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Australian Financial Services Industry Overview

On November 10 2012 Sean Rothsey presented this compiled overview to Committee Members of the Finance, Legal and Taxation Committee of the Australian Chamber of Commerce in Hong Kong to assist its members navigate, or assist clients of members to understand and navigate regulatory issues in the Financial Services Industry in Australia.

Reprinted here it provides his interpretation of the myriad of regulating and industry bodies.It is not advice and is meant as a guide only.As always professional advice should be sought for anymatter or thing that relates to individual circumstances .

AUSTRALIAN FINANCIAL SERVICES INDUSTRY REGULATING AND INDUSTRY BODIES

The varying financial organisations in Australia are all subject to and accountable for laws, regulations and regulatory bodies overseeing the financial services industry . The three main bodies consist of Australian Prudential Regulation Authority (APRA), The Australian Securities and Investments Commission (ASIC) and The Reserve Bank of Australia (RBA). Whilst these three are the main arms to the financial services industry, I have compiled an outline of these three plus others.

ASIC

The Australian Securities & Investment Commission monitors and promotes market integrity and protects consumers, investors and creditors. It regulates Australian companies, financial markets and financial services organisations, including those who deal and advise in investments, superannuation, insurance, deposit taking and credit. ASIC also promotes participation in the financial system by investors and consumers and provides information to the public about companies.

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RBA

The Reserve Bank of Australia makes monetary policy decisions aimed at achieving low and stable inflation. The RBA is responsible for maintaining the stability of the financial system, and it manages Australia’s foreign reserves, issues Australian currency notes and is banker to the Commonwealth Government.

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THE AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

The Australian Prudential Regulation Authority (APRA) is an integrated prudential regulator responsible for deposit-taking institutions (banks, building societies and credit unions) as well as friendly societies, life and general insurance and

superannuation. APRA is charged with regulating these financial institutions and for developing administrative practices and procedures (e.g. prudential standards) to give effect to its regulatory role, in a manner that balances financial safety and efficiency, competition, contestability and competitive neutrality.

Deposit-taking institutions are regulated by APRA under a single licensing regime. The Banking Act 1959 gives APRA power to authorise and revoke authorities of authorised deposit-taking institutions (ADIs), to make prudential standards or issue enforceable directions, and to inspect ADIs. In addition, ADIs which are permitted to accept retail deposits are covered by the ‘depositor protection’ provisions of the Banking Act 1959. These provisions provide APRA with the power to act in the interests of depositors, including the power to appoint a statutory manager to an ADI in difficulty to take control of the institution.

The legislation covering life and general insurance companies in Australia provides for the protection of the interests of policyholders. APRA has power under the relevant legislation to authorise and revoke authorities of insurers, to make prudential standards or issue enforceable directions, and to inspect insurers. In the relevant legislation, preference is afforded for the policyholders of statutory funds of life companies and Australian creditors of general insurers over the assets of statutory funds, and assets in Australia of general insurers respectively. A general insurer in Australia is required to hold assets in Australia sufficient to cover the total amount of its liabilities in Australia. In addition, APRA may, in the case of life insurers, seek the appointment of a judicial manager for a troubled insurer.

Legislation provides APRA with various powers with respect to superannuation funds. These include the removal and appointment of trustees covering troubled superannuation funds. The Treasurer can, on public interest grounds, compensate members of a superannuation fund for losses due to fraudulent conduct or theft. The assistance can be funded either from Consolidated Revenue or by levying other superannuation funds. Again, however, members’ and policyholders’ entitlements are not guaranteed by either APRA or the Government.

APRA regulates the superannuation funds’ compliance with the prudential regulation and retirement income provisions of the Superannuation Industry (Supervision) Act 1993, while ASIC has responsibility for the other provisions. The Australian Taxation Office has responsibility for the regulation of excluded funds (i.e. funds that have less than five members).

See http://www.apra.gov.au/Pages/default.aspx

THE FINANCIAL SERVICES COUNCIL

The Financial Services Council represents Australia’s retail and wholesale funds management businesses, superannuation funds, life insurers, financial advisory networks, trustee companies and public trustees. The Council has over 130 members who are responsible for investing more than $1.9 trillion on behalf of 11 million Australians.

See http://www.fsc.org.au

THE STOCKBROKERS ASSOCIATION OF AUSTRALIA

The Stockbrokers Association of Australia, formerly known as the SDIA, is the peak industry body representing institutional and retail broking firms and investment banks in Australasia. They actively engage their members, regulators and other market participants to further strengthen the broking profession. See http://www.stockbrokers.org.au

Their mandate includes

Effectively represent the stockbroking industry on policy and issues with Government and regulatory agencies and customer-supplier – relationship issues with exchanges, clearing houses and other suppliers
Provide professional recognition for industry practitioners
Promote the stockbroking profession
Provide professional education and training
Facilitate to discuss and resolve industry-wide issues
Ensuring members are better informed on issues likely to affect their business
Collecting and publishing statistics on the industry

THE COUNCIL OF FINANCIAL REGULATORS

The Council of Financial Regulators aims to facilitate co-operation and collaboration between the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Australian Treasury. Its ultimate objectives are to contribute to the efficiency and effectiveness of regulation and to promote stability of the Australian financial system.See http://www.rba.gov.au/fin-stability/reg-framework/cfr.html

The Council provides a forum for:

identifying important issues and trends in the financial system, including those that may impinge upon overall financial stability;
ensuring the existence of appropriate co-ordination arrangements for responding to actual or potential instances of financial instability, and helping to resolve any issues where members’ responsibilities overlap; and
harmonising regulatory and reporting requirements, paying close attention to the need to keep regulatory costs to a minimum.

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION (ACCC)

The ACCC administers the Trade Practices Act and the Prices Surveillance Act, and other legislation. It promotes competition, fair trading and consumer protection. It also vets proposed price rises; holds inquiries into pricing practices; and monitors prices, costs and profits of an industry or business.

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AUSTRALIAN TAXATION OFFICE (ATO)

The ATO is the Federal Governments principle revenue collection agency and is part of the Treasurer’s portfolio. Its main role is to administer legislation from taxes and excise. The ATO administers a wide range of revenue laws, including those relating to income tax, company tax, fringe benefits tax, ABN and the Australian Business Register, GST and PAYG, higher education funding, the Medicare levy, self managed superannuation funds and excise duty.

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AUSTRALIAN SECURITIES EXCHANGE (ASX)

The ASX holds an Australian Market License and operates Australia’s largest national stock exchange, regulates access to its markets and the conduct of trading, with the aim of promoting market integrity. It also provides market data and information to users. The ASX develops and implements rules designed to ensure orderly and fair markets, and supervises trading activity in those markets. It acts in association with other regulators, particularly ASIC. The ASX supervises stockbrokers and broking firms but regulatory issues are handled by ASIC.

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CHI-X AUSTRALIA

Chi-X holds an Australian Market License and began in November 2011 as a new entrant as an alternative national stock exchange to The ASX and promotes low latency, high performance proving trading systems and seeks to also bring new order types to Australia.

Owned by a consortium of major financial institutions, Chi-X Global operates Chi-X Australia, Chi-XCanada and Chi-X Japan, and jointly operates Chi-East, a 50:50 venture with a subsidiary of the Singapore Exchange. Owners of Cho-X include UBS , BofA Merrill Lynch, GETCO LLC, Goldman Sachs, MorganStanley, and Quantlab Group LP. Instinet Incorporated, a Nomura Group company. Market share after 12 months peaked at 9% on 1 November 2012.

See http://www.chi-x.com

NATIONAL STOCK EXCHANGE (NSX)

The National Stock Exchange of Australia is a national stock exchange with its genesis in the mergers of the Newcastle, Wollongong, Bendigo , Water and the Taxi Exchanges and specialises in the listing of growth enterprises whilst its SIM Venture Securities Exchange has attracted the listing of organisations with cleantech credentials.

They have unique characteristics offered by each exchange means that the NSX can provide solutions tailored for various entities and their securities. This choice provides a range of commercial and regulatory benefits.

NSX listed companies cover a diverse range, in size, activities and geographic location. Growth enterprises, community based organisations, debt securities, property and investment schemes .

See http://www.nsxa.com.au/about_nsx.asp?region= and http://www.simvse.com.au

OFFICE OF THE PRIVACY COMMISSIONER

The Purpose of the Office is to promote and protect privacy in Australia and to foster greater understanding and protection of human rights in Australia and to address the human rights concerns of a broad range of individuals and groups, typically anti-discrimination legislation.

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CONSUMER CREDIT CODE

The Consumer Credit Code was developed in response to business and consumer concerns as a national initiative to standardise credit practice in Australia. The Consumer Credit Code covers a considerably wider range of credit transactions than previous laws. A credit provider is defined as any business which provides finance to purchase goods, services and land or to lease goods. The Consumer Credit Code applies to these credit providers if they charge for the credit and if

their customers are individuals or residential strata corporations who use it mostly for personal, household or domestic purposes.

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AUSTRALIAN BANKERS ASSOCIATION

The ABA works to ensure that the banking industry views are put forward when governments determine policy or legislation. Many areas of Commonwealth and State law and in some cases international law, impact upon the commercial interests of Australian banks. The Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) regulate banks.

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INSURANCE COUNCIL OF AUSTRALIA

The Insurance Council represents the interests of the Australian general insurance industry. Insurance Council was established to act as the peak body for general insurance companies in Australia licensed under the Insurance Act 1973.

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THE TREASURY

Today, the department focuses primarily on economic policy.

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AUSTRALIAN INDUSTRY SPECIFIC BODIES

The following are an example of industry specific bodies . I have used property as an example because of its proliferation in the regulated funds industry , the unregulated funds industry and in private equity.

PROPERTY COUNCIL OF AUSTRALIA

The Property Council of Australia is the leading advocate for Australia’s $600 billion property industry.

It counts the bulk of the nation’s major investors, property owners and developers – as well as the industry’s professional service and trade providers – amongst its members.

The organisation is governed by a board comprising key leaders from the industry See http://www.propertyoz.com.au

PROPERTY FUNDS AUSTRALIA

The Property Funds Association (formerly ADPIA – Australian Direct Property Investment Association) was established to provide the growing number of direct property investors and managers an organisation to represent their interests, promote their industry and provide a forum for research and education.

The association has grown and expanded its scope to also represent the advisors, consultants and representatives of property investors and managers. The Property Funds Association of Australia is the peak body representing the Australian unlisted wholesale and retail property funds sector.

As the professional association for Australian Financial Services Licensed (AFSL) property fund managers, their advisors, consultants and representatives, we support and promote investment into unlisted property trusts, funds and syndicates, and assist members in developing and operating their businesses. See http://www.propertyfunds.org.au

THE AUSTRALIAN PROPERTY INSTITUTE

The Australian Property Institute represents approximately 8,600 property professionals throughout Australia and overseas. API members include residential, commercial and plant and machinery valuers, property advisers, property analysts and fund managers, property lawyers, and property researchers and academics.

The Institute’s primary role is to set and maintain the highest standards of professional practice, education, ethics and professional conduct for its members and the broader property profession. See www.api.org.au/

Sean Rothsey

About the author:

Sean Rothsey has been a director of listed and unlisted private and public companies in Australia and NZ since 1981 and has been involved in the listing (IPO) or reverse listing (reverse takeover) and private placements of many companies in Australia , NZ South Africa and London.

He is the immediate past chairman and long time director of ASX listed MDS Financial Group Ltd , whose subidiaries include an ASX Particpant (StockBroker) and a director of two of three subisdiaries each holding Australian Financial Services Licenses issued by the Australian Securities and Investment Commission.As a founding Deputy Chairman and director of NISER Ltd he has represented the National Stock Exchange , the Bendigo Exchange and the Taxi Exchange in regional Queensland.

Also conversant with financial services regulations in Hong Kong , China Sean and his network have particularly knowledge of Funds Management structuring and compliance in the Bahamas, BVI and the Cayman Islands

The Merkin Group offer advisory and consultancy services in global business and asset management strategies including corporate governance,risk and compliance as well as facilitating outcomes through valued added solutions, introductions or capital.

Australian Financial Services Industry Overview

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