Australian Banking Regulation and Reform

This assignment involves a critical examination of Australia's banking regulatory framework. It delves into various aspects such as bank risk management practices, corporate governance structures, and the influence of international regulations on the Australian banking sector. The provided resources explore historical developments, current challenges, and future directions in regulating the Australian financial system.

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REGULATION OF AUSTRALIAN BANKS
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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

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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)
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

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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

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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)
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

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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

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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)
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)

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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)
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)

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