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The Australian Financial Market Convergence: Implications for Regulators and Structures

This overview discusses the evolution of Australia’s financial regulatory framework and the transition to a converged financial market. Significant regulatory reforms initiated post-1996 aimed at enhancing coordination among regulatory bodies such as APRA and ASIC. The document highlights challenges in establishing a new structure, including developing common processes and legislation to ensure consistent supervision of similar risks. Critical responses to industry expectations for consolidated supervision and the need for effective oversight in light of recent market failures are also addressed.

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The Australian Financial Market Convergence: Implications for Regulators and Structures

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  1. The Australian Experience Financial Market Convergence –Implications for Regulators and Regulatory Structures Regulatory and Supervisory Issues in Private Pensions and Life Insurance Craig Thorburn Cthorburn@worldbank.org +1 (202) 473 4932

  2. Brief Overview of Recent History • Regulatory Reform introduced after extensive inquiry • New Structure of Regulatory Bodies • New Structure within APRA • New Regulations and Supervisory Approaches

  3. History • 1996 - New Government elected with policy for a Financial System Inquiry, and visionary statements about making Australia a Financial Centre in the Asia Pacific Region • March 1997 “Wallis” Inquiry reports

  4. Functional versus Institutional Approaches ASIC (and ACCC) ASIC APRA RBA Australian functional approach highlights enormous need for communication and co-ordination

  5. Organisational Change • July 1998 – APRA formed, ASIC takes over market conduct • July 1999 – APRA adds state based regulators • August 1999 – APRA’s new structure commences

  6. No industry oriented divisions or staffing groups Cross divisional teams seen as temporary and supplementary A ‘purpose oriented’ structure

  7. Key Challenges • Relocation • Making the new structure work • Inventing common processes • Moving toward common legislation and prudential standards • Developing consistency of approach • “our prime objective is to supervise similar risks in similar ways, regardless of where they occur” as this will lead to a more competitively neutral system and therefore a more efficient one”

  8. Responding to the Expectation of Consolidated Supervision • Widespread industry expectation that there would be capital relief has dissipated • Industry given a standard on supervision that did not lead to any material market change • ELE concept introduced (as a ‘concession’) but no relief there either

  9. The Environment Changes • Responding to failures and losses in superannuation and non life insurance • “the need for more effective supervision to meet community expectations”

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