Concerns of APRA and ASIC-Free-Samples for Students-Myassignment

Question: APRA and ASIC have separate regulatory roles in relation to the financial services sector, including banking. Both APRA and ASIC have published their concerns about aspects of lending practices of Australian banks. Discuss the above statement. Answer: Introduction In Australia, the financial regulation is quite detailed and extensive. The financial regulation is split in the nation between Australian Prudential Regulatory Authority, i.e. APRA, and Australian Securities and Investments Commission, i.e. ASIC. Both APRA and ASIC, have different regulatory roles when it comes to the financial services sector and this includes banking (Tyree, 2014). In reference to the lending practices of Australian banks, both the bodies have published their concerns. This discussion is focused on highlighting the role of the two and the manner in which their responsibility is different from each other. Further, a summary would also be provided in context of the concerns of these two and the actions proposed by them. APRA and ASIC APRA APRA on the other hand, has the responsibility of licensing and for the prudential supervision of ADIs, i.e. the Authorized Deposit-taking institutions, superannuation funds, and life and general insurance companies. The APRA regulated financial institutions are obligated to submit period reports to APRA (Lui, 2016). It has also brought forth the capital adequacy guidelines for the banks, which match the Basel II guidelines. Such investment banks which are not operated under the ADIs, are not regulated under the Banking Act, 1959, and are not licensed under this legislation, are not subjected to the APRAs prudential supervision (OECD, 2017). Though, the majority of investment banks have to provide APRA with the statistical information based on the Financial Sector (Collection of Data) Act, 2001 (Pearson and Batten, 2010). APRA is basically an integrated prudential regulator which has the responsibility for deposit taking institutions like credit unions, banks and building societies, along with the friendly societies. The prudential policies have to be developed by APRA which balance the financial safety and competitive neutrality, competition, efficient and contestability (Reserve Bank of Australia, 2018). ASIC ASIC has the responsibility for consumer protection, market integrity, and for the regulation of finance companies and investment banks. Though, when it comes to the practical aspect, this function is manifested by application of EDRs, i.e. External Dispute Resolution schemes. Presently, there are two EDRs approved by ASIC. And in this, the prominent one is FOS, i.e. the Financial Ombudsman Service (Australia). FOS gets around thirty thousand complaints every year. The second one is CIO, i.e. the Credit and Investment Ombudsman, which for the year of 2015-16 got 4,769 complaints (CIO, 2016). CIO and FOS are both nongovernmental and not for profit organizations which are funded through the members, included in which are the financial advisers, banks and the other financial service providers. So, there is a major self regulatory and private element in the banking regulators (Pearson, 2009). ASIC basically administers and enforces a number of legislative provisions which are related to financial products, financial markets and the financial sector intermediaries. The goal is to safeguard the consumers and market from unfair practices, manipulation and deception, whereby the confident participation in financial system by the consumers and investors is promoted (Reserve Bank of Australia, 2018). Concerns of APRA and ASIC APRA APRA has decided to intensify its scrutiny over the lending practices of banks for the present year. Included in this is investigating on the possibility of banks overriding the policies drawn by them in an inappropriate manner. This indicates that the lending restrictions placed on the investor borrowers would continue to apply even with the housing figures showing the easing up of demand for loans. As per APRA, there was a need for improving the assessment of the repaying ability of the borrowers and there was a need to be conservative regarding the consumer sendings benchmark estimates. As per APRA, there was a need for the banks to monitory the use of discretion by the bankers in a closer manner, for overriding the lending policies. This was because there was no use of stronger policies where these could be overridden and also where the data deficiencies meant that the policy was not complied with or being fully monitored (Eyers, 2017). APRA has asked the banks to take on a more strict assessment of borrowers. Since APRA is not convinced that the banks actually follow this policy in a comprehensive manner, there was a need at the actual lending practices, where additional assurance was sought out regarding the tighter loan policies actually resulting in more prudent lending decisions. A comprehensive credit reporting reform was also suggested, whereby the banks would be made to report regarding the positive credit history to bureaus, along with the history of default. These measures are expected to make certain that the earlier debts of the borrowers in existence were known and can be properly factored in the assessment of these loans (Eyers, 2017). ASIC ASIC too has worked on the issue highlighted by APRA and is aggressively pursuing Westpac over the alleged contraventions of lending laws. Civil proceedings have been started by ASIC against Westpac for their alleged failure in assessing the repaying capability of the borrowers in a proper manner. The main allegations were related to the reliance placed by Westpac on the index HEM for determining the money which could be given to the borrowers. The claim of ASIC was that this was an improper measure and that Westpac should have properly analysed the repaying ability of the borrowers on the basis of their actual spending. This was because Hem only represented the estimates of consumption of the Australian families and had not been formed by making reference to the expenditure data which was collected during the relevant time frame. This was because the data relied on by Westpac was one 2009-10 when the loans were issued in between December 2010 to March 2015. Westpac on the other hand claimed that the HEM benchmark was an objective measure which was not dependent on quality of estimation of consumer expenses. They also stated that there was reliance on other factors as well, and HEM was not solely relied on. They also provided that HEM was commonly used as a measure for providing loan (Mather, 2017). Conclusion Thus, from the discussion undertaken in the previous segments, it can be concluded that APRA and ASIC are two crucial financial regulatory bodies in the nation. Both of these bodies have separate roles and yet both have an important role to play. Due to the recent cases, both bodies have taken a proactive role in checking the lending practices of the Australian Banks. The case which the ASIC was present pursuing against Westpac only proves the contentions put by APRA in the previous segment as being truer, as there is indeed a need for stricter measures to be adopted in a proper manner and a need for analysing the lending practices of the Australian banks. References CIO. (2016) Annual Report on Operations 2016. [online] Available from: https://www.cio.org.au/publications/annual-report-on-operations/annual-report-on-operations-2016.html [Accessed 03/04/18] Eyers, J. (2017) APRA to ramp up scrutiny of bank lending practices. [online] Available from: https://www.afr.com/real-estate/residential/apra-to-ramp-up-scrutiny-of-bank-lending-practices-20170908-gydmfb [Accessed 03/04/18] Lui, A. (2016).Financial Stability and Prudential Regulation: A Comparative Approach to the UK, US, Canada, Australia and Germany. London: Taylor Francis. Mather, J. (2017) ASIC's responsible lending battle with Westpac heats up. [online] Available from: https://www.afr.com/business/legal/asics-responsible-lending-battle-with-westpac-heats-up-20170904-gyabdc [Accessed 03/04/18] OECD. (2017) Global Forum on Transparency and Exchange of Information for Tax Purposes Global Forum on Transparency and Exchange of Information for Tax Purposes. Paris: OECD Publishing. Pearson, G. (2009)Financial Services Law and Compliance in Australia. Victoria: Cambridge University Press. Pearson, G., and Batten, R. (2010) Understanding Australian Consumer Credit Law: A Practical Guide to the National Consumer Credit Reforms. North Ryde: CCH Australia Ltd. Reserve Bank of Australia. (2018) Council of Financial Regulators Annual Report 2002. [online] Available from: https://www.rba.gov.au/publications/annual-reports/cfr/2002/aus-fin-reg-frmwk.html [Accessed 03/04/18] Tyree, A.L. (2014) Banking Law in Australia. 8th ed. Sydney: LexisNexis Butterworths.