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Financial system in Australia
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{{Short description|Banking and borrowing in Australia}} The '''[[Australia]]n financial system''' consists of the arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims in Australia,<ref>Submission to the Committee of Inquiry into the Australian Financial System ("The Campbell Committee"), ''[[Reserve Bank of Australia]] Occasional Paper No 7'', December 1979, para 1.</ref> comprising: * [[authorised deposit-taking institution]]s (ADIs) or financial institutions, comprising banks, credit unions and building societies, * [[Non Bank Financial Institutions in Australia|non bank financial institutions (NBFI)]], * insurance (life and general), * superannuation, * financial markets—debt, equity and derivative markets, and * payments systems—cash, cheques, EFTPOS, RTGS and other high-value payment systems. ==Financial markets== The main [[stock exchange]] operators in the Australian [[financial market]] are the [[Australian Securities Exchange]] (ASX) and the smaller [[National Stock Exchange of Australia]] (NSX), both of which provide stock exchange facilities for Australian listed securities. NSX acquired the [[Bendigo Stock Exchange]] in June 2012 and merged its operations. Most [[Foreign exchange market|foreign exchange]] transactions are largely free from regulation, and the [[Reserve Bank of Australia]] has largely delegated its control to authorised money market dealers and foreign exchange dealers. == Market participants == [[File:ABS-6291.0.55.003-LabourForceAustraliaDetailedQuarterly-EmployedPersonsByIndustrySubdivisionSex-EmployedTotal-Finance-Persons-A2545697C.svg|thumb|right|300px|Total employment in the finance industry (thousands of people) since 1984]] Participants in the financial system consist of [[commercial bank]]s, [[investment bank]]s, [[finance company|finance companies]], [[building society|building or cooperative societies]], [[credit union]]s, [[friendly society|friendly societies]], [[non bank financial institutions (NBFI)]], [[pension fund|superannuation and approved deposit funds]], [[public unit trust]]s, [[cash management trust]]s, [[mortgage originator]]s, [[insurance]] companies, institutional funds investing in and financing debt. ===Financial institutions=== {{main|Banking in Australia}} Banking in Australia is dominated by what are known as the "big four", which are also referred to as the pillars of Australia's financial system: * [[Commonwealth Bank]] * [[Westpac]] * [[Australia & New Zealand Banking Group]] * [[National Australia Bank]] There are several smaller banks with a presence throughout the country, and a large number of other financial institutions, such as [[credit union]]s. Many large foreign banks have a presence, but few have a [[retail banking]] presence. The [[central bank]] is the [[Reserve Bank of Australia]] (RBA). Since 2008 the Australian government has guaranteed deposits up to $250,000 per customer per institution against banking failure.<ref>{{Cite web |url=http://www.treasury.gov.au/documents/1431/PDF/Design_and_operational_parameters_281008.pdf |title=Australian Government Deposit Guarantee Design & Operational Parameters, Department of the Treasury accessed 18 June 2010 |access-date=18 June 2010 |archive-url=https://web.archive.org/web/20091013030104/http://www.treasury.gov.au/documents/1431/PDF/Design_and_operational_parameters_281008.pdf |archive-date=13 October 2009 |url-status=dead }}</ref> ===Insurance market=== {{main|Insurance in Australia}} Australia's [[insurance]] market can be divided into roughly three components: [[life insurance]], [[general insurance]] and [[health insurance]]. These markets have been fairly distinct, with most larger insurers focusing on only one type. However, in recent times several insurance companies have broadened their scope into more general financial services, and have faced competition from [[Banking of Australia|banks]] and subsidiaries of foreign financial conglomerates. ===Superannuation=== {{main|Superannuation in Australia}} Superannuation in Australia is government-supported and encouraged, and minimum provisions are compulsory for employees. Superannuation arrangements are provided by banks and insurance companies, though most funds are self-managed. Superannuation funds are tightly regulated. ==Payments and clearing systems== There are several payment systems in use within Australia, many of which are regulated by [[Australian Payments Network]] (AusPayNet) (previously called Australian Payments Clearing Association (APCA)), including: === Cash === The [[Australian dollar]] is Australia’s [[currency]] and [[legal tender#Australia|legal tender in Australia]]. Clearing and settling of cash payments (also called CS5) are regulated by AusPayNet as the Australian Cash Distribution Exchange System (ACDES).<ref>{{Cite web |url=http://www.apca.com.au/docs/payment-systems/acdes_regulations.pdf |title=Australian Cash Distribution and Exchange System Framework (CS5), Australian Payments Clearing Association Limited: accessed 26 July 2015 |access-date=26 July 2015 |archive-date=6 March 2016 |archive-url=https://web.archive.org/web/20160306093133/http://www.apca.com.au/docs/payment-systems/acdes_regulations.pdf |url-status=dead }}</ref> === Cheques === [[Cheque]]s are still the most important non-cash payment instruments in Australia, in terms of the value transferred. The number of monthly cheque transactions in 2008 was 33.7 million with a value of $139.3 billion.<ref>{{Cite web |url=http://www.apca.com.au/Public/apca01_live.nsf/WebPageDisplay/Stats_CheqMonth |title=Cheque Payment Transactions (Monthly volume and value) |access-date=2009-05-19 |archive-date=2015-07-12 |archive-url=https://web.archive.org/web/20150712035642/http://www.apca.com.au/Public/apca01_live.nsf/WebPageDisplay/Stats_CheqMonth |url-status=dead }}</ref> Cheque use is in decline worldwide, but it is declining faster in Australia than many other countries. Between 2010 and 2014, cheque use in Australia declined by 42.8% with just over seven cheques written per person in 2014. In 2014, 166.6 million cheques were used in Australia, compared to 291.1 million in 2010.<ref>Bank for International Settlements, quoted in Australian Payments Clearing Association, [http://www.apca.com.au/docs/default-source/decline-of-cheques---consultations/apca-milestones-report-2016.pdf Towards a digital economy] {{Webarchive|url=https://web.archive.org/web/20180313130901/http://apca.com.au/docs/default-source/decline-of-cheques---consultations/apca-milestones-report-2016.pdf |date=2018-03-13 }}, p.5</ref> In 2015, cheque usage fell by a further 16.3%. Cheques and other payment instruments (such as travellers cheques and warrants) (also called CS1) are cleared and settled in accordance with the regulations and procedures set by APCS.<ref>{{Cite web |url=http://www.apca.com.au/docs/payment-systems/becs_procedures.pdf |title=Procedures for Australian Paper Clearing System Framework (CS1), Australian Payments Clearing Association Limited: accessed 26 July 2015 |access-date=26 July 2015 |archive-date=10 March 2015 |archive-url=https://web.archive.org/web/20150310131525/http://apca.com.au/docs/payment-systems/becs_procedures.pdf |url-status=dead }}</ref> Cheques use [[Magnetic ink character recognition|MICR]] encoding containing the [[Bank State Branch|BSB]] and account number to identify the bank and account to debit, as well as other information to streamline the processing of cheques. In 2014, the cost of processing cheques was the highest of all modes of payments at $5 per transaction, compared to about $0.20 for direct debits.<ref name=RBA>Reserve Bank of Australia, quoted in Australian Payments Clearing Association, [http://www.apca.com.au/docs/default-source/decline-of-cheques---consultations/apca-milestones-report-2016.pdf Towards a digital economy] {{Webarchive|url=https://web.archive.org/web/20180313130901/http://apca.com.au/docs/default-source/decline-of-cheques---consultations/apca-milestones-report-2016.pdf |date=2018-03-13 }}, p.6</ref> A recent innovation has been digital cheque imaging, which involves images of cheques being captured by financial institutions and exchanged electronically between the relevant financial institutions rather than the previous costly practice of physically transporting paper cheques around Australia. This has also ended the need for maintaining long-term storage and retrieval systems.<ref name=RBA/> The new system speeds up the clearing process, with cheques being able to be cleared at the end of the next weekday after being presented, as opposed to up to the six weekdays under the old system. === Direct entry === Direct entry (also called CS2)<ref>{{Cite web |url=http://www.apca.com.au/docs/payment-systems/becs_procedures.pdf |title=Procedures for Bulk Electronic Clearing System Framework (CS2), Australian Payments Clearing Association Limited: accessed 26 July 2015 |access-date=26 July 2015 |archive-date=10 March 2015 |archive-url=https://web.archive.org/web/20150310131525/http://apca.com.au/docs/payment-systems/becs_procedures.pdf |url-status=dead }}</ref> can be used to transfer funds between bank accounts in Australia. Clearing and settling is regulated by AusPayNet as the Bulk Electronic Clearing System (BECS). Direct entry uses the [[Bank State Branch|BSB]] and account number to identify the bank and accounts to debit and credit. Some common uses of the direct entry system include: * setting up monthly [[direct debit]]s to pay recurring bills such as credit card bills * transferring funds to other bank accounts, also known as third party transfers * payment of wages and salaries * government tax refunds and payments. Participants of BECS exchange direct entry (DE) files at intervals through the day. Net positions are usually cleared daily. === EFTPOS === [[EFTPOS]] (Electronic Fund Transfer Point of Sale) and [[Automated teller machine|ATM]] transactions (also called CS3)<ref>{{Cite web |url=http://www.apca.com.au/docs/payment-systems/cecs_regulations.pdf |title=Regulations for Consumer Electronic Clearing System Framework (CS3), Australian Payments Clearing Association Limited: accessed 26 July 2015 |access-date=26 July 2015 |archive-date=7 December 2015 |archive-url=https://web.archive.org/web/20151207222746/http://www.apca.com.au/docs/payment-systems/cecs_regulations.pdf |url-status=dead }}</ref> occur over the [[Electronic funds transfer|EFT]] network. Clearing and settling of EFTPOS and ATM transactions are regulated by the AusPayNet as the Consumer Electronic Clearing System (CECS). Between 2005 and 2015, ATM withdrawals dropped by 11.5% but increased 5.1% in value. === Credit card === Several credit card systems are active in Australia including [[MasterCard]], [[Visa Inc.|Visa]], [[Diners Club]] and [[American Express]]. The [[Bankcard]] scheme is no longer in use. === BPAY === [[BPAY]] is a bill payment system used in Australia, which is regulated by the four major banks and not by AusPayNet. As of January 2015, the BPAY payments system covered more than 156 participating Australian banks, credit unions and financial institutions.<ref name=aboutbpay /> More than 45,000 businesses accept payments using BPAY<ref name=aboutbpay /> and each month approximately 30 million bills are paid to the value of $24 billion.<ref name="aboutbpay">[http://www.bpay.com.au/About-BPAY/Overview.aspx About BPAY, Overview] {{Webarchive|url=https://web.archive.org/web/20190630105624/https://www.bpay.com.au/About-BPAY/Overview.aspx |date=2019-06-30 }}. Retrieved January 2015</ref> === High value payments === High value payments (also known as CS4) are regulated by AusPayNet under the Regulations for High Value Clearing System Framework.<ref>{{Cite web |url=http://www.apca.com.au/docs/payment-systems/hvcs_regulations.pdf |title=Regulations for High Value Clearing System Framework (CS4), Australian Payments Clearing Association Limited: accessed 26 July 2015 |access-date=26 July 2015 |archive-date=5 March 2016 |archive-url=https://web.archive.org/web/20160305103649/http://www.apca.com.au/docs/payment-systems/hvcs_regulations.pdf |url-status=dead }}</ref> The main high value payment systems in Australia are: * [[Society for Worldwide Interbank Financial Telecommunication]] Payment Delivery System (SWIFT PDS) * [[Clearing House Electronic Subregister System]] (CHESS): CHESS is an automated share [[Transfer agent|transfer]] and [[Settlement (finance)|settlement]] system developed by the [[Australian Securities Exchange]]. For a CHESS transaction, an interbank request is sent to RITS via SWIFT FIN, the service which sends financial information from one financial institution to another.<ref>[http://searchfinancialapplications.techtarget.com/definition/SWIFT-FIN-message What is SWIFT-FIN message?]</ref> When RITS notifies CHESS of settlement of the gross amount across ESAs, CHESS finalises the transaction by transferring share holdings at the participant level. * Financial Transactions Recording and Clearance System (FINTRACS) * [[Reserve Bank of Australia|Reserve Bank]] Information and Transfer System (RITS) is used by banks and other approved institutions to settle their payment obligations on a [[real-time gross settlement]] (RTGS) basis.<ref>{{Cite web |url=http://www.rba.gov.au/payments-system/rits/ |title=About RITS |access-date=2015-10-10 |archive-url=https://web.archive.org/web/20151023051413/http://www.rba.gov.au/payments-system/rits/ |archive-date=2015-10-23 |url-status=dead }}</ref> Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank. === New Payments Platform === The New Payments Platform (NPP)<ref>{{cite web|title=New Payments Platform|url=https://www.rba.gov.au/payments-and-infrastructure/new-payments-platform/|website=RBA|access-date=11 May 2018}}</ref> is open access infrastructure for fast payments in Australia. The NPP was developed via industry collaboration to enable households, businesses and government agencies to make simply addressed payments, with near real-time funds availability to the recipient, on a 24/7 basis. Each payment message is capable of carrying much richer remittance information than other systems. The NPP infrastructure supports the independent development of ‘overlay’ services to offer innovative payment services to end-users. ==Regulation== {{See also|Financial regulation in Australia}} Regulation of the financial system in Australia is split mainly between the [[Australian Securities & Investments Commission]] (ASIC) and [[Australian Prudential Regulation Authority]] (APRA). ASIC has responsibility for [[market integrity]] and [[consumer protection]] and the regulation of certain financial institutions (including investment banks and finance companies or NBFI). The general regulatory position is that a [[legal person]] carrying on a financial services business in Australia must either hold an Australian financial services licence issued to that person by ASIC or fall within a licensing exemption. APRA is responsible for the licensing and [[prudential supervision]] of ADIs (banks, building societies, credit unions, friendly societies and participants in certain credit card schemes and certain purchaser payment facilities), life and general insurance companies and superannuation funds. APRA has issued capital adequacy guidelines for banks which are consistent with the [[Basel II]] guidelines. All financial institutions regulated by APRA are required to report on a periodic basis to APRA. Certain financial intermediaries, such as 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. They may be required to obtain licences under the Corporations Act 2001 or other Commonwealth or state legislation, depending on the nature of their business activities in Australia. Most investment banks are registered under the ''Financial Sector (Collection of Data) Act 2001''. This Act requires registered financial corporations to provide statistical information to APRA. The [[Reserve Bank of Australia]] is the country's [[central bank]], with responsibility for most [[payment system]]s and setting of [[monetary policy]]. Since 1996 the provision of credit to individuals for personal, household or domestic purposes has been regulated by the [[Uniform Consumer Credit Code]], which has been implemented in all Australian states and territories. Businesses providing financial products and services are required to identify and monitor customers using a risk-based approach, develop and maintain a compliance program, report suspicious matters and certain cash transactions and file annual compliance reports.<ref>See ''Anti-Money Laundering and Counter-Terrorism Financing Act 2006'' (Commonwealth).</ref> * [[Australian Competition & Consumer Commission]] * [[Australian Securities Exchange]] * [[Australian Payments Network]] ==See also== * [[Economy of Australia]] * [[Banking in Australia]] == Notes and references == {{reflist}} {{Banking in Australia}} {{Economy of Australia}} {{DEFAULTSORT:Financial System In Australia}} [[Category:Finance in Australia| ]]
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