FINANCIAL SERVICES IN

AUSTRALIA
GROUP 7
DENIS JOSE

13PGDM081

GAURAV KARARIA

13PGDM084

HARDRISHT CHAWLA

13PGDM087

SURBHI GOYAL

13PGDM120

SAKSHI AGRAWAL

13PGDM168

THE FINANCIAL SYSTEM IN AUSTRALIA

The Australian Financial System consists of "the set of arrangements covering the borrowing and lending
of funds and the transfer of ownership of financial claims" in Australia. It has several sectors:
1.

Banks, credit unions and building societies - Referred to as Authorized Depoles-Taking

Institutions (ADIs) or financial institutions

2.

Insurance

3.

Superannuation

4.

Financial markets debt, equity and derivative markets

5.

Payments systems cash, cheques, EFTPOS, RTGS and other high-value payment systems

CHANGES IN FINANCIAL SYSTEM

Four main developments in the structure of the financial system stand out :
1.

The first is the increase in the importance of banks, which today directly account for half of

the total assets of the financial system, up from 40 per cent in 1985. At a group-wide level,
banks have become even more prominent, partly by diversifying into funds management and, to
a lesser extent, insurance.
2.

The second development is the growing importance of securitisation.

3.

The third is a marked increase in the share of assets managed through superannuation and
other managed funds, partly reflecting changes in retirement income arrangements.

4.

Fourth is the decline in the relative importance of credit unions, building societies, finance
companies and merchant banks institutions that grew strongly in earlier decades partly as a
result of the regulation of the banking sector.

BANKING HISTORY OF AUSTRALIA

1st Bank in Australia is Bank of New South Wales , Sydney in 1817. The bank opened
branches in 19th & 20th century in the following places :

1850- Moreton bay (Brisbane)

1851- Victoria
1861- New Zealand

1877- South Australia

1910- Papua New Guinea
1910- Tasmania
Central Bank in Australia (RBA)
Till 1960 - the role of central bank was performed by the Commonwealth Bank of Australia
14th Jan 1960-central bank function was transferred to the newly-created Reserve Bank of
Australia

BANKING IN 1980s
Till 1980- Banking in Australia was highly regulated :
Very Few banks

Savings Bank (mostly state owned)

no interest to their depositors
lending activities were restricted to providing mortgages
Trading Bank (merchant Banks - did not provide services to the general public)
NBFC flourished in Australia (building society and the credit union)
Subjected to less stringent regulations
Could provide and charge higher interest rates

MAJOR MERGERS IN BANKING

Australia and New Zealand Banking Group Ltd.
1970

ANZ Bank
1951
The Bank of Australasia
London-based
1835

Union Bank of Australia

London-based
1837

English, Scottish and Australian

Bank Limited
London-based bank
1852

FOREIGN BANKS
Must obtain a banking authority issued by APRA under the Banking Act (to operate as a
wholesale bank through an Australian branch or to conduct business through an Australianincorporated subsidiary)
Any proposed foreign takeover or acquisition of an Australian bank will be considered on a
case-by-case basis and judged on its merits.
Major foreign Retail banks :
HSBC Bank Australia
Bank of Cyprus Australia Limited
Beirut Hellenic Bank
Citibank Australia
Foreign banks have a more significant presence in the Australian merchant banking sector.

FOUR PILLARS POLICY

The banking sector in Australia consists of a number of banks licensed to carry on banking
business under the Banking Act 1959.

Currently, the Australian banking sector is dominated by four major banks: Australia and New
Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and
Westpac Banking Corporation.

In 1990, the Commonwealth Government of Australia announced that it adopted a Four Pillars"

policy and would reject any mergers between these four banks.

The four pillars policy does not prevent the four major banks from acquiring smaller competitors.

INSURANCE SECTOR

Australia's Insurance market can be divided into roughly three components: life
insurance, general insurance and health insurance.

These markets are fairly distinct, with most larger insurers focusing on only one type, although in
recent times several of these companies have broadened their scope into more general financial
services, and have faced competition from banks and subsidiaries of foreign financial

conglomerates.

With services such as disability insurance, income protection and even funeral insurance, these
insurance giants are stepping in to fill the gap where people may have otherwise been in need of a

personal or signature loan from their financial institution.

INSURANCE INDUSTRY STRUCTURE

Life insurers were traditionally mutual companies, but in the 1980s and 1990s many of them
demutualised and with a few large exceptions are owned by banks. The large remaining insurers
have become financial services organisations and now derive the majority of their revenue from
superannuation investment products.
General Insurers have a more diverse ownership structure, with more stand alone independent
general insurers (although some life insurers do own general insurers).
Health insurers are still predominantly mutuals. The notable exception is Medibank Private, the
largest private health insurer in Australia, which is owned by the Government of Australia.

GENERAL INSURANCE
General insurance products sold in the Australian market can roughly be divided into two
classes:
Liability insurance such as Compulsory Third Party (CTP) motor insurance, worker's
compensation , professional indemnity insurance and public liability insurance, business
insurance;
Property insurance such as Home and Contents insurance, travel insurance, and
comprehensive motor vehicle insurance
Certain types of insurance, such as CTP and worker's compensation, are statutory (i.e. are
required by law), and can differ considerably by state.

HEALTH INSURANCE
The Australian Government provides a basic universal health insurance, Medicare. Private
health insurance in Australia is limited to those services not covered by Medicare or to services
provided in private hospitals.
The Australian Taxation system encourages middle to high income earners to take out Private
Health Insurance. While most taxpayers pay a 1.5% Medicare levy, an additional 1% Medicare
Levy Surcharge is payable by those taxpayers who earn more than $88,000 and do not have
Private Health Insurance.

SUPERANNUATION

Superannuation in Australia refers to the arrangements which people make in Australia to have
funds available for them in retirement.

Superannuation in Australia is government-supported and encouraged, and minimum

provisions are compulsory for employees. For example, employers are required to pay a
proportion of an employee's salaries and wages (9.5% as of 1 July 2014) into a superannuation
fund, but people are encouraged to put aside additional funds into superannuation.

From 1 January 2014, employers are required to pay default contributions to an

authorized MySuper product. The minimum obligation required by employers is set to increase
from 9% to 12% gradually stepping annually from 2013.

SUPERANNUATION TYPES
There are about 500 superannuation funds in operation in Australia. Of those, 362 have assets totaling
greater than $50 million.
There are seven main types of superannuation funds:
Industry Funds are multiemployer funds run by employer associations and/or unions. Unlike
Retail/Wholesale funds they are run solely for the benefit of members as there are no shareholders.
Wholesale Master Trusts are multiemployer funds run by financial institutions for groups of
employees. These are also classified as Retail funds by APRA.
Retail Master Trusts/Wrap platforms are funds run by financial institutions for individuals.
Employer Stand-alone Funds are funds established by employers for their employees. Each fund
has its own trust structure that is not necessarily not shared by other employers.

 Public Sector Employees Funds are funds established by governments for their employees.
Self Managed Superannuation Funds (SMSFs or Do-It-Yourself Funds) are funds
established for a small number of individuals (limited to 4) and regulated by the Australian
Taxation Office. Generally the Trustees of the fund are the fund members (where there is a
Corporate Trustee, the members are the directors of that company). The SMSF sector is the
largest sector of the Australian super industry, with 99% of the number of funds and 31% of
the $1.6 trillion total super assets as at 30 June 2013.

Small APRA Funds (SAFs) are funds established for a small number of individuals (fewer
than 5) but unlike SMSFs the Trustee is an Approved Trustee, not the member/s, and the funds
are regulated by APRA. This structure is often used for members who want control of their

superannuation investments but are unable or unwilling to meet the requirements of

Trusteeship of an SMSF.

FINANCIAL MARKETS

The main participants in the Australian financial market are:

Australian Securities Exchange is the primary stock exchange in Australia, and

National Stock Exchange of Australia, based in Newcastle, NSW, previously called

Newcastle Stock Exchange.

Bendigo Stock Exchange was acquired by the National Stock Exchange of Australia in June

2012 and shut down.

Most foreign exchange transactions are free from regulation, and the Reserve Bank of Australia
has largely delegated its control to authorised money market dealers and foreign exchange
dealers.

AUSTRALIAN STOCK EXCHANGE

ASX Group is a market operator, clearing house and payments system facilitator. It also oversees compliance
with its operating rules, promotes standards of corporate governance among Australia's listed companies and

helps to educate retail investors.

Today, ASX has an average daily turnover of A$4.685 billion and a market capitalization of around
A$1.6 trillion, making it one of the world's top-10 listed exchange groups, comparable to the New York

Stock Exchange, London Stock Exchange and Deutsche Boerse.

Products and services available for trading on ASX include shares, futures, exchange traded options,
warrants, contracts for difference, exchange-traded funds, real estate investment trusts, listed investment
companies and interest rate securities.

The

biggest stocks

traded on

the ASX,

in terms of

market

capitalization, include BHP

Billiton, Commonwealth Bank of Australia, Westpac, Telstra,.

The major market index is the S&P/ASX 200, an index made up of the top 200 shares in the ASX.

AUSTRALIAN CAPITAL MARKETS

Financial development - Australia was ranked 5th out of 57 of the world's leading financial
systems and capital markets by the World Economic Forum;

Equity market - the 8th largest in the world (based on free-float market capitalization) and the 2nd
largest in Asia-Pacific, with A$1.2 trillion market capitalisation and average daily secondary
trading of over A$5 billion a day;

Bond market - 3rd largest debt market in the Asia Pacific;

Derivatives market - largest fixed income derivatives in the Asia-Pacific region;

Foreign exchange market - the Australian foreign exchange market is the 7th largest in the world
in terms of global turnover, while the Australian dollar is the 5th most traded currency and the
AUD/USD the 4th most traded currency pair;

MAJOR REGULATORS

Regulatory Framework

TREASURY
Treasury analyzes policy issues with a holistic perspective of economy, understand government
and stakeholder circumstances and respond rapidly to changing events and directions.
Some of the policy decisions which are taken up by the treasury department are-:
Budgeting and expenditure : The treasury provides information to government on its spending and
taxation.
Business: Treasury provides assistance on small business policy issues and assists the government in

generating a competitive environment for small businesses

Economy: Monitoring and assessing Australian economic conditions and prospects.
Financial Markets: The Treasury aims to build competitive, efficient markets which work to enhance

consumer and investor wellbeing, a secure financial system and good corporate governance practices.

ASIC

The Australian Securities & Investments Commission (ASIC) is an independent Australian

government body that acts as Australias corporate regulator. ASIC's role is to enforce and regulate
company and financial services laws to protect Australian consumers, investors and creditors.

MoneySmart (ASICs Website) aims to help people make good financial decisions by providing free,

independent and unbiased information, tools and resources.

The primary functions of ASIC are:

Investor Education

Fair and efficient Stock Markets

Registration and Licensing

ASICs staff, supplier, finance and asset impairment costs in 201314 was $340.4 million

APRA

APRA is responsible for the licensing and prudential supervision of Authorized Deposit-taking Institutions (ADIs), life and
general insurance companies and superannuation funds. All financial institutions regulated by APRA are required to report on a
periodic basis to APRA.

APRA has issued capital adequacy guidelines for banks which are consistent with the Basel II guidelines. Investment banks
(which do not otherwise operate as ADIs) are neither licensed nor regulated under the Banking Act and are not subject to the
prudential supervision of APRA.

APRA currently supervises institutions holding A$4 trillion in assets for almost 23 million Australian depositors, policyholders
and superannuation fund members.

In October 2002, APRA introduced new risk assessment and supervisory response tools known as the Probability and Impact
Rating System (PAIRS) and the Supervisory Oversight and Response System (SOARS). These supervisory tools are the
centerpiece of APRAs risk-based approach to supervision

PAIRS - The probability that the institution might be unable to honour its financial promises to beneficiaries depositors,
policyholders and superannuation fund members and the impact on the Australian financial system should the institution fail.

FINANCIAL SYSTEM COMPARISON

Parameter

Australia

India

Financial services
sector

It is the largest sector in the Australian

economy in terms of gross value
added.

Of 56.9% of GDP accounted by Indian Services Sector, Financial

services is the major contributor
Growth of the sector- 8.55 per year(2014)

Banking Sector

Prior to 1985, foreign-owned banks

limited(entry restrictions)
15 overseas banks were required to
incorporate locally as subsidiaries, and to hold
capital in Australia

Liberalization in India since 1991

Earlier
state-owned banks
controlled 90 per cent of bank deposits
high proportion of funds were channelled to the Government
credit was allocated on the basis of government policy

Securities/Funds
Management

The Australian Securities Exchange (ASX),

Australias largest financial market operator
(Top ten listed exchanges in the world by
market capitalisation)

Guidelines for the issue and valuation of securities in India are

set by Indias RBI/ Securities
The India Portfolio Investment Scheme is incorporated
under the Foreign Exchange Management (Transfer and Issue of
Securities to a Person Resident outside India) Regulations, 2000.

Insurance

The Australian general insurance sector is the

12th largest
in the world. In Australia, the minimum
capital requirements for general insurers are
determined on a case by case basis, with a
minimum capital requirement of US$4
million.

Insurance Industry of India consists of 52 insurance companies of

which 24 are in Life Insurance business & 28 are Non-life
Insurers.
Among life-insurers LIC is sole public Sector company

THANK YOU