The Australian Experience Financial Market Convergence – Implications for Regulators and Regulatory Structures Regulatory and Supervisory Issues in Private Pensions and Life Insurance Craig Thorburn +1 (202)

Brief Overview of Recent History Regulatory Reform introduced after extensive inquiry New Structure of Regulatory Bodies New Structure within APRA New Regulations and Supervisory Approaches

History New Government elected with policy for a Financial System Inquiry, and visionary statements about making Australia a Financial Centre in the Asia Pacific Region March 1997 “Wallis” Inquiry reports

Functional versus Institutional Approaches Banks and other deposit takers Life and non life Insurers Pension Schemes Anti Competitive Behaviour Market misconduct Asymmetric information Systemic instability Australian functional approach highlights enormous need for communication and co-ordination ASIC (and ACCC) RBA ASIC APRA

Organisational Change July 1998 – APRA formed, ASIC takes over market conduct July 1999 – APRA adds state based regulators August 1999 – APRA’s new structure commences

A ‘purpose oriented’ structure No industry oriented divisions or staffing groups Cross divisional teams seen as temporary and supplementary

Key Challenges Relocation Making the new structure work Inventing common processes Moving toward common legislation and prudential standards Developing consistency of approach –“our prime objective is to supervise similar risks in similar ways, regardless of where they occur” as this will lead to a more competitively neutral system and therefore a more efficient one”

Responding to the Expectation of Consolidated Supervision Widespread industry expectation that there would be capital relief has dissipated Industry given a standard on supervision that did not lead to any material market change ELE concept introduced (as a ‘concession’) but no relief there either

The Environment Changes Responding to failures and losses in superannuation and non life insurance –“the need for more effective supervision to meet community expectations”