Financial Crime World

Banking Regulations in Australia: A Guide to Governance and Supervision

The Australian banking sector is subject to a range of legislation, regulatory bodies, and prudential requirements. This guide provides an overview of the key aspects of banking regulation in Australia.

Legislation

The primary piece of legislation governing banks in Australia is the Banking Act 1959 (Cth), which sets out the powers and responsibilities of the Australian Prudential Regulation Authority (APRA).

  • The Banking Act provides a framework for regulating and supervising banks.
  • It ensures that banks operate in a safe and sound manner.

Regulatory Bodies

Australian Prudential Regulation Authority (APRA) is responsible for:

  • Regulating and supervising banks to ensure their stability and soundness.
  • Ensuring that banks meet prudential requirements.

The Reserve Bank of Australia (RBA) plays a key role in setting monetary policy and providing liquidity to the banking system.

Licensing

Banks in Australia are required to hold an Australian Financial Services Licence (AFSL) issued by the Australian Securities and Investments Commission (ASIC). APRA also issues licences for authorized deposit-taking institutions.

  • Banks must meet strict requirements to obtain a licence.
  • Licences are renewed regularly to ensure that banks continue to operate in a safe and sound manner.

Prudential Requirements

Prudential requirements cover areas such as:

  • Capital adequacy: Ensuring that banks have sufficient capital to absorb losses.
  • Liquidity: Ensuring that banks have sufficient liquid assets to meet their obligations.
  • Risk management: Identifying and managing risks associated with banking operations.
  • Governance: Ensuring that bank boards are effective in overseeing bank operations.

Resolution Requirements

The Banking Act 1959 (Cth) provides a framework for resolving failed banks. APRA is responsible for overseeing the resolution process.

  • The resolution process involves liquidating the assets of the failed bank.
  • It ensures that depositors and other creditors are protected.

In recent years, there has been a focus on:

  • Enhancing bank capital standards: Increasing the minimum amount of capital required for banks to operate.
  • Improving liquidity regulation: Ensuring that banks have sufficient liquid assets to meet their obligations.
  • Strengthening risk management practices: Identifying and managing risks associated with banking operations.
  • Increasing scrutiny of bank governance and culture: Ensuring that bank boards are effective in overseeing bank operations.