Coordination of financial integration

Preliminary assessment

Observation

Coordination of Australia’s international financial integration could be improved.

Stakeholders’ concerns

Although greater financial integration is not without risk, a number of inquiries have recommended removing impediments to greater integration and fostering mutual recognition, particularly within the Asian region. Government has generally responded positively to these recommendations, but implementation has been slow and is not always well coordinated across Government, regulators and industry.

Given the continuing level of change forecast in the region, it is important to improve Australia’s coordination effort.

Stakeholders have suggested an expanded role for the CFR to provide oversight and direction in negotiating and implementing global regulatory standards.

Other specific suggestions and areas of concern raised in submissions include:

  • Better planning to deal with simultaneous domestic and international regulatory changes involving multiple agencies62
  • Giving a Treasury Minister responsibility for championing Australia’s financial services, both within Government and externally, and for working with state counterparts to coordinate policies to promote Australia’s financial sector63
  • Dedicating a Government resource to focus on competitiveness issues, with the authority to generate legislation quickly and effectively to significantly improve Australia’s competitiveness64
  • Improving communication and feedback between the market and financial policy advisers by having a standing body that provides:
    • Policy-relevant information to the Treasurer on market developments globally
    • Advice to Treasury on likely market response and reaction to policy proposals under consideration
    • Policy proposals on issues it considers critical to the efficient and effective operation of financial markets
    • Policy advice on an ad hoc basis at the request of Treasury65

Advisory and oversight bodies

A number of bodies already consider Australia’s position in the broader international financial system. Some of these bodies consist solely of representatives in Australia, while others are part of an international infrastructure.

Council of Financial Regulators

CFR is the coordinating body for Australia’s main financial regulatory agencies. It is a non-statutory body whose role is to contribute to the efficiency and effectiveness of financial regulation and promote the stability of the Australian financial system. Chaired by the RBA, its membership further comprises APRA, ASIC and Treasury.66

The CFR considers a range of international regulatory reforms, such as the regulatory framework for financial markets infrastructure. As noted in the Regulatory architecture chapter, the Inquiry is seeking feedback on increasing the role, transparency and external accountability mechanisms of the CFR.

Financial Sector Advisory Council (FSAC)

FSAC was established following a recommendation from the Wallis Inquiry. The Wallis Inquiry specifically noted the Council should focus on the international competitiveness of Australia’s financial sector and how Australia could become a preferred location for financial activities in the region.67

FSAC’s mandate is to advise the Treasurer on policies that will maintain an efficient, competitive and dynamic financial sector, consistent with the objectives of fairness, financial stability and prudence.

APEC Business Advisory Council (ABAC)

ABAC comprises three business leaders from each of the 21 APEC economies. It advises on issues on APEC’s agenda of importance to businesses in the region. Each year, the Council meets with APEC leaders, including the ministers responsible for major sectoral policy issues. Under ABAC’s auspices, the Asia Pacific Finance Forum has been established to advise on financial market regulatory developments and market integration in the Asia Pacific.

Business 20 (B20)

The B20 is an international forum of private sector leaders that produces policy recommendations for the annual meeting of the G20 leaders. Australia is chairing the B20 in 2014.

Policy options for consultation

Australia’s coordination efforts across industry, regulators and Government could be improved through amending the remit of one of these or another existing body, or establishing an industry-led body.

However, any changes to existing arrangements would need to be clearly defined and realistic expectations established on the body’s scope and influence. The Commission of Audit provided a blunt assessment of the status of Australia’s Government bodies and coordination efforts:

There are too many government bodies in Australia. This leads to duplication and overlap, unnecessary complexity, a lack of accountability, the potential for uncoordinated advice and avoidable costs.68

Elements for coordination body

A number of the submissions discuss the critical elements for a body of this type to be effective. Some submissions note the importance of senior industry representation and significant international experience. The importance of Government involvement is discussed and the involvement of regulators, including those with competition and taxation mandates, is considered crucial for a whole-of-Government perspective. Accountability mechanisms are important to ensure transparency and reporting on progress and to ensure appropriate levels of Government support.

Submissions were split about whether such a body should be funded by industry or Government.

Taking into account the issues raised in Impediments to financial integration and Cross-border regulatory settings, a coordinating body mandate might include the following responsibilities:

  • Providing input to regulators at the time of formation of policies and standards — including in relation to international standards and other international regulation
  • Providing input to coordinate policy formulation and position for regional change
  • Providing guidance to Government about where future Government engagement efforts are required

The Inquiry would value views on the costs, benefits and trade-offs of the following policy options or other alternatives:

  • Making no change to current arrangements.
  • Amend the role of an existing coordination body to promote accountability and provide economy-wide advice to Government about Australia’s international financial integration.

The Inquiry seeks further information on the following areas:

  • Have appropriate elements been put forward for an effective coordination body?
  • What role should industry play in any new coordination body, including its funding?

62 ANZ 2014, First round submission to the Financial System Inquiry.

63 Australian Financial Markets Association 2014, First round submission to the Financial System Inquiry.

64 Financial Services Council 2014, First round submission to the Financial System Inquiry.

65 Johnson, M 2014, First round submission to the Financial System Inquiry.

66 Commonwealth Government 2014, Home page, Council of Financial Regulators, Sydney, viewed 21 June 2014.

67 Wallis Recommendation 110.

68 Commonwealth of Australia 2014, Towards Responsible Government, The Report of the National Commission of Audit, February 2014, Phase One, National Commission of Audit, Canberra, page 204, viewed 21 June 2014.