As part of its drive to make Australia a leading business centre in the Asia Pacific region the Federal Government today announced the implementation of its new system of financial regulation.
This makes Australia a world leader with best practice financial sector regulation.
The Treasurer announced the establishment of a new agency, the Australian Prudential Regulation Authority and key appointments to that Authority.
He also announced the establishment of a new market regulator and consumer protection body, the Australian Securities and Investments Commission and senior appointments to the Commission.
A new high level Financial Sector Advisory Council will report directly to the Treasurer on regulatory and other changes required to make Australia the leading financial centre of the Asia Pacific region.
The reforms are designed to increase competition and improve efficiency, while preserving the integrity, security and fairness of the financial system. Once implemented, Australia will have a stronger regulatory regime designed to better respond to developments in the industry, including globalisation and technological change, and the needs of business and consumers. The package of measures has received wide support.
Decisions concerning the new regulatory authorities and further information on the timetable is provided below.
Establishment of the Commonwealth Regulatory Framework
The Government's aim is to establish the improved regime for financial system regulation at the Commonwealth level, on 1 July 1998, or as soon as possible thereafter, subject to the passage of legislation.
Appointments to the Australian Prudential Regulation Authority (APRA)
For the new prudential regulator to be effective from day one, a number of important decisions need to be set in place regarding the operation of the APRA, including the structure of the organisation and staffing-related issues. With this in mind, the Government has decided to announce its intended nominees for appointment to senior positions in this new body.
These people will operate on an interim basis until the enabling legislation is passed by Parliament and formal appointments can be made.
The relevant appointments are:
APRA Chairman-designate - Dr Jeffrey Carmichael. Dr Carmichael was a member of the Financial System Inquiry and is now a financial consultant and company director. He will bring to the role considerable experience and knowledge of the financial system both as a result of his extensive academic career, where he specialised in the field of banking and finance, and, more directly, in prudentially regulating financial institutions. Dr Carmichael has previously held positions as Chairman of the Australian Financial Institutions Commission (AFIC) and Chairman of the Queensland Office of Financial Supervision. Both institutions are involved in the supervision of building societies, credit unions and friendly societies, which are intended to be transferred to the APRA's jurisdiction if the States and Territories agree. It is envisaged that Dr. Carmichael will be engaged as a part-time consultant to the Treasury before APRA's formal creation to advise and assist with the establishment of the new prudential regulator.
APRA Chief Executive Officer-designate - Mr Graeme Thompson. Mr Thompson is Deputy Governor of the Reserve Bank of Australia (RBA) which is responsible for financial system stability, including the prudential regulation of banks. Mr Thompson has considerable experience in prudential regulation and other key areas of the financial system. His appointment will facilitate effective consultation between the RBA and the APRA in the early years of the new arrangements. The Governor of the Reserve Bank has agreed that Mr Thompson be released now, at the Bank's expense, so he can devote most of his time to the establishment of the APRA.
Australian Securities and Investments Commission (ASIC)
Since the Government announced the establishment of the proposal for a new regulator for market integrity and consumer protection, several representations have been made about the name. The Government has decided to adopt the name 'Australian Securities and Investments Commission' (ASIC) instead of the more cumbersome Australian Corporations and Financial Services Commission (ACFSC).
Mr Alan Cameron, the current Chairman of the Australian Securities Commission will remain as the Chairman of ASIC. The Deputy Chairman, Mr Peter Day and the other Commissioner, Ms Jillian Segal, will also continue their roles as Commissioners in ASIC.
Location of the APRA and ASIC
The headquarters of the APRA will be established in Sydney to ensure that a close relationship is maintained with the RBA which has responsibility for the overall stability of the financial system. This will facilitate the close communication and consultation between the two bodies that is a crucial element of these reforms.
The ASIC will be headquartered in Melbourne, while retaining an Office of the Chairman in Sydney. The additional Commonwealth consumer protection functions to be transferred to the ASIC will be based in Melbourne.
The Government expects a presence to be retained by each of the new regulators in the major State capitals and Canberra, and that opportunities to decentraliseactivities would also be fully explored by the APRA and ASIC. The maintenance of local knowledge and expertise is important to the overall success of these reforms.
In line with this, the Federal Government will seek to negotiate arrangements to transfer all staff now employed by the existing State and Territory regulatory bodies to the APRA or ASIC, as appropriate, to ensure as far as possible that there be no lessening of their present terms and conditions of employment.
As the Insurance and Superannuation Commission is based in Canberra, it is expected that the APRA will retain a substantial presence there for a considerable period of time after its establishment.
Financial Sector Advisory Council
Appointments to the Financial Sector Advisory Council, the new non-statutory body established to provide advice on financial sector developments and policies have also been made.
The Council brings together a broad range of business views from the financial sector to provide the best advice available to the Government on policies to facilitate the growth of a strong and competitive financial system. Together with the regulatory reforms already underway, the Council will help ensure we have an efficient and dynamic financial system that surges ahead as one of the best in the region and in the world.
In addition to providing advice on financial sector developments and policies, the Council will conduct a detailed evaluation of the financial sector reforms, announced on 2 September 1997, five years after their commencement.
Members of Council are appointed in their personal capacity for two-years, subject to continued involvement in the relevant area of the financial sector. Council will meet generally four times a year.
The members are:
Maurice Newman, Chairman, Deutsche, Morgan, Grenfell and Australian Stock Exchange (Chairman);
Don Argus, Managing Director and Chief Executive Officer, National Australia Bank;
Terry Budge, Managing Director, Bank of Western Australia;
Patricia Cross, Director, Suncorp-Metway Ltd;
Les Hosking, Chief Executive, Sydney Futures Exchange;
Richard Sheppard, Deputy Managing Director, Macquarie Bank;
Geoff Tomlinson, Group Managing Director, National Mutual Holdings Ltd; and
John Trowbridge, Executive Chairman, Trowbridge Consulting.
The first meeting of the Council is expected to be held in early April.
FSAC Regional Financial Centre Task Force
The Government is committed to making Australia a leading financial centre in the region. The Government announced the establishment of the Task Force in the December 1997 Investing for Growth statement as a key specialist body that will advise on policies to build on Australia's existing advantages to ensure our full participation in the increasing global trade in financial services.
The Task Force members are highly skilled and experienced business professionals drawn from the financial sector to provide expert advice to the Government through FSAC on developments in international financial markets and on appropriate policies to boost Australia's attractiveness as a financial centre.
The members are:
Les Hosking, Chief Executive, Sydney Futures Exchange (Chairman);
Ken Farrow, Chief Executive, Australian Financial Markets Association;
John Fraser, Executive Chairman and Chief Executive Officer, SBC Brinson Limited;
Richard Humphry, Managing Director, Australian Stock Exchange;
Robert Webster, Executive Director, International Banks and Securities Association of Australia; and
Derek Young, Managing Partner, Asia Pacific Financial Services, Andersen Consulting.
The Treasury will provide the Secretariat for both FSAC and the Task Force. The first meeting of the Task Force is expected to be held in April 1998.
Council of Financial Regulators
As announced on 2 September 1997, the Government intends to establish a Council of Financial Regulators (CFR) comprising the RBA, the APRA and the ASIC to replace the present Council of Financial Supervisors and to extend cooperation across the full range of regulatory functions. To assist in the transition to the new regulatory framework and to undertake full consideration of emerging regulatory issues, the CFR will be established immediately and will meet in an interim configuration comprising the leaders of the existing and proposed regulatory agencies.
The CFR aims to facilitate cooperation and collaboration among its members, the main regulators of the Australian financial system - the RBA, the APRA and the ASIC. Its ultimate objective is to contribute to the efficiency and effectiveness of regulation.
The CFR provides a forum for:
- sharing information and views among its members, and liaison with other regulators and agencies;
- harmonising regulatory and reporting requirements, paying close attention to the need to keep regulatory costs to a minimum;
- identifying important issues and trends in the financial system, including the impact of technological developments; and
- coordinating regulatory responses to actual or potential instances of financial instability, and helping to resolve any issues where members' responsibilities overlap.
The CFR is a non-statutory body which reports to the Treasurer and produces an Annual Report.
Like its predecessor, the CFR will complement, not substitute, the close bilateral arrangements between agencies.
Legislation to establish the new regulatory authorities and to give effect to the main measures announced on 2 September 1997 will be introduced in the Autumn Sittings of Parliament. The new framework for Commonwealth regulation is intended to be in place from 1 July 1998 or as soon as possible thereafter, subject to the passage of legislation.
The legislation to be introduced in the present sittings covers:
- the establishment of the APRA to undertake the prudential supervision of deposit-taking institutions, life and general insurance companies and superannuation funds;
- arrangements for the establishment of the ASIC (subject to the agreement of the Ministerial Council for Corporations);
- the industry levies necessary to fund the new supervision of deposit-taking institutions, life and general insurance companies and superannuation funds;
- the establishment of a Payments System Board within the RBA with responsibility for implementing policies to improve payments system efficiency and to enhance competition in the market for payments services, and additional powers for the RBA to regulate clearing and settlement systems;
- amendments to the Banking Act 1959 to establish a single licensing and prudential regulatory regime for deposit-taking institutions, facilitate the establishment of non-operating holding company structures and enhance the depositor protection arrangements;
- a new Financial Sector (Shareholdings) Bill to implement a standardised regime that will promote widespread ownership in deposit-taking institutions and insurance companies; and
- allocation of the existing responsibilities for insurance and superannuation, currently carried out by the ISC, between APRA and ASIC.
It is desirable to establish the ASIC simultaneously with APRA. In the first stage, steps will be taken to rename the Australian Securities Commission as the ASIC and to allow it to perform existing (or amended) consumer protection and market integrity functions in the financial sector performed by other Commonwealth agencies, such as the Insurance and Superannuation Commission.
Further legislation, covering a second stage of reforms will be introduced later this year. It will:
- subject to the agreement of the States and Territories, deal with the transfer to the Commonwealth of regulatory responsibility for credit unions, building societies and friendly societies; and
- create a consolidated law for market conduct and disclosure in the financial system to be administered by ASIC (including amendments to Corporations Law flowing from the Corporate Law Economic Reform Program).
Discussions with State and Territory Governments
The Prime Minister wrote to the Premiers and Chief Ministers on 2 September seeking 'in principle' agreement, by the end of 1997, to the transfer of prudential and corporate regulatory responsibility for building societies, credit unions and friendly societies to the Commonwealth, and the establishment of the new regulator for market integrity and consumer protection. At the time of announcement of the reforms, the Government proposed that the transfer of regulatory responsibility for financial entities presently regulated by the States and Territories would, if agreed, occur by 1 July 1999.
Industry remains enthusiastic about the reforms and is keen to progress the second stage, as are most of the States.
In light of this support, and to reduce the uncertainties for the staff involved in the supervising authorities, the Federal Government would like to bring forward implementation of the second stage to maximise the benefits for credit unions, building societies and friendly societies.
To initiate the next phase of discussions, the Prime Minister has today written to the Premiers and Chief Ministers to propose that an arrangement be negotiated to achieve a transfer of prudential and corporate regulatory responsibilities for building societies, credit unions, and friendly societies as soon as possible in 1998. These discussions will cover a range of issues of interest to the States and Territories including regulatory issues regarding trustee companies and housing co-operatives. The Commonwealth Treasury will shortly be approaching the States and Territories to begin these discussions at officials' level.
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