Regulation Of Australian Banks For Financial Regulation

History of Bank Regulation in Australia

Discuss about the Regulation of Australian Banks for Financial Regulation.

The Australian nation is one of the reputable countries in terms of financial regulation. This is attributed to the fact that the country has put sufficient policies that govern the sector. The banking sector is one of the efficient sectors that are relied upon for the success of the country’s economy. Today, any country that wishes to compete favorably and sustain its population must invest heavily in the financial sector and regulation of the same. The success of Australia is a story that began long ago and there is enough documentation to depict this state of affairs. In this case, this discussion will examine the history of bank regulation in Australia, the current state as it stands and how the sector can be improved in the future. (Russo 2016, p. 235-260)

The history of bank regulation dates back to the nineteenth century. This was the dawn of many other economies and to be specific, Australia formed its first back during this period. Given that this was a colonial era, Australia exercised most of its regulation from its areas of influence which included states. The business of starting and executing activities of banking and regulation did not go on in a smooth way. The end of the nineteenth century saw a terrible fluctuation whereby the states under the influence of Australia underwent a series of depressions. Such states included Victoria. When these trends could not be contained any more, the country lost its economic course through a collapse of several banks. (Milbourne et al. 2010)

The beginning of the twentieth century in the year 1901 was characterized by the establishment of a federation which was enjoined in the Commonwealth association. This implied that the regulatory activities would be executed by this world known setup which had the muscle to ensure that the regulations would be followed to the latter. Through the efforts of the Commonwealth stakeholders, Australia established a central bank which would be used to execute most of the regulatory processes. Apparently, since the establishment of the central bank up to the modern days, Australia has not had any turmoil in the banking sector and no bank has collapsed as a result. (Jarvis 2013, p. 456-467)

The aftermath of the Second World War created the perception that the government had the capacity to control the economy because it had shown indications that it would also regulate banks. As a consequence, new rules were set up. The rules bordered on the capacity to lend, rates of interest, bank reserves and the securities that the government can access. The central bank was derived from the then RBA which was tasked with the duty of oversight upon other banks. The movement of time was described by the changes in the trends in the banking sector. This meant that the sector adopts the new policies as time dictated. More specifically, there was a committee that was formed in the year 1970 and it was known as the Campbell Committee. The suggestions in its report led to a new turn of events which saw the whole banking system deregulated. (Ferran et al. 2015)

Twentieth Century: Commonwealth Association and Central Bank

The results of the Campbell Committee report adversely affected the regulation of the banking sector. This prompted the stakeholders to reintroduce the regulation policies through a process that was called re-regulation. This new development highlighted the weaknesses in the report and did away with most of the suggestions that had resulted to a system of lawlessness in the sector. Re-regulation was facilitated through the introduction of APRA and ASIC which took charge of the situation by instituting new regulations that increased the powers of the Reserve Bank of Australia (RBA) which was later upgraded to the central bank. (Jacob et al. 2010)

The Australian financial sector has had to undergo some turbulent times despite the fact that it has implemented the regulatory policies. For instance, the last decade has been described by governance deficiencies attributed to the lack of accountability by the financial advisers. This has adversely affected the banking sector which has been depicted as a weak entity among other sectors in the operationalization of the Australian government (International 2012, p. 654-666). There are more issues related to the sector and one of them is the insurance claims which have not been fulfilled. These claims are quite rampant and the situation puts the banking sector at risk of losing international repute which had been built over a long period of time. Besides, there is a claim that a major bank in the country has not taken any regulatory steps to reprimand the individuals who were involved in a series of events that border on the money laundering misconduct in the banking sector. (Jang et al. 2012)

Having examined the rich history of the Australian regulation of banks, it is prudent to build upon the history by examining the current status of the banks and the processes of regulation forthwith. The process of bank regulation in modern day Australia is described by the systems of governance and the structures that have been instituted to supervise all the banks (Mohamed et al. 2012). This arrangement is fulfilled through parliamentary legislations, issuance of licenses, creating liquidity rules and establishment of requirements for foreign investors. To strengthen this process, the stakeholders must incorporate the services of the international organizations which also act as the regulatory agencies. (McElroy et al. 2009)

In terms of legislation, the parliament of Australia often creates laws that govern the banking sector. The parliament derives the laws from previous legislations by amending the acts and statutes which were formed in the past.  Some of the acts include the Banking Act of 1959, Reserve Bank Act of 1959 and the 2001 Corporations Act that is the latest to be reviewed in the parliament. Apart from the acts of parliament, there are other regulatory bodies. The first one is the Australian Prudential Regulatory Authority (APRA) (Fleming 2014, p. 87-90). This is a body that was also created by an act of parliament and the main duty that it performs is to regulate institutions that fall under the category of deposit takers. It also extends its jurisdiction upon insurance companies that specifically offer general and life policies. Another regulatory entity is the Australian Securities and Investments Commission (ASIC). This is an establishment which regulates the financial markets and it has a jurisdiction over corporations and the general conduct of how their stakeholders conduct themselves. Just like APRA, ASIC was also created through an act of parliament and the other important task executed by the latter is to protect investors from external influence (Pauly 2013, p. 54-55). The last authority is the RBA which serves as a regulatory agency that oversees all other activities of the junior banks. Therefore its duties border on policy making, stability of the entire financial system, and the systems of payment for the government and the civil service. Basically, the RBA is the bank for the government. It advises the government on the type and amounts of expenditure to be done and in times of economic depression, it lends money to the government to run its operations. The RBA determines the amount of interest that can be charged by the banks. Therefore it undertakes a general study of the state of the country’s economy so that it can curb incidents of inflation or deflation. The mandate it has upon all other banks is what makes the RBA a very influential institution in terms of regulating the banking sector. (Carmichael et al. 2012)

Banking System Deregulation and Re-Regulation

Another form of regulation that is being practiced in the banking sector is the idea of licensing. This is critical because the world has moved into an era where incidents of fraud are very rampant. For example, the levels of technology have advanced and many fraudsters may take advantage of the gullible public to take their money (Carmichael et al. 2014). Given that banks are deposit taking institutions, there is a tendency for unauthorized institutions to fleece clients of their money and fail to access it in the future. For this reason, the Australian government through the 1959 Banking Act has instructed the APRA to implement policies that will bar any unlawful business from taking off. (In Beccalli et al. 2015)

There is a set of requirements that have been set by APRA which set certain minimums that any organization must meet before it can be admitted as a deposit taking group. The first requirement is that the entity must have adequate capital which must be approved by APRA as sufficient to make reserves for such institutions. The second requirement is the capacity with which the company can manage risks and the systems that form internal control structures. Risks border on the financial losses and the natural occurrences that result to hazards. The institution that seeks to be incorporated in the banking sector must have proper processes that comply with the prudential standards. The banking sector demands that thorough investigations are done upon the information and communications strategies of the prospective organizations so that the clients that will be served are guaranteed of adequate access to the relevant information. The institutions are also expected by APRA to adhere to the requirements of the accounting systems. Lastly, this regulatory authority demands that the institutions exhibit thorough intentions of the audit process which would be done both internally and externally as it is required by the regulations. (Bologna et al. 2010)

The banking system is a subject that should be discussed in from the perspective of the future because of the dynamics of the world today. Regulation should be an exercise that is subject to revision because the environment keeps shifting. There are new forms of trickery that are designed by the agents of doom who wish to sabotage the sector. Currently, Australia has put up adequate forms of regulation but this is bound to get outdated. The demands of the market are projected to change and systems will also shift. The nature of the banking sector corresponds to other sectors but there is a little discrepancy. Banking relies so much on technology especially in the storage of data for the clients. This is critical because the customers exist in large numbers. There is a specific need to regulate the use of technology to limit the incidents of fraud which may tamper with the data. (Islam et al. 2008)

Current Status of the Banks and the Regulatory Frameworks

In terms of licensing, it can be recommended that the regulatory agencies include other security features on the licenses to improve the credibility of those documents. In the same perspective of fraud, the current licenses issued to the deposit taking organizations by APRA do not have sufficient security and they may be duplicated through high level technology. Apparently, the need to make a living in the market may motivate fraudsters to process fake licenses to run their businesses. The importance of secured documents is that they can be easily verified. In fact, APRA should consider using biometric data of the holders of such licenses so that finger prints can be used in case there are any doubts. Biometrics has been used in other governments and the testimonies are quite positive. The future of the Australian banking regulatory system is so bright because some of these recommendations have begun to be implemented. Advanced economies such as the United States have set benchmarks which can be adopted by Australia. (Mugasha 2013, p. 1060-1073)

Another recommendation is that the regulatory agencies should put in place laws that are too stringent. The laws should be oppressive enough to frighten any criminals from engaging in the unlawful acts. Acts of fraud are said to be economic crimes whose charges are very severe in other parts of the nation. Australia can use the parliament to institute policies that will impose very high fines or long imprisonment terms. As it is now, the government of Australia has very lenient terms which encourage people to break the economic laws. (Takts et al. 2009)

The capacity of institutions to function well lies in the support that they get from the governments of their countries. The support ranges from both material and moral gestures. For instance, the regulatory establishments such as APRA and ASIC should be facilitated with finances from the government just to make sure that they are working to achieve their goals. This support should not be seen as a favor; rather, it should be taken as an obligation by the government. The future of the Australian banking sector can be vibrant if they consider funding their institutions abundantly. This is the secret that has been adopted by the large economies of the world such as China and the United States. Moral support borders on the capacity of the government to motivate the staff within these bodies. This could be done by better remuneration and assuring them of the security of tenure. This step is critical in boosting their morale so that they work with passion. In the past, Australia has been quick to execute sacking orders which really affected the regulatory agencies. Motivation may also be done by giving leaves to the workers so that they get time to spend with their families and attend to other personal lifestyles. (Norton 2014, p. 56-60)

Regulatory Bodies in Australia, including APRA, ASIC, and RBA

The last recommendation would be for Australia as a government to enhance inter-organizational visits so that various institutions arrange forums for discussion and interaction. The importance of such engagements is for the institutions to share knowledge and exchange ideas on how to improve the regulatory structure. This will overturn the current notion whereby each body works independently. If such forums are held, the Australian institutions will have a large bank of knowledge and they may not necessarily refer to outside countries for help. This is a country that is endowed with professionals from all manner of fields. If the technicians from the IT field share knowledge with bankers, a lot of knowledge would be created. This is an example to indicate that the process is viable. (Head et al. 2015)

References

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Carmichael, J., Pomerleano, M., & World Bank. (2012). The development and regulation of non-bank financial institutions. Washington, D.C: World Bank. 40(34), 1–7

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