Financial system in Australia
Encyclopedia
The Australia
n financial system has several sectors:
According to the Reserve Bank of Australia
: "The financial system is the term used to comprehend the set of arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims."
s, investment banks, finance companies, building or cooperative societies
, credit union
s, friendly societies
, superannuation and approved deposit funds, public unit trusts, cash management trusts, mortgage originators, insurance
companies, institutional funds investing in and financing debt.
There are several smaller banks, and a system of credit union
s throughout the country. Many large foreign banks have a presence, but few target the retail banking
market. The central bank
is the Reserve Bank of Australia
(RBA). Since 2008 the Australian government has guaranteed deposits up to a million dollars per customer per institution against banking failure.
Most foreign exchange
transactions are free from regulation, and the Reserve Bank of Australia has largely delegated its control to authorised money market dealers and foreign exchange dealers.
. These payment systems include:
- ACDES (Australian Cash Distribution Exchange System) also called CS5.
is still the most important non-cash payment instrument in Australia in terms of the value transferred using it each day. The number of monthly transactions in 2008 was 33.7 million with a value of $139.3 billion.
Cheques and other payment instruments (such as travellers cheques and warrants) are cleared and settled pursuant to the regulations and procedures of the APCS
also called CS1.
Cheques payments make use of the BSB
codes to identify the bank and account to debit.
under BECS (Bulk Electronic Clearing System) also called CS2.
Direct Entry uses BSB
and account number to route payments. Some common uses of the Direct Entry system include:
Participants of BECS exchange Direct Entry or DE files at intervals through the day. Net positions are usually cleared daily.
and ATM
transactions occur over the EFT
network. Clearing and settling of EFTPOS and ATM transactions are regulated by the APCA
under CECS (Consumer Electronic Clearing System) also called CS3
.
See also High Value Clearing System also known as CS4.
, VISA
, Diners Club
and American Express
.
(APRA).
ASIC has responsibility for market integrity and consumer protection
and the regulation of certain financial institutions (including investment banks and finance companies). The general regulatory position is that a legal person carrying on a financial services business in Australia must either hold an Australian financial services licence issued to that person by ASIC or fall within a licensing exemption.
APRA is responsible for the licensing and prudential supervision of ADIs (banks, building societies, credit unions, friendly societies and participants in certain credit card schemes and certain purchaser payment facilities), life and general insurance companies and superannuation funds. APRA has issued capital adequacy guidelines for banks which are consistent with the Basel II
guidelines. All financial institutions regulated by APRA are required to report on a periodic basis to APRA. Certain financial intermediaries, such as investment banks (which do not otherwise operate as ADIs) are neither licensed nor regulated under the Banking Act and are not subject to the prudential supervision of APRA. They may be required to obtain licences under the Corporations Act 2001 or other Commonwealth or State legislation, depending on the nature of their business activities in Australia.
Most investment banks are registered under the Financial Sector (Collection of Data) Act 2001. This Act requires registered financial corporations to provide statistical information to APRA.
The Reserve Bank of Australia
is the country's central bank
, with responsibility for most payment system
s and setting of monetary policy
.
Since 1996 the provision of credit to individuals for personal, household or domestic purposes has been regulated by the Uniform Consumer Credit Code, which has been implemented in all Australian States and Territories.
Businesses providing financial products and services are required to identify and monitor customers using a risk-based approach, develop and maintain a compliance program, report suspicious matters and certain cash transactions and file annual compliance reports.
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
n financial system has several sectors:
- Banks, credit unions and building societies
- Insurance (life and general)
- Superannuation
- Financial markets—debt, equity and derivative markets
- Payments systems—cash, cheques, EFTPOS, RTGS and other high-value payment systems
According to the Reserve Bank of Australia
Reserve Bank of Australia
The Reserve Bank of Australia came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank to it....
: "The financial system is the term used to comprehend the set of arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims."
Market participants
Participants in the financial system consist of commercial bankCommercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
s, investment banks, finance companies, building or cooperative societies
Building society
A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially mortgage lending. These institutions are found in the United Kingdom and several other countries.The term "building society"...
, credit union
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
s, friendly societies
Friendly society
A friendly society is a mutual association for insurance, pensions or savings and loan-like purposes, or cooperative banking. It is a mutual organization or benefit society composed of a body of people who join together for a common financial or social purpose...
, superannuation and approved deposit funds, public unit trusts, cash management trusts, mortgage originators, insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
companies, institutional funds investing in and financing debt.
Banking
Banks are the largest participants in Australia's financial system. Banking in Australia is dominated by what are known as the "big four":- ANZ
- Commonwealth Bank
- National Australia BankNational Australia BankNational Australia Bank is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB is ranked 17th largest bank in the world measured by market capitalisation...
- WestpacWestpacWestpac , is a multinational financial services, one of the Australian "big four" banks and the second-largest bank in New Zealand....
There are several smaller banks, and a system of credit union
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
s throughout the country. Many large foreign banks have a presence, but few target the retail banking
Retail banking
Retail banking is banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Services offered include: savings and transactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth.-Types of...
market. The central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
is the Reserve Bank of Australia
Reserve Bank of Australia
The Reserve Bank of Australia came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank to it....
(RBA). Since 2008 the Australian government has guaranteed deposits up to a million dollars per customer per institution against banking failure.
Financial markets
- Australian Securities ExchangeAustralian Securities ExchangeThe Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....
- Sydney Futures Exchange
- Newcastle Stock Exchange
- Bendigo Stock ExchangeBendigo Stock ExchangeBendigo Stock Exchange is a small stock exchange based in Australia.The exchange targets its listing rules at small to medium sized businesses and offers lower listing fees than the Australian Stock Exchange...
Most foreign exchange
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
transactions are free from regulation, and the Reserve Bank of Australia has largely delegated its control to authorised money market dealers and foreign exchange dealers.
Payments and clearing systems
There are several payment systems in use within Australia, many of which are regulated by Australian Payments Clearing AssociationAustralian Payments Clearing Association
The Australian Payments Clearing Association , established February 1992, is an organisation that sets, manages and develops regulations, procedures and standards governing payments clearing and settlement within Australia. Payments systems covered by APCA's rules include cheques, direct entry,...
. These payment systems include:
Cash
Cash payments are cleared and settled pursuant to the regulations and procedures of the APCAAustralian Payments Clearing Association
The Australian Payments Clearing Association , established February 1992, is an organisation that sets, manages and develops regulations, procedures and standards governing payments clearing and settlement within Australia. Payments systems covered by APCA's rules include cheques, direct entry,...
- ACDES (Australian Cash Distribution Exchange System) also called CS5.
Cheques
The chequeCheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
is still the most important non-cash payment instrument in Australia in terms of the value transferred using it each day. The number of monthly transactions in 2008 was 33.7 million with a value of $139.3 billion.
Cheques and other payment instruments (such as travellers cheques and warrants) are cleared and settled pursuant to the regulations and procedures of the APCS
Australian Payments Clearing Association
The Australian Payments Clearing Association , established February 1992, is an organisation that sets, manages and develops regulations, procedures and standards governing payments clearing and settlement within Australia. Payments systems covered by APCA's rules include cheques, direct entry,...
also called CS1.
Cheques payments make use of the BSB
Bank State Branch
A Bank State Branch identifying code is a six digit numerical code used within Australia that identifies an individual branch of a financial institution...
codes to identify the bank and account to debit.
Direct Entry
Direct Entry is used to transfer funds between Australian bank accounts. Clearing and settling of Direct Entry is regulated by APCAAustralian Payments Clearing Association
The Australian Payments Clearing Association , established February 1992, is an organisation that sets, manages and develops regulations, procedures and standards governing payments clearing and settlement within Australia. Payments systems covered by APCA's rules include cheques, direct entry,...
under BECS (Bulk Electronic Clearing System) also called CS2.
Direct Entry uses BSB
Bank State Branch
A Bank State Branch identifying code is a six digit numerical code used within Australia that identifies an individual branch of a financial institution...
and account number to route payments. Some common uses of the Direct Entry system include:
- Setting up monthly Direct debitDirect debitA direct debit or direct withdrawal is an instruction that a bank account holder gives to his or her bank to collect an amount directly from another account. It is similar to a direct deposit but initiated by the beneficiary...
s to pay recurring bills such as credit card bills - Transferring funds to other Bank accounts, also known as third party transfers
- Payment of salaries
- Government tax refunds and payments
Participants of BECS exchange Direct Entry or DE files at intervals through the day. Net positions are usually cleared daily.
EFTPOS
EFTPOSEFTPOS
EFTPOS is the general term used for debit card based systems used for processing transactions through terminals at points of sale. In Australia and New Zealand it is also the brand name of the specific system used for such payments...
and ATM
Automated teller machine
An automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
transactions occur over the EFT
Electronic funds transfer
Electronic funds transfer is the electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems....
network. Clearing and settling of EFTPOS and ATM transactions are regulated by the APCA
Australian Payments Clearing Association
The Australian Payments Clearing Association , established February 1992, is an organisation that sets, manages and develops regulations, procedures and standards governing payments clearing and settlement within Australia. Payments systems covered by APCA's rules include cheques, direct entry,...
under CECS (Consumer Electronic Clearing System) also called CS3
BPAY
BPAY is a payment system used in Australia and is not regulated by APCAAustralian Payments Clearing Association
The Australian Payments Clearing Association , established February 1992, is an organisation that sets, manages and develops regulations, procedures and standards governing payments clearing and settlement within Australia. Payments systems covered by APCA's rules include cheques, direct entry,...
.
High value payments
High value payments are typically more time critical and for large sums. The main high value payment systems in Australia:- SWIFTSociety for Worldwide Interbank Financial TelecommunicationThe Society for Worldwide Interbank Financial Telecommunication operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions...
Payment Delivery System (SWIFT PDS) - Clearing House Electronic Subregister System (CHESS): CHESS is an automated share transfer system developed by the Australian Securities ExchangeAustralian Securities ExchangeThe Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....
. If a CHESS transaction is selected for RTGS settlement, then an interbank request is sent to RITS via the SWIFT FIN service. Upon settlement of the gross amount across ESAs, RITS notifies CHESS, which then settles the transaction at the CHESS participant level.
See also High Value Clearing System also known as CS4.
Credit card
Several credit card systems are active in Australia including MasterCardMasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
, VISA
Visa
Visa or VISA may refer to:* Visa , a document issued by a country's government allowing the holder to enter or to leave that country...
, Diners Club
Diners Club
Diners Club International, founded as Diners Club, is a charge card company formed in 1950 by Frank X. McNamara, Ralph Schneider and Matty Simmons...
and American Express
American Express
American Express Company or AmEx, is an American multinational financial services corporation headquartered in Three World Financial Center, Manhattan, New York City, New York, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. The company is best...
.
Regulation
Regulation of the financial system in Australia is split mainly between the Australian Securities and Investment Commission (ASIC) and Australian Prudential Regulation AuthorityAustralian Prudential Regulation Authority
The Australian Prudential Regulation Authority is a statutory authority and the prudential regulator of the Australian financial services industry.-Regulatory scope:...
(APRA).
ASIC has responsibility for market integrity and consumer protection
Consumer protection
Consumer protection laws designed to ensure fair trade competition and the free flow of truthful information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors and may provide additional...
and the regulation of certain financial institutions (including investment banks and finance companies). The general regulatory position is that a legal person carrying on a financial services business in Australia must either hold an Australian financial services licence issued to that person by ASIC or fall within a licensing exemption.
APRA is responsible for the licensing and prudential supervision of ADIs (banks, building societies, credit unions, friendly societies and participants in certain credit card schemes and certain purchaser payment facilities), life and general insurance companies and superannuation funds. APRA has issued capital adequacy guidelines for banks which are consistent with the Basel II
Basel II
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision...
guidelines. All financial institutions regulated by APRA are required to report on a periodic basis to APRA. Certain financial intermediaries, such as investment banks (which do not otherwise operate as ADIs) are neither licensed nor regulated under the Banking Act and are not subject to the prudential supervision of APRA. They may be required to obtain licences under the Corporations Act 2001 or other Commonwealth or State legislation, depending on the nature of their business activities in Australia.
Most investment banks are registered under the Financial Sector (Collection of Data) Act 2001. This Act requires registered financial corporations to provide statistical information to APRA.
The Reserve Bank of Australia
Reserve Bank of Australia
The Reserve Bank of Australia came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank to it....
is the country's central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
, with responsibility for most payment system
Payment system
A payment system is a system used for transferring money. What makes it a "system" is that it employs cash-substitutes; traditional payment systems are negotiable instruments such as drafts and documentary credits such as letter of credits. With the advent of computers and electronic...
s and setting of monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
.
Since 1996 the provision of credit to individuals for personal, household or domestic purposes has been regulated by the Uniform Consumer Credit Code, which has been implemented in all Australian States and Territories.
Businesses providing financial products and services are required to identify and monitor customers using a risk-based approach, develop and maintain a compliance program, report suspicious matters and certain cash transactions and file annual compliance reports.
- Australian Competition and Consumer CommissionAustralian Competition and Consumer CommissionThe Australian Competition and Consumer Commission is an independent authority of the Australia government. It was established in 1995 with the amalgamation of the Australian Trade Practices Commission and the Prices Surveillance Authority to administer the Trade Practices Act 1974...
- Australian Securities ExchangeAustralian Securities ExchangeThe Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....
- Australian Payments Clearing AssociationAustralian Payments Clearing AssociationThe Australian Payments Clearing Association , established February 1992, is an organisation that sets, manages and develops regulations, procedures and standards governing payments clearing and settlement within Australia. Payments systems covered by APCA's rules include cheques, direct entry,...