There have been significant changes in the regulation of financial markets in Australia. Financial markets consist of the buying and selling of financial securities. The key markets within the financial sector are the primary market, which is concerned with the first issue of the securities and the secondary market, which is concerned with the buying and selling of the securities after the initial issue.
The key changes in the regulation of the financial market occurred in 1983. Prior to 1983, financial markets were heavily regulated, most importantly the total regulation of the Banking System by the Reserve Bank of Australia, which set products and prices (interest rates).
However, in 1983 there was a deregulation of the financial markets which included:
– Dramatic removal of regulation
– Freedom to develop innovative products
– Floated currency
– Freedom to set prices (interest rates)
This dramatic deregulation allowed for a better allocation of resources.
The current regulatory framework in Australia consists of three key organizations:
– Reserve Bank of Australia (RBA)
– Australian Prudential Regulation Authority (APRA)
– Australian Securities and Investment Commission (ASIC)
These three separate organizations work both independently and together to achieve financial market stability, however their effectiveness is questionable.
The Reserve Bank of Australia is definitely the most important of these regulatory bodies as it aims to achieve overall financial stability, that is, to avoid crisis within financial markets. The RBA aims to achieve stability by regulating certain aspects such as supply of currency and monetary policy.
The Australian Securities and Investment Commission deals with issues such as reducing fraud and unfair practices. ASIC aims to achieve this by enforcing and administering corporation laws and consumer protection laws.
The Australian Prudential Regulation Authority aims to reduce excessive risk by financial organizations.
Together, these bodies set up the regulatory framework of Australia by ensuring prudential supervision, market integrity and consumer protection and the overall stability of the financial system. However, the effectiveness of these organizations has come under great scrutiny in light of recent economic disturbance.
For example, the recent collapse of insurance giant HIH, questioned the effectiveness of these three organizations, particularly APRA, in ensuring financial stability and consumer protection.
However, the effectiveness of these organizations has remained very high and consistent, and an example of this consistency was the recent exposure of share market mogul Rene Rivkin in his insider trading scams. These organizations, particularly ASIC, played their role in protecting the consumers from any further malpractice on behalf of such economically powerful figures.
Overall, the regulatory bodies of the financial market do work effectively to ensure financial stability, however, they must continue their consistency and vigilance in order to eliminate and prevent future economic disturbances.