The Australian financial system consists of the arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims in Australia,[1] comprising:
- authorised deposit-taking institutions (ADIs) or financial institutions, comprising banks, credit unions and building societies,
- non bank financial institutions (NBFI),
- insurance (life and general),
- superannuation,
- financial markets—debt, equity and derivative markets, and
- payments systems—cash, cheques, EFTPOS, RTGS and other high-value payment systems.
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The international banking system is an enigma. There are more than 30,000 different banks worldwide and they hold unbelievable amounts of assets. The top 10 banks alone account for roughly 25 Trillion U.S. Dollars. Today, Banking can seem very complex, But originally, the idea was to make life simpler. 11th Century Italy was the center of European Trading. Merchants from all over the continent met to trade their goods. But there was one problem, too many currencies in circulation. In Pisa, merchants had to deal with seven different types of coins and had to exchange their money constantly. This exchange business, which commonly took place outdoors on benches, is where we get the word bank from. From 'banco,' Italian for bench. The dangers of traveling, counterfeit money, and the difficulty of getting a loan got people thinking. It was time for a new business model. Pawn brokers started to give credit to businessmen, while genoese merchants developed cashless payments. Networks of banks spread all over Europe handing out credit, even to the church or european kings. What about today? In a nutshell, banks are in the risk management business. This is a simplified version of the way it works. People keep their money in banks and receive a small amount of interest. The bank takes this money and lends it out at much higher interest rates. It's a calculated risk because some of the lenders will default on their credit. This process is essential for our economic system because it provides resources for people to buy things like houses or for industry to expand their business and grow. So banks take funds that are unused by savers and turns them into funds society can use to do stuff. Other sources of incomes for banks include accepting saving deposits, the credit card business, buying and selling currencies, custodian business, and cash management services. The main problem with banks nowadays is that a lot of them have abandoned their traditional role as providers of long term financial products in favour of short term gains that carry much higher risks. During the financial boom, most major banks adopted financial constructs that were barely comprehensible and did their own trading in their bid to make fast money and earn their executives and traders millions in bonuses. This was nothing short of gambling and damaged whole economies and societies. Like back in 2008, when banks like Lehman Brothers gave credit to basically anyone who wanted to buy a house and thereby put the bank in an extremely dangerous risk position. This lead to the collapse in the housing market in the US and parts of Europe causing stock prices to plummet. Which eventually lead to a global banking crisis, and one of the largest financial crisis in history. Hundreds of billions of dollars just, evaporated. Millions of people lost their jobs and lots of money. Most of the worlds major banks had to pay billions in fines and bankers became some of the least trusted professionals. The US government and the European Union had to put together huge bail out packages to purchase bad assets and stop the banks from going bankrupt. New regulations were put into force to govern the banking business: Compulsory bank emergency funds were enforced, to absorb shocks in the event of another financial crisis. But, other pieces of tough new legislation were successfully blocked by the banking lobby. Today, other models of providing financing are gaining ground fast. Like new investment banks that charge a yearly fee and do not get commissions on sales. Thus, providing the motivation to act in the best interest of their clients. Or, Credit Unions: Corporate initiatives that were established in the 19th century to circumvent credit sharks. In a nutshell: they provide the same financial services as banks, but focus on shared value rather than profit maximization. The self proclaimed goal is to help members create opportunities like starting small businesses, expanding farms, or building family homes while investing back in to communities. They are controlled by their members, who also elect a board of directors democratically. World wide Credit Union systems vary significantly ranging from a handful of members to organizations worth several billion US Dollars and hundreds of thousands of members. The focus on benefits for their members impact the risk Credit Unions are willing to take. Which explains why Credit Unions, although also hurting, survived the last financial crisis way better than traditional banks. Not to forget: the explosion in Crowdfunding in recent years. Aside from making awesome video games possible, platforms arose that enabled people to get loans from large groups of small investors. Circumventing the bank as a middle man. But it also works for industry. Lots of new technology companies started out on Kickstarter or Indigogo. The funding individual gets the satisfaction of being part of a bigger thing and can invest in ideas they believe in. While spreading the risk so widely, that if the project fails the damage is limited. And last but not least: Micro Credits. Lots of very small loans, mostly handed down to developing countries that help people escape poverty. People who were previously unable to get access to the money they needed to start a business because they weren't deemed worth the time. Nowadays the granting of Micro Credits has evolved into a multi-billion dollar business. So, banking might not be up your street. But the banks role of providing funds to people and businesses is crucial for our society, and has to be done. Who will do it and how it will be done in the future is up for us to decide, though. Subtitles by the Amara.org community
Financial markets
The main stock exchange operators in the Australian financial market are the Australian Securities Exchange (ASX) and the smaller National Stock Exchange of Australia (NSX), both of which provide stock exchange facilities for Australian listed securities. NSX acquired the Bendigo Stock Exchange in June 2012 and merged its operations.
Most foreign exchange transactions are largely free from regulation, and the Reserve Bank of Australia has largely delegated its control to authorised money market dealers and foreign exchange dealers.
Market participants
Participants in the financial system consist of commercial banks, investment banks, finance companies, building or cooperative societies, credit unions, friendly societies, non bank financial institutions (NBFI), superannuation and approved deposit funds, public unit trusts, cash management trusts, mortgage originators, insurance companies, institutional funds investing in and financing debt.
Financial institutions
Banking in Australia is dominated by what are known as the "big four", which are also referred to as the pillars of Australia's financial system:
There are several smaller banks with a presence throughout the country, and a large number of other financial institutions, such as credit unions. Many large foreign banks have a presence, but few have a retail banking presence. The central bank is the Reserve Bank of Australia (RBA). Since 2008 the Australian government has guaranteed deposits up to $250,000 per customer per institution against banking failure.[2]
Insurance market
Australia's insurance market can be divided into roughly three components: life insurance, general insurance and health insurance. These markets have been fairly distinct, with most larger insurers focusing on only one type. However, in recent times several insurance companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates.
Superannuation
Superannuation in Australia is government-supported and encouraged, and minimum provisions are compulsory for employees. Superannuation arrangements are provided by banks and insurance companies, though most funds are self-managed. Superannuation funds are tightly regulated.
Payments and clearing systems
There are several payment systems in use within Australia, many of which are regulated by Australian Payments Network (AusPayNet) (previously called Australian Payments Clearing Association (APCA)), including:
Cash
The Australian dollar is Australia’s currency and legal tender in Australia. Clearing and settling of cash payments (also called CS5) are regulated by AusPayNet as the Australian Cash Distribution Exchange System (ACDES).[3]
Cheques
Cheques are still the most important non-cash payment instruments in Australia, in terms of the value transferred. The number of monthly cheque transactions in 2008 was 33.7 million with a value of $139.3 billion.[4] Cheque use is in decline worldwide, but it is declining faster in Australia than many other countries. Between 2010 and 2014, cheque use in Australia declined by 42.8% with just over seven cheques written per person in 2014. In 2014, 166.6 million cheques were used in Australia, compared to 291.1 million in 2010.[5] In 2015, cheque usage fell by a further 16.3%.
Cheques and other payment instruments (such as travellers cheques and warrants) (also called CS1) are cleared and settled in accordance with the regulations and procedures set by APCS.[6]
Cheques use MICR encoding containing the BSB and account number to identify the bank and account to debit, as well as other information to streamline the processing of cheques. In 2014, the cost of processing cheques was the highest of all modes of payments at $5 per transaction, compared to about $0.20 for direct debits.[7]
A recent innovation has been digital cheque imaging, which involves images of cheques being captured by financial institutions and exchanged electronically between the relevant financial institutions rather than the previous costly practice of physically transporting paper cheques around Australia. This has also ended the need for maintaining long-term storage and retrieval systems.[7] The new system speeds up the clearing process, with cheques being able to be cleared at the end of the next weekday after being presented, as opposed to up to the six weekdays under the old system.
Direct entry
Direct entry (also called CS2)[8] can be used to transfer funds between bank accounts in Australia. Clearing and settling is regulated by AusPayNet as the Bulk Electronic Clearing System (BECS).
Direct entry uses the BSB and account number to identify the bank and accounts to debit and credit. Some common uses of the direct entry system include:
- setting up monthly direct debits to pay recurring bills such as credit card bills
- transferring funds to other bank accounts, also known as third party transfers
- payment of wages and salaries
- government tax refunds and payments.
Participants of BECS exchange direct entry (DE) files at intervals through the day. Net positions are usually cleared daily.
EFTPOS
EFTPOS (Electronic Fund Transfer Point of Sale) and ATM transactions (also called CS3)[9] occur over the EFT network. Clearing and settling of EFTPOS and ATM transactions are regulated by the AusPayNet as the Consumer Electronic Clearing System (CECS). Between 2005 and 2015, ATM withdrawals dropped by 11.5% but increased 5.1% in value.
Credit card
Several credit card systems are active in Australia including MasterCard, Visa, Diners Club and American Express. The Bankcard scheme is no longer in use.
BPAY
BPAY is a bill payment system used in Australia, which is regulated by the four major banks and not by AusPayNet. As of January 2015, the BPAY payments system covered more than 156 participating Australian banks, credit unions and financial institutions.[10] More than 45,000 businesses accept payments using BPAY[10] and each month approximately 30 million bills are paid to the value of $24 billion.[10]
High value payments
High value payments (also known as CS4) are regulated by AusPayNet under the Regulations for High Value Clearing System Framework.[11] The main high value payment systems in Australia are:
- Society for Worldwide Interbank Financial Telecommunication Payment Delivery System (SWIFT PDS)
- Clearing House Electronic Subregister System (CHESS): CHESS is an automated share transfer and settlement system developed by the Australian Securities Exchange. For a CHESS transaction, an interbank request is sent to RITS via SWIFT FIN, the service which sends financial information from one financial institution to another.[12] When RITS notifies CHESS of settlement of the gross amount across ESAs, CHESS finalises the transaction by transferring share holdings at the participant level.
- Financial Transactions Recording and Clearance System (FINTRACS)
- Reserve Bank Information and Transfer System (RITS) is used by banks and other approved institutions to settle their payment obligations on a real-time gross settlement (RTGS) basis.[13] Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank.
New Payments Platform
The New Payments Platform (NPP)[14] is open access infrastructure for fast payments in Australia. The NPP was developed via industry collaboration to enable households, businesses and government agencies to make simply addressed payments, with near real-time funds availability to the recipient, on a 24/7 basis. Each payment message is capable of carrying much richer remittance information than other systems. The NPP infrastructure supports the independent development of ‘overlay’ services to offer innovative payment services to end-users.
Regulation
Regulation of the financial system in Australia is split mainly between the Australian Securities & Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA).
ASIC has responsibility for market integrity and consumer protection and the regulation of certain financial institutions (including investment banks and finance companies or NBFI). 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 systems 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.[15]
- Australian Competition & Consumer Commission
- Australian Securities Exchange
- Australian Payments Network
See also
Notes and references
- ^ Submission to the Committee of Inquiry into the Australian Financial System ("The Campbell Committee"), Reserve Bank of Australia Occasional Paper No 7, December 1979, para 1.
- ^ "Australian Government Deposit Guarantee Design & Operational Parameters, Department of the Treasury accessed 18 June 2010" (PDF). Archived from the original (PDF) on 13 October 2009. Retrieved 18 June 2010.
- ^ "Australian Cash Distribution and Exchange System Framework (CS5), Australian Payments Clearing Association Limited: accessed 26 July 2015" (PDF). Archived from the original (PDF) on 6 March 2016. Retrieved 26 July 2015.
- ^ "Cheque Payment Transactions (Monthly volume and value)". Archived from the original on 2015-07-12. Retrieved 2009-05-19.
- ^ Bank for International Settlements, quoted in Australian Payments Clearing Association, Towards a digital economy Archived 2018-03-13 at the Wayback Machine, p.5
- ^ "Procedures for Australian Paper Clearing System Framework (CS1), Australian Payments Clearing Association Limited: accessed 26 July 2015" (PDF). Archived from the original (PDF) on 10 March 2015. Retrieved 26 July 2015.
- ^ a b Reserve Bank of Australia, quoted in Australian Payments Clearing Association, Towards a digital economy Archived 2018-03-13 at the Wayback Machine, p.6
- ^ "Procedures for Bulk Electronic Clearing System Framework (CS2), Australian Payments Clearing Association Limited: accessed 26 July 2015" (PDF). Archived from the original (PDF) on 10 March 2015. Retrieved 26 July 2015.
- ^ "Regulations for Consumer Electronic Clearing System Framework (CS3), Australian Payments Clearing Association Limited: accessed 26 July 2015" (PDF). Archived from the original (PDF) on 7 December 2015. Retrieved 26 July 2015.
- ^ a b c About BPAY, Overview Archived 2019-06-30 at the Wayback Machine. Retrieved January 2015
- ^ "Regulations for High Value Clearing System Framework (CS4), Australian Payments Clearing Association Limited: accessed 26 July 2015" (PDF). Archived from the original (PDF) on 5 March 2016. Retrieved 26 July 2015.
- ^ What is SWIFT-FIN message?
- ^ "About RITS". Archived from the original on 2015-10-23. Retrieved 2015-10-10.
- ^ "New Payments Platform". RBA. Retrieved 11 May 2018.
- ^ See Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Commonwealth).
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This page was last edited on 12 April 2024, at 08:25