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,[1] comprising:
Most foreign exchange transactions are largely free from regulation, and the Reserve Bank of Australia has largely delegated its control to authorised money market dealers and foreign exchange dealers.
Market participants
Total employment in the finance industry (thousands of people) since 1984
There are several smaller banks with a presence throughout the country, and a large number of other financial institutions, such as credit unions. Many large foreign banks have a presence, but few have a retail banking presence. The central bank is the Reserve Bank of Australia (RBA). Since 2008 the Australian government has guaranteed deposits up to $250,000 per customer per institution against banking failure.[2]
Australia's insurance market can be divided into roughly three components: life insurance, general insurance and health insurance. These markets have been fairly distinct, with most larger insurers focusing on only one type. However, in recent times several insurance companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates.
Superannuation in Australia is government-supported and encouraged, and minimum provisions are compulsory for employees. Superannuation arrangements are provided by banks and insurance companies, though most funds are self-managed. Superannuation funds are tightly regulated.
Payments and clearing systems
There are several payment systems in use within Australia, many of which are regulated by Australian Payments Network (AusPayNet) (previously called Australian Payments Clearing Association (APCA)), including:
Cash
The Australian dollar is Australia’s currency and legal tender in Australia. Clearing and settling of cash payments (also called CS5) are regulated by AusPayNet as the Australian Cash Distribution Exchange System (ACDES).[3]
Cheques
Cheques are still the most important non-cash payment instruments in Australia, in terms of the value transferred. The number of monthly cheque transactions in 2008 was 33.7 million with a value of $139.3 billion.[4] Cheque use is in decline worldwide, but it is declining faster in Australia than many other countries. Between 2010 and 2014, cheque use in Australia declined by 42.8% with just over seven cheques written per person in 2014. In 2014, 166.6 million cheques were used in Australia, compared to 291.1 million in 2010.[5] In 2015, cheque usage fell by a further 16.3%.
Cheques and other payment instruments (such as travellers cheques and warrants) (also called CS1) are cleared and settled in accordance with the regulations and procedures set by APCS.[6]
Cheques use MICR encoding containing the BSB and account number to identify the bank and account to debit, as well as other information to streamline the processing of cheques. In 2014, the cost of processing cheques was the highest of all modes of payments at $5 per transaction, compared to about $0.20 for direct debits.[7]
A recent innovation has been digital cheque imaging, which involves images of cheques being captured by financial institutions and exchanged electronically between the relevant financial institutions rather than the previous costly practice of physically transporting paper cheques around Australia. This has also ended the need for maintaining long-term storage and retrieval systems.[7] The new system speeds up the clearing process, with cheques being able to be cleared at the end of the next weekday after being presented, as opposed to up to the six weekdays under the old system.
Direct entry
Direct entry (also called CS2)[8] can be used to transfer funds between bank accounts in Australia. Clearing and settling is regulated by AusPayNet as the Bulk Electronic Clearing System (BECS).
Direct entry uses the BSB and account number to identify the bank and accounts to debit and credit. Some common uses of the direct entry system include:
setting up monthly direct debits to pay recurring bills such as credit card bills
transferring funds to other bank accounts, also known as third party transfers
payment of wages and salaries
government tax refunds and payments.
Participants of BECS exchange direct entry (DE) files at intervals through the day. Net positions are usually cleared daily.
EFTPOS
EFTPOS (Electronic Fund Transfer Point of Sale) and ATM transactions (also called CS3)[9] occur over the EFT network. Clearing and settling of EFTPOS and ATM transactions are regulated by the AusPayNet as the Consumer Electronic Clearing System (CECS). Between 2005 and 2015, ATM withdrawals dropped by 11.5% but increased 5.1% in value.
BPAY is a bill payment system used in Australia, which is regulated by the four major banks and not by AusPayNet. As of January 2015, the BPAY payments system covered more than 156 participating Australian banks, credit unions and financial institutions.[10] More than 45,000 businesses accept payments using BPAY[10] and each month approximately 30 million bills are paid to the value of $24 billion.[10]
High value payments
High value payments (also known as CS4) are regulated by AusPayNet under the Regulations for High Value Clearing System Framework.[11] The main high value payment systems in Australia are:
Clearing House Electronic Subregister System (CHESS): CHESS is an automated share transfer and settlement system developed by the Australian Securities Exchange. For a CHESS transaction, an interbank request is sent to RITS via SWIFT FIN, the service which sends financial information from one financial institution to another.[12] When RITS notifies CHESS of settlement of the gross amount across ESAs, CHESS finalises the transaction by transferring share holdings at the participant level.
Financial Transactions Recording and Clearance System (FINTRACS)
Reserve Bank Information and Transfer System (RITS) is used by banks and other approved institutions to settle their payment obligations on a real-time gross settlement (RTGS) basis.[13] Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank.
New Payments Platform
The New Payments Platform (NPP)[14] is open access infrastructure for fast payments in Australia. The NPP was developed via industry collaboration to enable households, businesses and government agencies to make simply addressed payments, with near real-time funds availability to the recipient, on a 24/7 basis. Each payment message is capable of carrying much richer remittance information than other systems. The NPP infrastructure supports the independent development of ‘overlay’ services to offer innovative payment services to end-users.
ASIC has responsibility for market integrity and consumer protection and the regulation of certain financial institutions (including investment banks and finance companies or NBFI). The general regulatory position is that a legal person carrying on a financial services business in Australia must either hold an Australian financial services licence issued to that person by ASIC or fall within a licensing exemption.
APRA is responsible for the licensing and prudential supervision of ADIs (banks, building societies, credit unions, friendly societies and participants in certain credit card schemes and certain purchaser payment facilities), life and general insurance companies and superannuation funds. APRA has issued capital adequacy guidelines for banks which are consistent with the Basel II guidelines. All financial institutions regulated by APRA are required to report on a periodic basis to APRA. Certain financial intermediaries, such as 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. They may be required to obtain licences under the Corporations Act 2001 or other Commonwealth or state legislation, depending on the nature of their business activities in Australia.
Most investment banks are registered under the Financial Sector (Collection of Data) Act 2001. This Act requires registered financial corporations to provide statistical information to APRA.
Since 1996 the provision of credit to individuals for personal, household or domestic purposes has been regulated by the Uniform Consumer Credit Code, which has been implemented in all Australian states and territories.
Businesses providing financial products and services are required 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.[15]
↑ Submission to the Committee of Inquiry into the Australian Financial System ("The Campbell Committee"), Reserve Bank of Australia Occasional Paper No 7, December 1979, para 1.
Electronic funds transfer at point of sale is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS technology was developed during the 1980s. In Australia and New Zealand, it is also the brand name of a specific system used for such payments; these systems are mainly country-specific and do not interconnect. In Singapore, it is known as NETS.
A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit.
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms, they are considered as cash.
Cheque clearing or bank clearance is the process of moving cash from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the cheque to the paying bank, either in the traditional physical paper form or digitally under a cheque truncation system. This process is called the clearing cycle and normally results in a credit to the account at the bank of deposit, and an equivalent debit to the account at the bank on which it was drawn, with a corresponding adjustment of accounts of the banks themselves. If there are not enough funds in the account when the cheque arrived at the issuing bank, the cheque would be returned as a dishonoured cheque marked as non-sufficient funds.
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).
A cheque, or check is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where the money is held. The drawer writes various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay the amount of money stated to the payee.
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, 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 (FCS) guarantees deposits up to $250,000 per account-holder per ADI in the event of the ADI failing.
In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. This process turns the promise of payment into the actual movement of money from one account to another. Clearing houses were formed to facilitate such transactions among banks.
A Bank State Branch is the name used in Australia for a bank code, which is a branch identifier. The BSB is normally used in association with the account number system used by each financial institution. The structure of the BSB + account number does not permit for account numbers to be transferable between financial institutions. While similar in structure, the New Zealand and Australian systems are only used in domestic transactions and are incompatible with each other. For international transfers, a SWIFT code is used in addition to the BSB and account number.
The Australian Clearing House Electronic Subregister System is an electronic book entry register of holdings of approved securities that facilitates the transfer and settlement of share market transactions between CHESS participants as well as speed up the registration of the transfer of securities. CHESS was developed by the Australian Securities Exchange (ASX) and is managed by the ASX Settlement and Transfer Corporation (ASTC), a wholly owned subsidiary of ASX.
A payment system is any system used to settle financial transactions through the transfer of monetary value. This includes the institutions, instruments, people, rules, procedures, standards, and technologies that make its exchange possible. A common type of payment system, called an operational network, links bank accounts and provides for monetary exchange using bank deposits. Some payment systems also include credit mechanisms, which are essentially a different aspect of payment.
Australian Payments Network Limited (AusPayNet), formerly the Australian Payments Clearing Association (APCA) is the self-regulatory body set up by the payments industry to improve the safety, reliability, equity, convenience and efficiency of payment systems in Australia.
Payment and Settlement Systems in India are used for financial transactions. They are covered by the Payment and Settlement Systems Act of 2007, legislated in December 2007 and regulated by the Reserve Bank of India and the Board for Regulation and Supervision of Payment and Settlement Systems.
A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFC facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering. Examples of these include insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations. Alan Greenspan has identified the role of NBFIs in strengthening an economy, as they provide "multiple alternatives to transform an economy's savings into capital investment which act as backup facilities should the primary form of intermediation fail."
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
BPAY,, is an Australian electronic bill payment SaaS company which facilitates payments made through a financial institution's online, mobile or telephone banking facility to organisations which are registered BPAY billers.
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below.
Financial regulation in Australia is extensive and detailed.
Cuscal Limited is an Australian company that predominantly provides transactional banking, liquidity and capital management services and products to institutional customers including credit unions, mutual banks and superannuation funds. Cuscal is regulated by the Australian Prudential Regulation Authority (APRA) as an Australian authorised deposit-taking institution (ADI), and by the Australian Securities & Investments Commission (ASIC). It is a member of EFTPOS Payments Australia and the Australian Payments Clearing Association. Cuscal has an A+ credit rating.
An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. The ACH system is designed to process batches of payments containing numerous transactions, and it charges fees low enough to encourage its use for low value payments.
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