Regulatory Policy in Australia and Canada - Case Study Example

Name Tutor Analysis of regulatory policy in Australia and Canada Course Institution Date Analysis of regulatory policy in Australia and Canada Regulation is a major characteristic of the contemporary governance. Far from adopting deregulatory values, the recent past has been that of a blast or explosion of regulatory roles of government (Jacobs, 2006: 13). Regulatory policy can not only affect industrial conduct but their economic value (Beardsley, Bugrov, and Enriquez, 2007: 1). Although many studies have been conducted on regulatory issues, little effort has been put on financial issues. This paper gives a comparative analysis between Australian regulatory system and that of Canada with a specific emphasis on the financial companies in these two countries as well as addresses related information gaps. The paper is structured in three sections. The first part relates to a brief introduction while the second one forms the body. The last and final section is a conclusion which will be drawn from the rest of the paper. Financial companies can not only contribute significantly to the country's economy but also may pose a greater threat to the nation’s financial stability (Basel Committee on Banking Supervision, 2010: 7). Consequently, regulations tend to balance the cost and the values of these institutions. Australia and Canada have both differences and similarities in their securities/financial regulations as will be seen in the next paragraphs. Australian Regulatory system One conspicuous feature of the Australian regulatory system is that is formulated in a twin peaks model/fashion introduced after a series of deregulation of the financial industry which took place in the early1980’s (Chaaya, 2011:2). The regulation system is fashioned along a functional distinction of a prudential regulation and securities and that of market supervision. The two regulators are the Australian Securities and Investment Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA) both statutory authorities were established by Acts of Parliament, and since been regarded as quite independent entities. Chaaya argues that prudential regulation is conducted by the APRA while ASIC is mandated to carry out securities and supervision roles (Fresh and Baily, 2009:16). Apart from the securities and supervision responsibilities, ASIC has powers to impose criminal or civil sanctions against financial companies, regulates trading markets and licenses and monitors financial services firms while at protecting consumers against misleading conduct with respect to these companies’ products and services (Pan, 2009: 25). Another unique feature in the regulatory system is that the Minister has the power to give both APRA and ASIC written directions about policies it should pursue, or even priorities it should follow in discharging its responsibilities in line with the corporation’s legislation. However, it is not mandated to giving directions about on issues relating to conflicts of interest (Black and Jacobzone, 2009: 21). The Australian regulatory system is associated with various benefits. First, it may protect prudential supervisors against an excessively intrusive consumer-oriented approach. In addition, in case of conflicts particularly those which relate to consumer protection issues, the prudential supervisor may give precedence to safety and soundness mandates since these are closely linked to financial stability. Further, this system may also offer an optimal means of ensuring that issues of transparency, market integrity, and consumer protection receive sufficient priority. Each of the investor protection and market conduct mandates can receive singular focus. The approach is designed to ensure that sales practice protections apply uniformly across all financial services, irrespective of the legal status of the entity selling the product (Basel Committee on Banking Supervision, 2010: 37). To some extent, the Australian model has been effective partly attributed to the fact that APRA and ASIC can independently pursue their prudential and corporate regulation/consumer protection/market integrity objectives, while taking appropriate account of the other’s differing perspectives (Cooper , 2006: 20). However, it is associated with various challenges. One of relates to its overlapping tendencies closely linked to ASIC and APRA which are mandated to control the same financial entities. A case in point is the superannuation industry where entities are required to fulfill the terms of both the ASIC and APRA. Again, data or information gathered by trustees is usually given to both regulators thus doubling the administration and time spent collecting the same (Chaaya, 2011:2). In addition, this system tends to over-legislate consequently leading to unfriendly legislation. These negative impacts of overlapping regulation can be controlled though a proper communication and coordination between regulators. Nonetheless, such cooperative behaviour has not always been apparent in Australia (Ibid, 2011:2). Canadian Regulatory system Unlike Australia, the Canadian regulatory system is more restrictive (Rao and Sharma, 2006: 200) and fragmented both sectorally and federally. Although Canada also adopted twin peaks model at some point, its current system is a hybrid system characterized by both integrated and functional approaches. The legislative and regulatory framework for financial institutions like banks is entirely federal. The federal government is responsible for the legislative framework and determines whether mergers between financial institutions can proceed. The OSFI and the Minister of Finance also have a role. The federal Financial Transactions Reports Analysis Centre of Canada is responsible for antimony laundering and anti-terrorist financing, which, in the case of federal financial institutions, it has delegated to OSFI (The Group of thirty, 2008:126). Furthermore, Canada’s framework is formulated in an objective-based manner in that the financial sector has the division of responsibility between OSFI and FCAC with the vital template of one regulator paying attention to prudential regulation and the other regulator focusing on business conduct regulation. For this, Canada can apply the objectives-based approach to its financial system. The other difference relates to the distribution of regulated between state and non-state bodies as well as regulatory functions between the federal and provincial governments. Black and Jacobzone argue that in Australia, self regulatory bodies have a very minimal role in the regulatory system, however Canada, relies more significantly on the self-regulatory organizations. In addition, the Canadian securities regulation often operates at the provincial level while the banking regulation takes place at the federal level (Black and Jacobzone, 2009: 13). The bodies are the ones which control both investment and mutual fund dealers in securities. The weakness of the Canadian regulatory system is linked to the fact that parts of Canada’s regulatory system are still segmented by type of financial activity and regulation is split between the provinces and the national government. Ideally, Canada should strive to consolidate all of its regulatory activities in fewer agencies and, to the extent possible, consider giving primary regulatory responsibility for the securities markets to a national regulator (Pan, 2009: 19). Similarities between Australia and Canada regulatory system Australia and Canada have various things in common in their regulatory systems. The current trend these regulations have evolved from a similar economic environment. Apart from the robust regulatory systems, both countries are resource-rich economies with comparatively small populace and a shared commonwealth background. The two nations have a common history of macro-economic characteristics which are quite different from other nations particularly Europe and Japan (Konzelmann and Fovargue-Davies, 2010:2). Again, the two countries fall under the liberal market economy forms of capitalism which depend depends on market mechanisms to settle coordination problems, including firms and the different stakeholders (Hall and Soskice, 2001). The two countries also have similar Institutional arrangements. In each case the boards are appointed by the equivalent of the Minister of Finance for fixed terms, and are removable only on grounds specified in legislation. Each has a clear legislative mandate, even if it is administered, several pieces of legislation, and a clear set of statutory objectives (Black and Jacobzone, 2009:21). In the two countries, emphasis has been put towards accountability to stakeholders which necessitated the formation of consultative committees of stakeholders to advice on markets issues. For example, ASIC in Australia has a consumer advisory group which meets periodically. Conclusion This paper aimed at giving a comparative analysis of regulatory issues between Australia and Canada and discussing the corresponding effectiveness of these policies. It is a reasonable conclusion to draw there are both differences and similarities in terms of these regulations. Australia has adopted a twin peaks model while that of Canada is hybrid system having both elements of integrated and functional approaches. The systems have been effective to some degree however, they are not without shortcomings. In general, no strategy can be said to be more no one model superior than the other in achieving all the goals and objectives of regulation. All in all, commitment and Strong leadership and qualified administrators can offset to some degree the weaknesses and deficiencies stemming from the regulatory structures, but above all, there is an urgent need to update these regulatory regimes in order to deal effectively in the dynamic Global environment. Bibliography Adriane Fresh and Martin Neil Baily (2009). What does international experience tell us about regulatory consolidation? Briefing Paper# 6, the international experience with regulatory consolidation Pew Economic Policy Group September 2009 28 pages Basel Committee on Banking Supervision (2010). The Institutional Review of the Differentiated Nature and Scope of Financial Regulation Key Issues and Recommendations, Bank for International settlement, January 2010 The Joint Forum Berlin, Germany Foundations of Comparative Advantage. Oxford: Oxford University Press. Black, J. and S. Jacobzone (2009), Tools for Regulatory Quality and Financial Sector Regulation: A Cross- Country Perspective, OECD Working Papers on Public Governance, No. 16, OECD Publishing. Hall, P. and D. Soskice (2001). ‘An Introduction to Varieties of Capitalism’. In P. Hall, and D. Soskice (Eds), Varieties of Capitalism. Oxford: Oxford University Press Jeremy Cooper (2006). The integration of financial regulatory authorities – the Australian experience 30th Anniversary Conference Michael Chaaya (2011) .The Regulation of Trustee Governance in Australia: Time For A Rethink IPEBLA13th International Conference Companies have everything to gain from linking them. The McKinsey Quarterly August2007, 6pages Pan, Eric J. (2009). Structural Reform of Financial Regulation, Cardozo Legal Studies Research Paper No. 250. (January 1, 2009) 47 pages Scott C. Beardsley, Denis Bugrov, and Luis Enriquez (2007). The role of regulation in strategy: Companies have everything to gain from linking them. The McKinsey Quarterly August2007, 6pages Scott Jacobs (2006). Current Trends in Regulatory Impact Analysis: The Challenges of Mainstreaming RIA into Policy-making Jacobs and Associates International leaders in Regulatory reform, 30 may 2006 Someshwar Rao and Prakash Sharma (2006). International Competitiveness and Regulatory Framework: A Canadian Perspective in John M. Curtis and Aaron Sydor (Eds) NAFTA@10 Minister of Public Works and Government Services Canada Cat: IT5-1/2006E ISBN: 0-662-43036-0 page 194-228 Sue Konzelmann Marc Fovargue-Davies (2010). Varieties of Liberalism: Anglo-Saxon Capitalism in Crisis? Centre for Business Research, University of Cambridge Working Paper No. 403 The Group of thirty (2008). The structure of Financial Supervision Approaches and Challenges in a Global Marketplace, The Group of Thirty 1726 M Street, N.W., Suite 200 Washington Read More