Financial regulation in Australia
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Financial regulation in Australia is extensive and detailed.
In 1996 the Australian Government established the Financial System Inquiry following a period of financial deregulation that started in the early 1980s.
The inquiry, chaired by Australian businessman Stan Wallis, in 1997, produced a report of his inquiry, titled the Final Report of the Financial System Inquiry, commonly referred to as "the Wallis report" which found 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 and 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). There are two ASIC approved EDRs currently operating in Australia. The most prominent is the Financial Ombudsman Service (Australia) (FOS) which receives over 30,000 complaints per year. The second is the Credit and Investment Ombudsman (CIO), which received 4,760 complaints in the 2015/16 financial year. 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. 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.
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 Australian Competition and 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.
Australian Financial Services Licence
The Corporations Act provides for a uniform approach to the regulation of financial serves 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 either hold an Australian financial services licence (AFSL) issued to that person by ASIC or fall within a licensing exemption.
The regulated financial services for which an Australian financial service licence is required are:
- dealing in a financial product;
- the provision of advice;
- making a market for a financial product;
- operating a registered managed investment scheme;
- providing a custodial or depository service in respect of financial products.
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 2008 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.
- Financial System Inquiry (1997). Final Report of the Financial System Inquiry. Canberra, Australia. Retrieved 13 July 2014.
- ASIC Regulatory Guide 139
- Corporations Act 2001 (Cth) s 912A
- "ASIC-approved dispute resolution schemes".
- "Annual Review :: Financial Ombudsman Service". fos.org.au. Retrieved 2016-01-17.
- "CIO Annual Report on Operations 2016".
- "Code of Banking Practice - Australian Bankers' Association". www.bankers.asn.au. Retrieved 2016-01-17.
- Hansard, Joint Committee on Corporations and Financial Services 16 March 2016.