Since the 1980s, Australia has been recognised as a leader in its reform of the financial services industry. In May 1996, the Treasurer, Peter Costello, announced the Financial System Inquiry. This eventually led to the Financial Services Regulations (FSR) we have today. So, why was it necessary to introduce these reforms and how did they come about?

In May 1996, the Treasurer, Peter Costello, announced an inquiry into the Australian financial system. That inquiry, which would become known as the Wallis Report, would hand down its findings in April 1997.

The Wallis Report proposed that Australia’s financial system needed some fundamental changes in order to make it more efficient and effective. Some of its recommendations included:

• That a Corporations and Financial Services Commission (CFSC) be formed to provide Commonwealth regulation of corporations, financial markets and consumer protection.
• The Australian Securities Commission be disbanded, with its responsibilities going to the CFSC.
• The establishment of a single prudential regulator, responsible for the whole of the financial sector.
• The relinquishing by the Reserve Bank of Australia (RBA) of bank supervision, to be handed over to the new prudential regulator, and
• The Trade Practices Act to continue to apply to the financial industry.

In December 1997, the Federal Government announced the Corporate Law Economic Reform Program (CLERP) to review the key regulations affecting Australian business and investment. Later, a discussion paper titled Financial Markets and Investment Products; Proposals for Reform: Paper No. 6 (CLERP 6), would become known as Financial Services Reform (FSR).

Financial Services Reform
The recommendations handed down in the 1997 Wallis Report eventually led to the Financial Services Reform Act (2001). Legislation in the FSRA (2001) replaced a raft of regulations from different acts such as the Corporations Law and the Insurance (Agents and Brokers) Act 1984. The legislation aimed to build competitive neutrality, cost-effectiveness, accountability, transparency, and flexibility into the Australian financial industry. Another notable outcome of FSRA (2001) was the establishment of a single licensing regime.

Why was Financial Services Reform necessary?
Financial Services Reform was required within the Australian financial industry in order to promote:

• consumers’ confidence in financial products and services
• honesty and professionalism by those providing financial services
• informed choice by consumers, and
• legislative certainty for the financial services industry.

Responsibilities under FSR
Under FSR, the Australian Prudential Regulation Authority (APRA) became responsible for the prudential supervision of banks, credit unions and building societies. APRA also holds responsibility for general insurance, superannuation and friendly societies.
The Australian Securities and Investments Commission (ASIC) became responsible for market integrity and consumer protection within the financial industry. ASIC also issues guidelines on the laws it is responsible for upholding and monitors compliance by providers of financial products and services.

Licensing within the financial services industry

FSR applies to all individuals, trustees and companies providing financial products and services in Australia. In order to provide a financial product, or provide advice on a financial product, an individual, trustee or company must either have an Australian Financial Services Licence, or be the representative of a licensee.
As there is now a single licensing system, a single licence covers all financial services with authorisation provided for specific products and services that the holder is accredited to provide.