Group7 Australia

8/10/2019 Group7 Australia

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THE FINANCIAL SYSTEM IN AUSTRALIA

The Australian Financial System consists of "the set of arrangements covering the borrowi

of funds and the transfer of ownership of financial claims" in Australia. It has several sector

1. Banks, credit unions and building societies - Referred to as Authorized D

Institutions (ADIs) or financial institutions

2. Insurance

3. Superannuation

4. Financial marketsdebt, equity and derivative markets

5. Payments systemscash, cheques, EFTPOS, RTGS and other high-value payment sy


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CHANGES IN FINANCIAL SYSTEM

Four main developments in the structure of the financial system stand out :

1. The first is the increase in the importance of banks, which today directly accoun

the total assets of the financial system, up from 40 per cent in 1985. At a group

banks have become even more prominent, partly by diversifying into funds manage

a lesser extent, insurance.

2. The second development is the growing importance of securitisation.

3. The third is a marked increase in the share of assets managed through superan

other managed funds, partly reflecting changes in retirement income arrangements.

4. Fourth is the decline in the relative importance of credit unions, building socie

companies and merchant banks institutions that grew strongly in earlier decade

result of the regulation of the banking sector.


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BANKING HISTORY OF AUSTRALIA

1st Bank in Australia is Bank of New South Wales , Sydney in 1817. The b

branches in 19th & 20th century in the following places :

1850- Moreton bay (Brisbane)

1851- Victoria

1861- New Zealand

1877- South Australia

1910- Papua New Guinea

1910- Tasmania

Central Bank in Australia (RBA)

Till 1960 - the role of central bank was performed by the Commonwealth Bank o

14th Jan 1960-central bank function was transferred to the newly-created Reser

Australia


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Till 1980- Banking in Australia was highly regulated :

Very Few banks

Savings Bank (mostly state owned)

no interest to their depositors

lending activities were restricted to providing mortgages

Trading Bank (merchant Banks - did not provide services to the general public)

NBFC flourished in Australia (building society and the credit union)

Subjected to less stringent regulations

Could provide and charge higher interest rates

BANKING IN 1980s


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MAJOR MERGERS IN BANKING

Australia and New Zealand Banking Group Ltd.1970

ANZ Bank

1951

The Bank of Australasia

London-based

1835

Union Bank of Australia

London-based

1837

English, ScottisBank

London-b

1


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FOREIGN BANKS

Must obtain a banking authority issued by APRA under the Banking Act (to ope

wholesale bank through an Australian branch or to conduct business through an Au

incorporated subsidiary)

Any proposed foreign takeover or acquisition of an Australian bank will be conside

case-by-case basis and judged on its merits.

Major foreign Retail banks :

HSBC Bank Australia

Bank of Cyprus Australia Limited

Beirut Hellenic Bank

Citibank Australia

Foreign banks have a more significant presence in the Australian merchant banking


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Life insurers were traditionally mutual companies, but in the 1980s and 1990s mademutualised and with a few large exceptions are owned by banks. The large remain

have become financialservicesorganisations and now derive the majority of their re

superannuation investment products.

General Insurers have a more diverse ownership structure, with more stand alone

general insurers (although some life insurers do own general insurers).

Health insurers are still predominantly mutuals. The notable exception is Medibank

largest private health insurer in Australia, which is owned by the Government of Austr

INSURANCE INDUSTRY STRUCTURE


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General insurance products sold in the Australian market can roughly be divid

classes:

Liability insurance such as Compulsory Third Party (CTP) motor insuran

compensation , professional indemnity insurance and public liability insuran

insurance;

Property insurance such as Home and Contents insurance, travel ins

comprehensive motor vehicle insurance

Certain types of insurance, such as CTP and worker's compensation, are statut

required by law), and can differ considerably by state.

GENERAL INSURANCE


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The Australian Government provides a basic universal health insurance, Medic

health insurance in Australia is limited to those services not covered by Medicare o

provided in private hospitals.

The Australian Taxation system encourages middle to high income earners to tak

Health Insurance. While most taxpayers pay a 1.5% Medicare levy, an additional 1

Levy Surcharge is payable by those taxpayers who earn more than $88,000 and

Private Health Insurance.

HEALTH INSURANCE


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SUPERANNUATION

Superannuation in Australia refers to the arrangements which people make in Austr

funds available for them in retirement.

Superannuation in Australia is government-supported and encouraged, and

provisions are compulsory for employees. For example, employers are require

proportion of an employee's salaries and wages (9.5% as of 1 July 2014) into a sup

fund, but people are encouraged to put aside additional funds into superannuation.

From 1 January 2014, employers are required to pay default contributi

authorized MySuper product. The minimum obligation required by employers is se

from 9% to 12% gradually stepping annually from 2013.


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There are about 500 superannuation funds in operation in Australia. Of those, 362 have as

greater than $50 million.

There are seven main types of superannuation funds:

Industry Funds are multiemployer funds run by employer associations and/or un

Retail/Wholesale funds they are run solely for the benefit of members as there are no s

Wholesale Master Trusts are multiemployer funds run by financial institutions f

employees. These are also classified as Retail funds by APRA.

Retail Master Trusts/Wrap platformsare funds run by financial institutions for indi

Employer Stand-alone Fundsare funds established by employers for their employee

has its own trust structure that is not necessarily not shared by other employers.

SUPERANNUATION TYPES


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Public Sector Employees Fundsare funds established by governments for their employe

Self Managed Superannuation Funds (SMSFs or Do-It-Yourself Funds) are

established for a small number of individuals (limited to 4) and regulated by the Austr

Taxation Office. Generally the Trustees of the fund are the fund members (where therCorporate Trustee, the members are the directors of that company). The SMSF sector

largest sector of the Australian super industry, with 99% of the number of funds and 31

the $1.6 trillion total super assets as at 30 June 2013.

Small APRA Funds (SAFs)are funds established for a small number of individuals (

than 5) but unlike SMSFs the Trustee is an Approved Trustee, not the member/s, and the

are regulated by APRA. This structure is often used for members who want control of

superannuation investments but are unable or unwilling to meet the requiremen

Trusteeship of an SMSF.
http://en.wikipedia.org/wiki/Superannuation_in_Australia


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FINANCIAL MARKETS

The main participants in the Australian financial market are:

Australian Securities Exchange is the primary stock exchange in Australia, and

National Stock Exchange of Australia, based in Newcastle, NSW, previ

Newcastle Stock Exchange.

Bendigo Stock Exchange was acquired by the National Stock Exchange of Aus

2012 and shut down.

Most foreign exchange transactions are free from regulation, and the Reserve Bank

has largely delegated its control to authorised money market dealers and foreig

dealers.


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AUSTRALIAN STOCK EXCHANGE

ASX Group is a market operator, clearing house and payments system facilitator. It also overse

with its operating rules, promotes standards of corporate governance among Australia's listed c

helps to educate retail investors.

Today, ASX has an average daily turnover of A$4.685 billion and a market capitalizati

A$1.6 trillion, making it one of the world's top-10 listed exchange groups, comparable to t

Stock Exchange, London Stock Exchange and Deutsche Boerse.

Products and services available for trading on ASX include shares, futures, exchange twarrants, contracts for difference, exchange-traded funds, real estate investment trusts, list

companies and interest rate securities.

The biggest stocks traded on the ASX, in terms of market capitalization,

Billiton, Commonwealth Bank of Australia, Westpac, Telstra,.

The major market index is the S&P/ASX 200, an index made up of the top 200 shares in the AS


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AUSTRALIAN CAPITAL MARKETS

Financial development - Australia was ranked 5th out of 57 of the world's leadin

systems and capital markets by the World Economic Forum;

Equity market - the 8th largest in the world (based on free-float market capitalization)

largest in Asia-Pacific, with A$1.2 trillion market capitalisation and average daily

trading of over A$5 billion a day;

Bond market - 3rd largest debt market in the Asia Pacific;

Derivatives market - largest fixed income derivatives in the Asia-Pacific region;

Foreign exchange market - the Australian foreign exchange market is the 7th largest

in terms of global turnover, while the Australian dollar is the 5th most traded curre

AUD/USD the 4th most traded currency pair;


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MAJOR REGULATORS


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Regulatory Framework


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TREASURY

Treasury analyzes policy issues with a holistic perspective of economy, understand

and stakeholder circumstances and respond rapidly to changing events and directions

Some of the policy decisions which are taken up by the treasury department are-:

Budgeting and expenditure : The treasury provides information to government on its

taxation.

Business: Treasury provides assistance on small business policy issues and assists the g

generating a competitive environment for small businesses

Economy: Monitoring and assessing Australian economic conditions and prospects.

Financial Markets: The Treasury aims to build competitive, efficient markets which wo

consumer and investor wellbeing, a secure financial system and good corporate governanc


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ASIC The Australian Securities & Investments Commission (ASIC) is an indep

government body that acts as Australias corporate regulator. ASIC's role is to en

company and financial services laws to protect Australian consumers, investors and credi

MoneySmart (ASICs Website) aims to help people make good financial decisions

independent and unbiased information, tools and resources.

The primary functions of ASIC are:

Investor Education

Fair and efficient Stock Markets

Registration and Licensing

ASICsstaff, supplier, finance and asset impairment costs in 201314 was $340.4 million


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APRA APRA is responsible for the licensing and prudential supervision of Authorized Deposit-taking Inst

general insurance companies and superannuation funds. All financial institutions regulated by APRA ar

periodic basis to APRA.

APRA has issued capital adequacy guidelines for banks which are consistent with the Basel II guide

(which do not otherwise operate as ADIs) are neither licensed nor regulated under the Banking Act an

prudential supervision of APRA.

APRA currently supervises institutions holding A$4 trillion in assets for almost 23 million Australian d

and superannuation fund members.

In October 2002, APRA introduced new risk assessment and supervisory response tools known as the

Rating System (PAIRS) and the Supervisory Oversight and Response System (SOARS). These su

centerpiece of APRAsrisk-based approach to supervision

PAIRS - The probability that the institution might be unable to honour its financial promises to be

policyholders and superannuation fund members and the impact on the Australian financial system shou

FINANCIAL SYSTEM COMPARISON


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FINANCIAL SYSTEM COMPARISONParameter Australia India

Financial services

sector

It is the largest sector in the Australian

economy in terms of gross value

added.

Of 56.9% of GDP accounted by Indian S

services is the major contributor

Growth of the sector- 8.55 per year(2014

Banking Sector Prior to 1985, foreign-owned banks

limited(entry restrictions)

15 overseas banks were required to

incorporate locally as subsidiaries, and to hold

capital in Australia

Liberalization in India since 1991

Earlier

state-owned banks

controlled 90 per cent of bank deposits

high proportion of funds were channelle

credit was allocated on the basis of gov

Securities/Funds

Management

The Australian Securities Exchange (ASX),

Australias largest financial market operator

(Top ten listed exchanges in the world bymarket capitalisation)

Guidelines for the issue and valuation of

set by Indias RBI/ Securities

The India Portfolio Investment Scheme iunder the Foreign Exchange Managemen

Securities to a Person Resident outside I

Insurance The Australian general insurance sector is the

12th largest

in the world. In Australia, the minimum

capital requirements for general insurers are

determined on a case by case basis, with a

minimum capital requirement of US$4million.

Insurance Industry of India consists of 5

which 24 are in Life Insurance business

Insurers.

Among life-insurers LIC is sole public S


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Group7 Australia