REGULATORY BODIES

The Reserve Bank of Australia (RBA) is Australia's central bank. Deregulation of Australia's financial system began in the early 1980s. Prior to this, banks' activities were restricted by highly rigid legislation.

Financial markets' deregulation has included removing the barriers between classes of financial institutions and integrating Australia into world capital markets. Exchange controls were abolished and foreign banks allowed entry. Restrictions remain for institutions properly describing themselves as banks.

Since 1998, financial institutions have been supervised by the Australian Prudential Regulation Authority (APRA). This sector now includes banks, insurance companies, superannuation funds and building societies.

APRA's prudential statements, formulated after consultation with Australian banks and influenced by overseas supervisory policies (particularly, the Basel Committee on banking supervision) require a bank to have a minimum proportion of capital in relation to the assets it holds. This underpins the viability and stability of banking and finance in Australia.

Responsibilities of the RBA include:

  • Advising the government in relation to monetary policy, including setting official reserve bank interest rates
  • Giving effect to the monetary policy of the government for domestic and international involvement in the capital markets
  • Maintaining public confidence in the operation and stability of the financial system
  • Maintaining notes and coins issue and the public debt and foreign exchange reserves
  • Managing market liquidity
  • Collecting statistics from financial institutions on monetary and credit developments.

APRA's primary task is to ensure that organisations in the banking and financial services sector manage their risk appropriately. This includes Authorised Deposit-taking Institutions (ADIs) such as banks and credit unions and includes insurance companies. APRA's regulatory approach is risk-based, targeting areas such as:

  • Capital adequacy
  • Liquidity
  • Large exposures
  • Credit quality
  • Ownership and control
  • Outsourcing
  • Audit and related arrangements for prudential reporting
  • Funds management and securitisation
  • Governance.

The Australian Securities and Investments Commission (ASIC) has responsibility for the supervision of operators of financial markets, clearing and settlement facilities, and market participants. It advises the government on licensee operating rules as well as on new market and clearing and settlement facility operators. ASIC's other main role is to regulate consumer protection in the financial sector. ASIC has responsibility for consumer protection issues relating to all financial services entities, including APRA-regulated bodies such as banks. One of ASIC's chief roles is to protect consumers in the financial system against unfair practices and misleading and deceptive conduct. ASIC is also responsible for regulating the licensing of persons who carry on a financial services business in Australia. Various persons are exempt from requiring an Australian Financial Services Licence (AFS Licence), including foreign financial service providers in some circumstances.

THE BANKING MARKET

Four major banks operate in Australia: Australia and New Zealand Banking Corporation, National Australia Bank, Commonwealth Bank of Australia and Westpac Banking Corporation (which includes its separate brands, St George Bank and Bank of Melbourne). Collectively, these banks have the majority of banking business in Australia. As a result of the Global Financial Crisis (GFC), in October 2008 the Federal Government implemented a system of providing a guarantee in relation to borrowings by Australian banks. This has substantially bolstered their position in the home lending market and the deposit market, given the added confidence such guarantee provides to their customers/lenders. The Federal Government guarantee is being rolled back due to the strength and confidence in the Australian banking system (although the guarantee is not proposed to be abolished entirely).

The remaining business is shared by smaller regional banks, foreign banks, merchant banks and other financial intermediaries. Most of the global banks such as HSBC and Citibank are present in Australia as are many well-known investment banks, for example Macquarie Bank Group, Credit Suisse, UBS and Deutsche Bank. Prior to the GFC, there was an emergence of nonbank lenders in the home loan market. However, due to the impact of the GFC on world securitisation markets, these lenders have lost substantial market share to the major banks.

FOREIGN EXCHANGE CONTROL

The RBA has responsibility for foreign exchange control under the Banking (Foreign Exchange) Regulations 1959 (Cth). Most restrictions on foreign currency transactions were removed when the Australian dollar was floated in 1983. The RBA maintains general oversight of dealers in the foreign exchange market and sets conditions and prudential standards.

The flow of currency into and out of Australia is monitored through a reporting system administered under the Financial Transaction Reports Act 1988 (Cth). This Act requires, among other things, designated cash dealers and individuals to report significant transactions – those involving AU$10,000 or more – to the Australian Transaction Reports and Analysis Centre (AUSTRAC). Similarly, where a cash dealer has reasonable grounds to suspect that a transaction may be relevant to an offence under federal law, the dealer must also report the transaction.

The RBA's express approval may be required to complete some foreign exchange transactions. For example, the RBA has restricted foreign exchange transactions with governments and nationals of countries subject to United Nations (UN) sanctions. Countries and their nationals currently sanctioned include Zimbabwe and North Korea. Following the 9/11 terrorist attacks in 2001, the RBA exercised its powers to prohibit transactions identified by the UN and the US as being linked to terrorism. These sanctions have now been superseded by specific UN antiterrorism legislation, with input from Australia's Department of Foreign Affairs and Trade.

Anti-Money Laundering Counter-Terrorism Finance (AML/CTF) legislation

AUSTRAC is the regulator and specialist financial intelligence unit under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). The AML/CTF Act covers the financial sector, gambling sector, bullion dealers and other professionals or businesses (reporting entities) that provide particular "designated services". These designated services are defined in section 6 of the Act. The AML/CTF Act imposes a number of obligations on reporting entities when they provide designated services, including the obligation to implement and report on compliance plans.

An individual, company or other entity that provides a designated service is a reporting entity. Such entities include banks, nonbank financial services, remittance (money transfer) services, bullion dealers and gambling businesses. Every reporting entity needs to submit an AML/CTF compliance report to AUSTRAC (with the exception of AFS Licence holders, who only provide the designated service of making arrangements for a person to receive another designated service).

The AML/CTF Act was implemented in stages to allow industry to develop the necessary systems and procedures in the most cost-efficient way to meet their obligations. However, Australia continues to take an increasingly stronger stance against AML/CTF activity and on 1 November 2011 new mandatory enrolment and registration requirements came into effect for reporting entities.

All reporting entities are required to register with AUSTRAC and have their name entered into the Reporting Entities Roll. This roll will be used to determine whether or not the business is subject to the annual AUSTRAC supervisory levy and the amount of the levy that will be applied.

TAKING SECURITY

In lending transactions or other transactions that are intended to be secured over property belonging to an Australian entity or located in Australia, certain registration requirements need to be considered to ensure that such security is effective in the insolvency of the security provider and provides the secured party with the priority it requires.

Prior to 30 January 2012, security provided by a company or an Australian registered body was required to be registered under the Corporations Act 2001 (Cth) (Corporations Act) and, depending upon the nature of the assets the subject of the security, may have required registration under certain state-based legislation. Security provided by natural persons may, depending upon the nature of the assets the subject of the security, have required registration under various state-based legislation.

From 30 January 2012, new laws apply throughout Australia in relation to taking security over personal property. The Personal Property Securities Act 2009 (Cth) introduces a comprehensive legislative regime governing a wide range of security interests in property, other than land and some property that is specifically excluded, such as water rights and certain mining tenements. The new system is based on similar systems operating in Canada, the US and New Zealand and provides Australia with a single register for recording security interests in personal property. The new laws apply to security interests in personal property located in Australia and to security interests granted by any person or entity located in Australia, including companies and Australian registered bodies. The new system supersedes the charge registration provisions previously in operation under the Corporations Act as well as most state-based security registers.

Security interests in land continue to be registered under the applicable state or territory land registration system.

SUPERANNUATION AND PENSIONS

The Federal Government places great importance on superannuation and retirement savings. The changes in these areas are leading to increasing complexity and the need for a greater depth of knowledge to address this very competitive environment.

The pool of superannuation funds in Australia is now more than its annual Gross Domestic Product. That volume of money creates vast opportunities, but it also entails significant regulation, intense competitive pressures and close media scrutiny.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


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