Question

Some of these functions attract interest from regulators (APRA, RBA). What are these special functions? Provide a detailed discussion of their importance and why they warrant such close scrutiny by the regulators

Answer 1

Special function of APRA

The Australian Prudential Regulation Authority (APRA) was formed in the year 1998. It is an independent statutory body which regulates the banks, insurance companies, superannuation funds and other financial institutions with a primary motive to protect the interest of the depositors, policy holders and other parties who are financially connected with these institutions.

Basically the regulation is for maintaining the soundness of these institutions along with applying prudent safety measures for the sake of the interested parties connected with these institutions.

In order to supervise earlier stated various financial institutions like bank, insurance companies and other financial institutions APRA uses the following means:

1) Licencing

   

    In order to implement prudent safety measure APRA introduces licensing which ensures the depositors and the other interested parties who have a financial nexus with the financial institutions that at no circumstances they will be deprived by any commitment from the financial institutions as are kept earlier.

Moreover, the licensing system also explains that rules and regulations of the newly established institutions may differ as per the type of function it needs to promote.

2) Prudent standards

All types of financial institutions regulated by APRA must abide by the standards set by this statutory body and such standards are made in accordance with the principles which enables a particular institution to follow such principles. While forming such principles it is also inserted and established that a particular institution is able follow the standards set in the regulation whatever the size, opportunity and feature found in its operation. In this connection, three factors are very important as the requirements in setting such standards demand the connectivity of these three factors. These are financial soundness; risk management and governance.

3) Supervision

Examination of the operation of the regulated financial institutions is very important as after the licence when the financial institutions have started their operations the time comes to check whether these institution actually follow the norms of the APRA as per the commitment during the time of licence.

Supervision is a way where the supervisors visit the institution and contact the appropriate staff member and collect the data together with examining the records of the institution afterwards analyse these records and data. If any discrepancies are found after these data analysis they make a suitable solution and serve it to the institution so that the interested depositors will not suffer any financial problem in the future.

Moreover, if any special assistance is required by the institution due to lack of efficiency relating to the three areas i.e. financial soundness, risk management and governance the supervisor also suggest them suitable solution for the rectification of the same.

Enforcement

However, the supervisors suspect that some problems are there in the field of risk management, or financial soundness or both in these areas and the governance is not complied with the rules and regulation of APRA which may lead to hamper the interest of the depositors of the institution the APRA may take action against such financial institution. Although before taking action APRA seems to communicate with the management of such institution and want to know the causes of suppression of the facts in connection with these three areas and provide them opportunity to rectify themselves. If the rectification is not up to mark and APRA comprehends that legal action is required to undertake due to the interest of the interested parties enforcement law is essential.

                                                         Functions of RBA

Under the Reserve Bank Act 1959 the Reserve Bank of Australia was established. It is fully a body corporate.

The following functions are executed by RBA

• Determining the monetary policy of the country
• Promoting the financial stability of the nation
• Ensuring a safe and efficient monetary transaction system
• Providing Banking services to the Government

Monetary policy

For the sake of the people the monetary policy of the bank should be such which can send a message to the people that they are

a)Safe and secured in the matter of currency of Australia

b) under the umbrella of RBA which contributes its full effort to maintain the full employment in Auatralia

c) under the supervision of RBA which ensures economic prosperity together with welfare of the society.

Promoting financial security and ensuring safe and efficient monetary transaction system

                                                                                                                                    

a)The payment system is made up in the light of providing best advantage to the people of Australia

b) The Bank is responsible to control the risk in the payment system and to implement better and user friendly payment system for better accessibility.

Ensuring safe and efficient monetary transaction system

Banking service for the Government

Bank for the Government refers acting as a fiscal agent by serving the services related to finance and provide assistance to the Government either by selling the Government securities to the public or to any organization and make a redemption of the Government securities. Government securities are savings bonds or treasury bills.