Outline, explain and evaluate the regulation of the Australian financial system from 1996 to the present. IntroductionRapid changes in the Australian financial system have been witnessed from 1980s to present. The previous decade has been concluded as a time of rapid regulatory change. In March 1997; financial system Inquiry (FSI) gave its report proposing new regulatory systems for Australian financial systems. In 1998 (APRA) Australian Prudential Regulation Authority was formed. Australian Securities and Investments Commission (ASIC) took the responsibility of ensuring that consumers are protected in the financial sector. In the same year, Payment system board was formed.
This was within the Reserve Bank of Australia (RBA) and in addition there was introduction of a fresh payment system regulation. Due to these innovations there were international and local developments in Australia. The financial sector Act 2001 began in the same year. In 2002 Financial Services Reform Act 2001 was established. This Act brought about new licensing, disclosure rules and conduct on financial intermediaries, participants and financial operators, (Bottomley, 2003). As noted from Australian Government (2007), APRA was been introduced in 2004.
This was a body which dealt with licensing for the superannuation trustees, while in 2007 to date changes which result from Basel II and which lead to prudential regulations are being introduced. These regulatory changes have affected the financial sectors abundantly. Structures of financial system usually changes regularly due to financial innovations and inventions and also as a result of changes in the regulatory framework and economic environment. These factors have led to generation of major changes and as a result this period became the most eventful in the country’s financial history.
There was deregulation which was introduced by Campbell committee as a result of elimination of controls resulting to entry of foreign banks in the country. Deregulation also resulted to new markets and new financial institutions, (Green, 1991). Financial regulation is defined as actions that control and command decisions made by individuals in order to prevent individual decision making which would foresee public interest, (Bottomley, 2003). Regulation can be imposed by a third party or may also be self imposed. In many countries government intervenes in industries or markets through administrative laws, moral suasion, laws and also taxation.
On the other hand, self regulation can be in form of codes of conducts or through industry associations. The performance and efficiency of the market is determined by the practice and design of regulatory framework. This means that market behavior will be shaped by regulatory framework. The benefits of good regulation are that it helps financial services to operate efficiently and profitably, (Hornstein, 2005). There is also confidence while carrying out businesses as companies can get loans in Australian markets at competitive rates with other world markets.
In order to increase the effectiveness and efficiency of the financial regulatory system Wallis report suggested that changes had to be made in the system. As a result of new technology, changing customer needs including economic policy reforms, the Australian financial system has resulted to new changes, (Green, 1991). Corporations and financial services commission (CFSC) has been recommended in the Australian financial system in order to take care of regulations of financial markets, corporations and also financial consumer protection. This would come in place of Australian securities commission which has been termed as inefficient and ineffective.
CFSC should be given powers by the legislature in order to be able to carry out its duties.