Financial regulation in Australia
Financial regulation in Australia is extensive and detailed.
History
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 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." 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.
Regulators
Financial regulation in Australia is split mainly between the Australian Securities & Investments Commission and the Australian Prudential Regulatory Authority. 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. There is now one ASIC approved EDR scheme operating in Australia, the Australian Financial Complaints Authority was formed to take over from the two previous schemes. Previously there were two ASIC approved EDRs currently operating in Australia. The most prominent is the Financial Ombudsman Service (Australia) which receives over 30,000 complaints per year. The second is the, 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, 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 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 Act 2001 to provide statistical information to APRA.
The Reserve Bank of Australia retains its central banking functions including responsibility for most payment systems and setting of monetary policy.
The Australian Competition & Consumer Commission 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.
Australian financial services licence
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 carrying on a financial services business in Australia must, unless exempted, hold an Australian financial services licence issued by ASIC.A financial services business, for which an Australian financial service licence is required, includes:
- dealing in a financial product
- the provision of advice
- making a market for a financial product
- operating a registered managed investment scheme, or
- providing a custodial or depository service in respect of financial products.
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.