A Closer Look At The Regulatory Structure

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A Closer Look at the Regulatory Structure in Australia:
Understanding APRA, ASIC and RBA
Doria Teo


The current regulatory framework for the Australian finance sector largely owes its conception to the Financial System Inquiry (“the Wallis Inquiry”). The Wallis Inquiry had recommended the establishment of the twin peaks model, under which three specialist financial sector regulatory agencies operate. It was also recommended that these three regulatory agencies be based on the functions they performed rather than their traditional status. The government eventually adopted these recommendations and the three key regulators known today are the Australian Prudential Regulation Authority (“APRA”), the Australian Securities and
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As highlighted in the Wallis Inquiry, the proposed structure could better facilitate a more flexible response in the face of market developments and changing circumstances. Furthermore, overlaps, duplication and inconsistencies could be minimised.

The Wallis Inquiry also pointed out the difficulties with having a single regulator, particularly the difficulty of requiring a single agency to adopt different regulatory styles. For example, under the old institutional-based regulatory structure, a single regulator was required to both prudential regulation and consumer protection regulation. These were very different types of regulation. Following the Wallis Inquiry, it was recommended that prudential regulation would be under the purview of APRA while consumer protection regulation be the responsibility of ASIC.

Another difficulty was that a single regulator could only provide a very limited perspective on certain regulatory issues. As raised by the Wallis Inquiry, the argument against assigning prudential regulatory responsibility to the RBA was that there are non-bank areas of prudential regulation involved. Assigning prudential regulatory responsibility to the RBA would thus run the risk that it would approach regulation from a limited banking perspective.

Additionally, a single regulator could have conflicting responsibilities. The Wallis Inquiry
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