Council of Financial Regulators Annual Report – 2002 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. It 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 co-ordination among the main financial regulatory agencies. 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.[1] The Council's charter and administrative arrangements are shown in the box below and in Appendix A.
The future structure and role of the Council is currently under review. The Report of the HIH Royal Commission, released in April 2003, recommended changes in the governance arrangements for APRA that will have implications for the co-ordination of activities and exchange of information between the three regulatory agencies. These changes are discussed in Chapter 2. In this context, the Treasurer has announced the Government's commitment to enhance the status and role of the Council.[2] Membership will be extended to include the Commonwealth Treasury. This new Council will be ideally placed to ensure that there are appropriate arrangements between the members for co-ordinating their activities in response to pressures. It will also advise the Government on the adequacy of Australia's financial system regulatory architecture in light of ongoing developments.
Council Charter
The Council of Financial Regulators aims to facilitate co-operation and collaboration among its members, the main regulators of the Australian financial system – the Reserve Bank of Australia, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. Its ultimate objective is to contribute to the efficiency and effectiveness of regulation.
The Council provides a forum for:
- sharing information and views among its members, and liaison with other regulators and agencies;
- harmonising regulatory and reporting requirements, paying close attention to the need to keep regulatory costs to a minimum;
- identifying important issues and trends in the financial system, including the impact of technological developments; and
- co-ordinating regulatory responses to actual or potential instances of financial instability, and helping to resolve any issues where members' responsibilities overlap.
Council Activities in 2002
The Council's activities in 2002 were set against the backdrop of continued difficulties in the external economic environment. Hopes of a robust and sustained recovery in the global economy faded in the second half of the year, while geopolitical uncertainties over Iraq and the Korean peninsula added to the mood of pessimism in financial markets. The weak economic conditions and substantial declines in equity prices tested the global financial system, which has been buffeted by some major shocks in recent years, but the system has proven resilient.
The Australian financial system remained in strong condition, underpinned by the continued expansion of the Australian economy. Nonetheless, efforts to further strengthen the regulatory architecture continued in 2002. Importantly, a new prudential framework for the general insurance industry came into effect in July 2002, and in October 2002 the Government announced a range of measures aimed at enhancing the prudential framework governing superannuation. The involvement of Council members in financial sector reform is outlined in Chapter 2.
During 2002, a particular issue for the Council, which touched on the responsibilities of each member, was the continued strong growth in lending for housing. This issue is discussed in Chapter 3. Council members also continued their involvement in various international groupings and initiatives designed to strengthen the international financial architecture. A major focus of these initiatives in 2002 was the reform of corporate governance, accounting and disclosure standards in the wake of some high-profile corporate collapses in the United States and elsewhere. The involvement of Council members in international reform efforts is also discussed in Chapter 3.