Financial Services and Market Sector Regulation in Australia - Case Study Example

Running Head:Financial Services and Market Sector Regulation Name: University: Course: Tutor: Date of Submission: Introduction With the recent economic downturn experienced at present, many governments are establishing policies and regulations to govern the financial services and markets sectors (Robinson, 2009). This is in an effort to avoid a recurrence of the financial crisis of 2007 that had a negative impact on the economies of many countries and the overall global financial market. These regulations have affected many businesses because of their provisions that comprise of very stringent measures and requirements (Robinson, 2009). In Australia and the United States, these regulations are a priority considering the impact of the recession to their economy. However, financial analysts are a bit skeptical regarding the accuracy of these policies and regulations in straightening the financial services sector and the financial markets sector (Rice, 2011). The regulations executed in Australia and the US have some similarities and differences based on the extent of the recession to the economy. US regulations There are a couple of reforms being implemented in the US and other parts of Europe and other continents and the Australian government has called upon its citizens in those countries to brace themselves for the impact of the regulations. These reforms reveal a significant rise in regulations on the financial sector that presents several implications to businesses and consumers (Richard et al 2011). In the US, the past few months have been marked by the presentation of rules to govern the financial sector. The Securities and Exchange Commission (SEC) together with other agencies have put forward rules to ensure the implementation of the Dodd-frank Wall street Reform together with the Consumer protection Act of 2010 (Hepworth, 2012). While this is a legislation intended for US alone, its effects will have an impact on the financial services and markets in Australia (Hepworth, 2012). The Dodd-Frank Act includes some provisions that allow the US government to supervise the activities of foreign non-bank financial companies and firms (Massey, 2011). As such, Australian companies operating in the US will also be under scrutiny and supervision of the US. However, this supervision will take place under one condition. A company will be subject to supervision only if the US government establishes a link between the company and the US economy. These reforms also give mandate to the US government to initiate a liquidation process for any company, including Australian companies operating there (Massey, 2011). Liquidation will result from the probability of the company posing unpleasant financial impacts on the stability of the US economy. Certain Australian investment advisors will be required, under the new reforms, to register with the SEC to operate as financial advisers in the US (Massey, 2011). This is in contrast to the situation before the reforms when they were not required to register with the SEC. this requirement will affect Australian financial advisors because of a change in the operation process in dealing with private equity and other investment portfolios. This will result from the mandatory registration requirement that will restrict their operations and limit them highly. Australian firms will be adversely affected. The recent regulation of derivatives implemented in the US was directed towards regulating non-US entities. This implies that, for instance, that non-financial Australian firms and organizations that engage in activities related to swaps will have to put up margin, a requirement that did not exist before the reforms. Australian banking firms and other foreign entities that operate in the US through subsidiaries will be governed by restrictions on proprietary trading and hedge fund sponsorship (Massey, 2011). In addition, the SEC and other agencies are establishing other rules that will aid in the implementation of the Dodd-Frank Act (Michael, 2011). The Chairman of the Australian Securities and Investments Commission (ASIC) has stated that the reforms taking place in the US will have no significant impact on Australia financial services and markets sector (Michael, 2011). He said the only critical aspect is the effect of the reforms on Australian companies operating in the US and the potential risks on arbitrage that may arise from the reforms. Australian regulations There have been several regulations implemented in Australia on the financial services and markets. The Australian Prudential Regulation Authority (APRA) oversees and regulates the financial sector in Australia (Bowen, 2010). It governs the operations of banks, credit unions, insurance companies, building societies and other financial institutions. The recent APRA’s implementation of the Basel reforms will have a great impact on the ways in which Australian banking companies operate (Bowen, 2010). An increase in capital has a consequent effect of decreasing returns on assets. This will present adverse effects on Australian banking sector if banks will be subject to capital regulations that are more difficult than those implemented in the US are. The Chairman of APRA has stated that APRA does not intend to enforce capital requirements that are below the international required standards. He noted that the standards in Australia are below par and need to be raised by a certain degree. The Australian Securities and Investment Commission AASIC) mandate in the supervision and enforcement of financial markets has presented several obstacles to businesses. It is responsible for overseeing all financial market activities and operations. The new mandate given to ASIC has several implications. Financial market operators will not be allowed to supervise trading in their own markets any more (Fitts, 2011). As such, brokers and financial agents will be directly supervised by ASIC. However, financial market operators will retain their role of supervising investment portfolios in the market. There are doubts as to the capability of ASIC to effectively regulate and supervise the markets and whether the government will avail enough funds to execute the new responsibilities. Supervising financial markets is extremely expensive and tedious and needs a lot of funding (Fitts, 2011). There is also a question regarding the extent of the regulations of ASIC. The Australian Securities Exchange (ASX) is responsible for admitting new market operators into the market and monitoring their trading and financial potential while ASIC monitors the trading activities only (Emerson, 2009). The new reforms may delegate all responsibilities to ASIC leaving ASX with nothing to do. Effectiveness of reforms The new Australian financial regulations possibly have a positive impact on the financial services and markets sector. First, the regulations will foster and improve the reliability of the Australian financial markets, which have experienced a downturn in integrity levels resulting from rogue traders and agents operating in the markets (Emerson, 2009). Secondly, the reforms will serve to augment other initiatives executed by the federal governments. These additional initiatives are meant to reinforce the Australian financial sector and elevate to a significant financial center of the region (Cohen et al, 2010). Thirdly, the reforms will align the Australian financial services and markets sector with other sectors globally that have already implemented such regulations. The reforms in the US will serve to control inappropriate financial operations that contributed to the 2007 financial recession that the economy has not yet recovered from (Mark, 2011). Even though the government played the greatest part in the crisis, other operators in the financial markets played a part. The reforms will supervise foreign companies to ensure that they pose no danger to the economy of the US in case they fail or go bankrupt (Mark, 2011). The reforms have been hailed as very important in improving the financial markets. The reforms were a necessity that resulted from the limitations that were present in the former regulations that governed financial markets. The reforms foster investor confidence and are very important in preventing a recurrence of the economic crisis. It is present a variety of benefits to investors. For example, the reforms require the Senate Banking Committee (SEC) to arise its financial standards a bit and bar rogue market operators from taking advantage of financial exemptions meant for certain issuers (Mark, 2011). It has greatly empowered the SEC to change and improve its operations structure thus brokers and other financial agents put the interest of investors first. In addition, investors have more protection from inappropriate operations of brokers and agents plying the market to make quick money. Conclusion The recent economic downturn has prompted many governments to establish policies and regulations to govern the financial services and markets sectors. This is in an effort to avoid a recurrence of the financial crisis of 2007 that had a negative impact on the economies of many countries and the overall global financial market. These regulations have affected many businesses because of their provisions that comprise of very stringent measures and requirements. In Australia and the United States, these regulations are a priority considering the impact of the recession to their economy. There are a couple of reforms being implemented in the US and other parts of Europe and other continents and the Australian government has called upon its citizens in those countries to brace themselves for the impact of the regulations. These reforms reveal a significant rise in regulations on the financial sector that presents several implications to businesses and consumers. The Securities and Exchange Commission (SEC) together with other agencies have put forward rules to ensure the implementation of the Dodd-frank Wall street Reform together with the Consumer protection Act of 2010 (Mason, 2011). While this is a legislation intended for US alone, its effects will have an impact on the financial services and markets in Australia. The recent APRA’s implementation of the Basel reforms will have a great impact on the ways in which Australian banking companies operate. An increase in capital has a consequent effect of decreasing returns on assets. This will present adverse effects on Australian banking sector if banks will be subject to capital regulations that are more difficult than those implemented in the US are. These reforms are very important in improving the financial services and market sector of Australia and the United States. Precisely, they will help the economy recover from the adverse effects of the current recession that has affected them for a very long time now. References Bowen, C. (2010). Reforms to the Supervision of Australia’s Financial Markets. Retrieved from http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/013.htm&pae ID=3& minceba&Year=&DocType Cohen, S., Cramer, K., and Alurie, J. (2010). Financial Services Reform Adopted in United States: Sweeping New Rules will Affect all U.S. Public Companies. Retrieved from http://www.osler.com/newsresources/Details.aspx?id=2629 Emerson, C. (2009). Regulate Better not More. Retrieved from http://www.theaustralian.com.au/news/regulate-better-not-more/story-e6frg6q6-1111118746751 Fitts, D. (2011). Financial Regulation in Australia: Who Should Regulate the Regulators? Retrieved from http://www.claytonutz.com/publications/newsletters/banking_and_financial_services_insights/20060921/financial_regulation_in_australia_who_should_regulate_the_regulators.page Hepworth, A. (2012). Treasurer Overhauls Financial Market Regulation. Retrieved from http://www.theaustralian.com.au/business/markets/treasurer-overhauls-financial-market-regulation/story-e6frg916-1226314909272 Mark, O. (2011). Financial Markets Regulation in the United States. Retrieved from http://www.federalreserve.gov/boarddocs/speeches/2002/20020708/default.htm Mason, J. 92011). U.S. Financial Regulations are Making the Institutions and Markets Irrelevant. Retrieved from http://seekingalpha.com/article/247734-u-s-financial-regulations-are-making-the-institutions-and-markets-irrelevant Massey, D. (2011). Dodd-Frank is Providing Meaningful, Tangible Benefits to Investors. Retrieved from http://www.advisorone.com/2011/07/18/dodd-frank-is-providing-meaningful-tangible-benefi Michael, B. (2011). The Financial Crisis and the Path of Reform: Three Years Later. Retrieved from http://www.brookings.edu/opinions/2011/1221_financial_reform_barr.aspx Rice, S. (2011). Australia in Danger of Financial Regulation Overload. Retrieved from http://www.freehills.com/6878.aspx Richard, J., Fuchita, Y., and Litan, R. (2012). New Perspectives on Financial Stability. Retrieved from http://www.brookings.edu/press/Books/2012/rockytimes.aspx Robinson, A. (2009).Financial Services Regulation. Retrieved from http://www.aar.com.au/pubs/fsr/cufsraug09.htm Read More