Council of Financial Regulators Annual Report – 1999 1. Council of Financial Regulators

The Council of Financial Regulators is the co-ordinating body for Australia's main financial regulatory agencies: the Reserve Bank of Australia (RBA), which chairs the Council; the Australian Prudential Regulation Authority (APRA); and the Australian Securities and Investments Commission (ASIC).

The Council's role is to contribute to the efficiency and effectiveness of financial regulation by providing a high-level forum for co-operation and collaboration among its members.

The Council was established in 1998 as the successor to the Council of Financial Supervisors (CFS). The CFS had been formed in 1992 to improve co-ordination and communication among the then major financial regulators: the RBA; the Insurance and Superannuation Commission (ISC); the Australian Securities Commission (ASC); and the Australian Financial Institutions Commission (AFIC).

The Council forms part of wide-ranging changes to Australia's financial regulatory structure in 1998, prompted by the recommendations of the Financial System Inquiry (the Wallis Committee). The changes included the establishment of a single prudential regulator (APRA), the establishment of a separate regulator (ASIC) to deal with market integrity and consumer protection issues across the financial system, and revised responsibilities for the RBA, involving its withdrawal from prudential supervision of banks but more extensive regulatory powers in the payments system.

Within this structure, the Council operates as an informal body in which members are able to share information and views, discuss regulatory reforms or issues where responsibilities overlap and, if the need arises, co-ordinate responses to potential threats to financial stability. These arrangements provide a flexible, low-cost approach to regulatory co-ordination among the main financial system regulators. The Council is non-statutory and has no regulatory functions separate from those of its members.

Membership of the Council comprises two representatives – the chief executive and a senior representative – from each of the three regulatory agencies. The Chairman is the Governor of the RBA, and the RBA provides the Council Secretariat. The Council met for the first time in May 1998 and currently meets about once every quarter. The Council's charter and administrative arrangements are shown in the box below and in Appendix A.^[1]

Council Activities in 1999

The Council's first priority was to help ensure that Australia's new financial regulatory framework was bedded down successfully. The transition to this new framework was completed on 1 July 1999 with the transfer, from AFIC, of responsibility for the prudential supervision of the State- and Territory-based financial institutions to APRA and the corporate regulation of these institutions to ASIC. Chapter 2 outlines the current regulatory structure and discusses some further reforms, under the Commonwealth Government's Corporate Law Economic Reform Program (CLERP), which will affect the roles of the regulatory agencies.

Two other important issues, which are covered in Chapter 3, preoccupied the Council in 1999. The first was the Year 2000 problem. The Council saw its main tasks as co-ordinating the Year 2000 initiatives of each member and encouraging disclosure of Year 2000 preparations in the Australian financial sector. The thoroughness of these preparations, supported by Council's efforts and a sensible response by the Australian community, was rewarded with a smooth transition to Year 2000.

The second issue engaging the Council was the continuing momentum, globally, for measures to strengthen the international financial system. In the wake of the emerging markets crises of 1997 and 1998, which threatened more global instability, a number of multilateral initiatives were taken aimed at improving domestic regulatory structures and the international financial architecture. These initiatives, in which Council members have each played active roles, are now being taken forward by two new international groupings – the Financial Stability Forum and the G20. Australia's contribution to the debate on international financial reform has been recognised by its inclusion in both of these groupings. Co-ordinating that participation, particularly where reform proposals touch more than one jurisdiction, is becoming a major focal point for the Council.

Appendices to the Report provide further background information on the Council, on the main types of financial institutions in Australia and recent developments in the regulation/supervision of the Australian financial system.