History of Financial Regulatory System in Australia and Singapore - Essay Example

Executive Summary Background The paper deals with the difference and similarities between the structure of the Australian Financial regulatory system and the Singaporean one. It throws light on the history of financial regulatory system of both the nations with brief introduction of a well-structured financial system. Besides the structure and functions of the financial regulatory system in Australia and Singapore it discusses the disclosure and corporate governance in both the countries. The paper also brings forth the evolution of financial markets in Australia and Singapore. All these points are dealt with close contrast between Australian and Singaporean financial system. Main purpose of the paper The main aim of the paper is to deal with some important points that make a well-structured financial system by comparing the Australian system with that of Singaporean one. It brings sharp contrast of the western financial system with that of Asian. The paper stresses the importance of institutional structure in the design of strong financial regulatory system. Sources of information After thorough study of sources like International Monetary Fund's report on Australia's and Singapore's financial system, the report of Monetary Authority of Singapore (2006), Perkins, J.N.O., book , The Dergulation of the Australian Financial System: The Experience of the 1980, Ng Nam Sin's speech in 2004, Ginnie Teo's articles on Singapore. There are other sources of information that help to make this paper worthwhile. Main findings The main findings of the paper is the structure and functions of the financial regulatory system in Australia and Singapore and the related changes that both the nations have brought in to stand as the ultimate destination the financial sector. Conclusion and Recommendations The paper concludes with the point that how both the nations are trying to become the regional financial services hub. For this the two countries are ready to bring certain changes in each other system to show their prowess in the financial sector. The paper recommends that mixed financial institutions are the need of the hour and for this unified agencies are necessary as they closely monitor the emerging structure of financial systems. There are some recommendations in the form of table, which is vital for financial stability and that's more important for any country to fit into the global financial regulatory system. "Identify and discuss the differences and similarities between the structure of the Australian Financial regulatory system and one Asian country, such as Singapore, Malaysia, Indonesia or Hong Kong". Introduction Maintaining financial stability is an important step towards the development of economy. Every nation is now working hard to bring financial stability. It not only checks the inflation but also brings transparency in the financial system, including the activities of hedge funds. The main objectives of the financial regulatory system are to maintain market confidence in the given financial system; to create public awareness of the financial system; to protect the consumers and to minimize financial crime. A well-structured financial regulatory system encourages competition and diversity in the provision of financial services through information disclosure, auditing and enforcement. It is a known fact that the financial system structures changes continually in response to financial innovations and to changes in both the economic environment and the regulatory framework. If we are talking about the world-class financial regulatory system then Australia tops the list. Australia has built a world-class financial sector regulatory regime, which provides security and integrity, through a sound, flexible and strong system of financial regulation. It is specially designed to prevent systemic failure, and avoid unnecessary burdens on business. Even some of the Asian countries such as Singapore, Hong Kong, Indonesia, Malaysia, etc. are also trying to ensure a strong financial regulatory system based on consistency and transparency. But the success of such financial regulatory system differs quite markedly from country to country. To understand this in wider context lets bring some similarities and differences between the financial regulatory system of Australia and Singapore. The similarities and differences of the financial regulatory system in Australia and Singapore would highlight the history, structure and functions of financial systems, corporate governance and evolution of financial markets in Australia and Singapore. The main purpose of this paper is to discuss some of the issues vital to make an institutional structure of financial supervision. The focus of the study is on these key issues such as importance of institutional structure in the design of strong financial regulatory system, different options to achieve that, the role of central bank, corporate governance and its contribution in building up the effectiveness of regulation and supervision. History of Financial Regulatory System in Australia and Singapore In 1998 the governments of both Australia and Singapore have introduced some measures to facilitate greater financial sector innovation, competition and efficiency. At the same time both the nations were maintaining financial sector stability, prudence, integrity and fairness. (Foster, 1996) Singapore has implemented strong reforms to enhance the financial sector which include opening the financial industry to greater foreign competition; bridging the gap between national and international best practices on prudential regulation and supervision and disclosure-based regulation; developing liquid fixed-income and equity markets; promoting the asset management industry; and gradually liberalizing the Singaporean dollar in the international arena. In Australian financial history the period between 1980s and 1990s has, perhaps, been the most eventful period, as the government has brought rapid change in the financial system of the country. The government has eliminated the controls over bank lending and with the entry of foreign banks into the banking system the government has completed the process of deregulation set in motion by the Campbell Committee of Inquiry into the Financial System. It was in December 1983 that the floating of the Australian dollar took place. These changes brought new institutions and new markets and the transformation of most of the other markets and institutions. (International Monetary Fund, 2006) According to the report of the Financial Sector Advisory Council (FSAC) Australian financial system and its regulation are sound and are very much in the line with the rest of the world. As per FSAC report globalisation, convergence and technological change are the three important forces that will continue to drive the evolution of the financial system. FSAC said that the Australian financial regulatory system is sound to meet these challenges. Structure and functions of Financial Regulatory System The structure of Australian financial regulatory system is based on three independent statutory agencies, namely, the Reserve Bank of Australia (RBA); the Australian Prudential Regulation Authority (APRA); and the Australian Securities and Investments Commission (ASIC). There is another statutory body named the Australian Competition and Consumer Commission (ACCC), which is responsible for ensuring compliance with competition, access and consumer protection laws. The reserve Bank of Australia (RBA) and the Australian Competition and Consumer Commission (ACCC) have slightly altered powers. The RBA looks after systemic stability, predominantly through its influence over monetary policy and the ACCC regulates anti-competitive behavior. (Fraser, 1994) Monetary Authority of Singapore, (2006) in its report mentions that Singapore's financial regulatory system works mainly through Monetary Authority of Singapore (MAS). It monitor the risks arising from new financial products; cross-border financial flows; household and corporate sector balance sheets to assess the resilience of the private sector; and market and counter-party risks of derivatives activities by financial institutions. Singapore's regulatory system further enhances the MAS' legal and regulatory framework. The financial regulatory system of Australia is actively involved in international forums to enhance the global regulatory cooperation, particularly in the Asia-Pacific region. The government has formed a Regulatory Advisory Committee (RAC) to help making Australia a global financial services centre. (Perkins, J.N.O., 1989) Singapore's financial sector is dominated by the banking sector and remains robust. The authority has successfully implemented several measures that had handled the economic shock in the past and would further contribute to financial sector stability. Singapore's financial regulatory system well managed the systemic liquidity, which would help the local banks to improve their profitability. (IMF, 2004) The Australian Stock Exchange (ASX) and Sydney Futures Exchange (SFE) are the two major financial market operators in Australia. They are self-regulatory organizations and play a vital role as front-line regulators, maintaining high standards of market integrity. Australian government is on the verge of completing a major program of reform of corporate law. The program aimed to streamline regulation while maintaining market integrity and investor protection. The main function of the central bank in any country is to supervise the stability of the payment systems, liquidity assistance to markets and solvent institutions, and systemic stability. (Fraser, 1994) The Reserve Bank of Australia has rightly supervised the monetary policy of the country but in Singapore the Monetary Authority of Singapore (MAS) has all the power to supervise the monetary policy and systemic stability. (MAS, 2004) As per a report prepared by the International Monetary Fund (2004) Singapore's financial regulatory system and supervisory practices exhibit a high degree of observance of international standards and codes. Singapore is working hard to enhance the risk-based regulatory and supervisory framework, strengthen the accountability and independence of the Monetary Authority of Singapore (MAS) and improve monetary and financial policy transparency. The Australian Prudential Regulation Authority (APRA) is a national regulator of prudential institutions such as deposit takers, insurance companies and superannuating funds. It ensures that financial promises made by regulated companies are met within stable, effective and competitive financial markets. (Perkins, J.N.O., 1989) The Australian Securities and Investments Commission (ASIC) is Australia's corporate, market and financial services regulator. It works to ensure Australia's capital and financial services markets are fair, transparent and backed by confident and informed investors and consumers. (IMF, 2006) The improving financial position of banks, corporate and households have supported Singapore's financial system. It is commendable that Singapore's financial sector is backed by an efficient legal system that closely follows the international best practices and latest initiatives to boost good corporate governance and to strengthen the framework of disclosure practices. (Ginnie Teo, 2002) Disclosure and corporate governance The OECD defines corporate governance as: "the system which directed and controlled the business corporations with a set of relationships between a firm's management, its board, its shareholders and other stakeholders." (IMF, 2004) The Reserve Bank of Australia provides a useful starting point for an analysis of Australian banking and this ended friction between private banks and a government-owned commercial banking competitor. Whereas the financial regulatory system has made great leaps forward recently in an attempt to bring Singaporean markets up to best international practice. It is obvious that corporate governance and disclosure remain the focus of such changes, like that of Australia. (Rodan, 2006) Again, though, the efficacy of their actions is widely divergent, as is their ability to enforce the various codes, regulations and legislation that have been the result of this movement. Corporate governance and disclosure remain the focus of such changes, much of it inspired by or copied from western markets. The Australian Securities and Investment Commission (ASIC) play important role in the registration of public securities offerings and publicly held companies. The authority has established the rules relating to the standards of disclosure. Investors expect and law also requires understanding the price or value of securities and in this way the concept of continuous disclosure has become paramount in Australia. (Edirisuriya, P., O'Brien, G.C., 2001) In Singapore the Council on Corporate Disclosure and Governance looks after the good corporate governance in Singapore. The move strengthens the framework of disclosure practices and reporting standards and prescribes accounting standards in Singapore. After 2003 all the companies listed on the SGX have been asked to disclose their corporate governance practices and also require explaining any deviations form the Code of Corporate Governance in their annual reports. (MAS, 2006) Evolution of financial markets Gary Rodan, (2006) states that in Singapore's financial markets, the domestic monetary conditions tightened slightly after mid-2004, in tandem with US rate rises. The Monetary Authority of Singapore (MAS) is trying to keep to its tightened policy stance by allowing a modest appreciation of the Singapore dollar. The depth, liquidity and sophistication of Australia's financial markets have undermined Australia's capability of being a global financial servcies centre. But Australia has attracted global financial institutions as it has growing opportunities in areas such as private banking and advantages as a site for back and middle-office processing. Introducing regulations is easy than to enforce them. Singapore has rightly made some positive regulatory moves in encouraging independent scrutiny of boards and has got success in forcing the companies to follow them. Whereas Australia fall in a different category in comparison to other markets when it comes to developing and enforcing governance regulations. The Asian Corporate Governance Association (ACGA) point out that deeper understanding of the need for good governance is necessary to make a company more attractive to investors. Unlike Australia the Singapore Exchange deserves a pat as far as the enforcement of its disclosure rules is concern. It has worked hard to make its listed companies to follow the disclosure obligations strictly. Singapore's MASNET have web-based disclosure system managed by the stock exchange or regulatory authority. (Linda Low, 2002) It is said that Australia has the most developed market in IR (Investors relation) terms whereas Singapore is still struggling to make a mark of its own in IR terms. Australia is a tiny market but the investors' relations' regulatory debate is at a higher level than Singapore. (Perkins, J.N.O., 1989) It is true that the corporate disclosure continues to improve across the Asia-Pacific region slowly. In Australia if companies step out of line there are plenty of investors groups ready to raise their voice about the issues. Linda Y.C. Lim, (1999) in her book mentions today Singapore is a significant wealth management centre in Asia and is the world's fourth largest foreign exchange trading centre. Due to its geographical location and sophisticated communication network Singapore has been rightly called the heart of Asian economy. The government of Australia and its agencies are all committed to perfect Australian model of financial regulation. It is said international issues have affected much of Australia's market conduct and disclosure regulation. For an effective regulation of domestic markets an international cooperation between global regulators is vital. Both the countries knew that the competitive environment in financial services would get tougher as time passes away. It is true that Singapore has to lose much in the past few decades but it has built up its finance sectors through its sound legal and regulatory frameworks, healthy corporate and personal tax rates. Ng Nam Sin, director (Industry Development), Financial Centre Development Department of Singapore, opined that the competitive environment in financial services in Singapore has become tougher. It is expected that the world would shifts its attention away from South East Asia to North Asia. (Sin, 2004, MAS) According to him internationally the financial services is undergoing a major consolidation. He informed that due to deregulations more countries are now opening up like Australia. Ng said Singapore need to maintain its position by becoming more proactive in selling their value propositions to the world. He says Singapore's key selling point so far has been its strong fundamental infrastructure such as a stable regulatory environment, established legal framework, strong corporate governance, liberal admission rules for foreign workers, and a competitive tax regime. (Sin, 2004, MAS) The government of Singapore wants to reform regulatory policy to collaborate with industry experts so that Singapore would become top class financial and business hub in the world. According to MOF new rules would prove beneficial to the business and financial environment. In designing regulatory policies MOF have considered all viewpoints with priority given to Singapore's long-term interest. The new policies ensure comparability with international standards and best practices in areas such as company law, accounting standards and corporate governance principles. (Sin, 2004, MAS) Conclusion & Recommendation It is obvious that Singapore and Sydney competing each other for the title of leading regional financial services hub. Australia has undergone a concerted push to show its capabilities in the financial sector to the world. Singapore is also reorganizing its regulatory and corporate environment to attract and retain the globe's financial giants. For a good operation of financial regulatory system independence, accountability, transparency, and integrity are necessary. As the mixed financial institutions are emerging the need of unified agencies has become more important as they closely follow the emerging structure of financial systems and the business of financial firms. Both Australia and Singapore are working hard to make their respective financial regulatory system suitable for globalization. The above discussion reveals that Asian country Singapore is as competitive as Australia in terms of financial stability. To fit into the global regulatory system both the nations have to make number of enhancements to overcome the present shortcomings of the system. There are few recommendations that need to be taken into consideration to make a niche in the global financial sector. S/No. Recommendations Objectives 1. Both the nations need to expand the role of government in developing the Asset management Industry. Build professional team of players, which will build breadth and depth in the asset management industry. 2. Boost competitiveness by improving tax treatment. Increase assets available for management in Singapore as well as in Australia that will develop friendly investment culture. 3. Boost regional /global processing centers. It would strengths business and IT infrastructure to compete with world call processing cluster. 4. Create an attractive business environment through public-private sector co-operation in promotion. Promotes Singapore as pre-eminent financial center in Asia and makes Australia an attractive destination for investment. 5. Create proper environment for international education and training initiatives. Deepen the pool of skilled financial sector talents. References: Foster, R.A. (1996),Australian Economic Statistics 1949-50 to 1994-95, Reserve Bank of Australia Occasional Paper No.8, June. Fraser, B. (1994), 'Some Current Issues in banking', Reserve Bank of Australia Bulletin, June, pp.9-17. International Monetary Fund, (2006), Financial System Stability Assessment, Australia. Edirisuriya, P., O'Brien, G.C., (2001), Financial Deregulation and Economies of Scale and Scope: Evidence from the Major Australian Banks, Asia Pacific Financial Markets. Perkins, J.N.O., (1989), The Dergulation of the Australian Financial System: The Experience of the 1980, Melbourne University Presss. International Monetary Fund, (2004), Singapore: Financial System Stability Assessment. Monetary Authority of Singapore, (2006), Financial Stability Review. Gary Rodan, (2006), 'Singapore: globalisation, the State and Politics', in The Political Economy of South-East Asia: Markets, Power and Contestation. Oxford University Press. Linda Low, (2002),'Rethinking Singapore Inc. and GLCs', Southeast Asian Affairs 2002. Linda Y.C. Lim, (1999), 'Free market fancies: Hong kong, Singapore and the Asian Financial Crisis,' in The Politics of the Asian Economic Crisis. Ginnie Teo, (2002), 'Forget Economics, Where are the Jobs,' The Straits Times, Singapore. Ng Nam Sin,(2004) Executive Director, Financial Centre Development Department, Policy statements & Speeches, Monetary Authority of Singapore. Read More