-benefit equilibrium. However, psychological research on motivation provides an alternative view: granting rewards or imposing fines for a certain behavior is a form of extrinsic motivation that weakens intrinsic motivation and ultimately undermines compliance.
Australian insurance law is based on commercial contract law, but is subject to regulations that affect the insurance industry and insurance contracts within Australia. Commonwealth Parliament has power to make laws with respect to insurance and insurance companies under section 51(xiv) and (xx) of the Australian Constitution. Generally, the Insurance Act 1973 and Insurance Contracts Act 1984 are the main acts that apply, however there are a number of other pieces of legislation enacted by the states, private codes and voluminous case law all of which forms the body of insurance law.
Australia's insurance market can be divided into roughly three components: life insurance, general insurance and health insurance. These markets are fairly distinct, with most larger insurers focusing on only one type, although in recent times several of these companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates. With services such as disability insurance, income protection and even funeral insurance, these insurance giants are stepping in to fill the gap where people may have otherwise been in need of a personal or signature loan from their financial institution.
The Financial Ombudsman Service (FOS) was a member-funded Australian ombudsman service that provided external dispute resolution for consumers who were unable to resolve complaints with member financial services organisations.
Ombudsmen in Australia are independent agencies who assist when a dispute arises between individuals and industry bodies or government agencies. Government ombudsman services are free to the public, like many other ombudsman and dispute resolution services, and are a means of resolving disputes outside of the court systems. Australia has an ombudsman assigned for each state; as well as an ombudsman for the Commonwealth of Australia. As laws differ between states just one process, or policy, cannot be used across the Commonwealth. All government bodies are within the jurisdiction of the ombudsman.
The Financial Services Board (FSB) was the government of South Africa's financial regulatory agency responsible for the non-banking financial services industry in South Africa from 1990 to 2018. On the 1 April 2018 its responsibilities were split into two new agencies the Financial Sector Conduct Authority (FSCA) for conduct regulation and the Prudential Authority (PA) for prudential regulation.
The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom which operates independently of the UK Government and is financed by charging fees to members of the financial services industry. The FCA regulates financial firms providing services to consumers and maintains the integrity of the financial markets in the United Kingdom.
The Financial Ombudsman Service (FOS) was a member-funded Australian ombudsman service that provided external dispute resolution for consumers who were unable to resolve complaints with member financial services organisations.
Foreign exchange regulation is a form of financial regulation specifically aimed at the Forex market that is decentralized and operates with no central exchange or clearing house. Due to its decentralized and global nature, the foreign exchange market has been more prone to foreign exchange fraud and has been less regulated than other financial markets.
Cuscal Limited is an Australian company that provides payments and data to Australian Banks, credit unions, mutual savings banks, corporates and Fintechs.
In Australia, charitable investment fundraisers (CIF) are not-for-profit entities with charitable purposes that take deposits from the public to finance those charitable purposes. CIFs may apply for an exemption from the requirement to hold an Australian Financial Services Licence (AFSL) if the “financial products” they provide is limited to the issue of debentures or the running of managed investment schemes. For example, the solicitation of secured loans that are paid back with interest are considered debentures. Such deposit taking entities have since 2003 also been exempted from certain requirements of the Banking Act 1959.
The Australian Financial Complaints Authority or AFCA is an external dispute resolution (EDR) company for consumers who are unable to resolve complaints with member financial services organisations. It is operated as a not-for-profit company limited by guarantee and was authorised in 2018 by the then Minister for Revenue and Financial Services, Kelly O'Dwyer, in accordance with the Corporations Act 2001 (Cth).
Fintech in Australia is the evolving intersection of financial services and advanced technology in the Australian market. It involves innovations in banking, investment, insurance, and personal finance, facilitated by technologies such as blockchain and artificial intelligence.