Snapshot: the regulatory framework for financial services compliance in Australia

Regulatory framework

What national authorities regulate the provision of financial products and services?

The Australian Prudential Regulation Authority (APRA) is Australia’s prudential regulator. APRA is responsible for the licensing and regulatory oversight of banking, insurance and superannuation entities. It is concerned with protecting the interests of depositors, insurance policyholders and superannuation fund members, and promoting the stability of the broader financial system in Australia.

The Australian Securities and Investments Commission (ASIC) is Australia’s integrated corporate, markets, financial services and consumer credit regulator. It is responsible for regulating consumer protection and maintaining market integrity. ASIC’s establishing legislation requires it to strive to maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs as well as ensuring the efficiency and development of the economy.

What activities does each national financial services authority regulate?

APRA is responsible for the prudential regulation of banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurance, friendly societies, and most of the superannuation industry. APRA balances the objectives of financial safety, efficiency, competition, contestability and competitive neutrality in promoting financial system stability in Australia. To meet these general objectives, APRA establishes prudential standards that relate to the governance, risk management practices and financial soundness of regulated entities. Other examples of regulated activity include minimum capital and liquidity requirements for insurers, and requirements for the regular assessment of outcomes provided to superannuation members. 

ASIC supervises the conduct and regulation of Australian companies, financial markets, financial services organisations (including banks, life and general insurers, and superannuation funds) and professionals who deal in and advise on investments, superannuation, deposit-taking and credit. ASIC licenses and monitors financial service providers and entities that engage in consumer credit activities, monitors the conduct of financial market operators, administers the financial product disclosure regime under the Corporations Act 2001 (Cth), and oversees company fundraising through the issue and sale of financial products in Australia. ASIC is responsible for promoting a fair, transparent and efficient financial system for all.

There is often an overlap between the remits of ASIC and APRA. The two regulatory authorities have a memorandum of understanding that establishes a framework for their engagement – including coordination, cooperation and information-sharing – to achieve their respective outcomes.

What products does each national financial services authority regulate?

ASIC is responsible for administering the regulation of a wide range of financial products, including life and general insurance, superannuation, securities, managed investment products, consumer credit, deposit accounts, payment facilities, derivatives and cryptoassets.

APRA’s focus is on industry segments rather than financial products. It supervises institutions across the banking, insurance and superannuation industries to promote financial system stability in Australia.

What is the registration or authorisation regime applicable to financial services firms and authorised individuals associated with those firms? When is registration or authorisation necessary, and how is it effected?

To provide financial services in Australia, a person must obtain an Australian financial services (AFS) licence or be exempt from the requirement to hold an AFS licence. Financial services include:

• providing financial product advice;
• dealing in a financial product;
• making a market for financial products;
• operating a registered scheme;
• providing a custodial or depository service;
• providing a crowdfunding service;
• providing an insurance claims handling and settling service; and
• providing a superannuation trustee service.

ASIC assesses applications for AFS licences as part of its role as the regulator of the financial services industry. It considers whether the applicant is competent to carry on the kind of financial services business specified in the application, has sufficient financial resources to carry on that business (unless regulated by APRA, in which case a parallel suite of obligations will apply) and can meet the other obligations under financial services laws.

An AFS licensee may appoint authorised representatives to provide specified financial services on its behalf. These authorised representatives may be individuals, bodies corporate, partnerships, or a group of individuals or bodies corporate (or both) that are the trustees of a trust. AFS licensees that appoint authorised representatives must notify ASIC of the appointments that they make.

To engage in consumer credit activities in Australia, a person must obtain an Australian credit licence (ACL) or be exempt from the requirement to hold an ACL. Credit activity includes:

• providing credit under a credit contract or consumer lease;
• benefiting from mortgages or guarantees relating to a credit contract;
• exercising rights or performing obligations of a credit provider or lessor;
• suggesting or assisting with a particular credit contract or consumer lease; and
• acting as an intermediary between a credit provider and a consumer (for a credit contract) or between a lessor and a consumer (for a consumer lease).

ASIC assesses applications for ACLs as part of its role as the regulator of the consumer credit industry.

To operate a financial market, a person must obtain an Australian market licence, unless the market is exempt from this requirement. A financial market is a facility through which offers to buy and sell financial products are regularly made or accepted. ASIC assess applications for Australian market licences as part of its role as the regulator of financial markets.

To operate a clearing and settlement facility, a person must hold a clearing and settlement facility licence or be exempt from holding one. A clearing and settlement facility is a facility that provides a regular mechanism for parties to transactions that relate to financial products to meet certain prescribed obligations to each other that arise from entering the transactions. Applications for a clearing and settlement facility licence are assessed by ASIC. Both ASIC and the Reserve Bank of Australia are responsible for the supervision of clearing and settlement facility operators.

Other relevant licences include general insurance authorisations under the Insurance Act 1973 (Cth), life insurance registrations under the Life Insurance Act 1995 (Cth), authorised deposit-taking institution authorisations under the Banking Act 1959 (Cth), and registrable superannuation entity licences under the Superannuation Industry (Supervision) Act 1993 (Cth). These licences are granted by APRA.

What statute or other legal basis is the source of each regulatory authority’s jurisdiction?

APRA was established under the Australian Prudential Regulation Authority Act 1998 (Cth) and its functions are conferred on it under relevant federal laws. As such, APRA’s jurisdiction is sourced in the statutes that govern the industries it oversees, including the Banking Act 1959 (Cth), the Superannuation Industry (Supervision) Act 1993 (Cth), the Insurance Act 1973 (Cth) and the Life Insurance Act 1995 (Cth).

ASIC is governed by the Australian Securities and Investment Commission Act 2001 (Cth). It also has enforcement powers relevant to the regulation of financial services under the Corporations Act 2001 (Cth) and the National Consumer Credit Protection Act 2009 (Cth).

What principal laws and financial service authority rules apply to the activities of financial services firms and their associated persons?

The Corporations Act 2001 (Cth) is the primary source of corporate and financial services regulation in Australia. In particular, Chapter 7 of this act deals with the regulation of financial services and markets. It imposes the licensing regime for financial products, advice and dealings in relation to financial products, and the financial product disclosure regime as well as the licensing regime for the operators of financial markets and clearing and settlement facilities. It contains a range of consumer protection provisions. The Corporations Act 2001 (Cth) is predominantly administered by ASIC, which has broad powers to omit, modify, vary and grant exemptions from various obligations in Chapter 7. ASIC sets out its expectations and approach to the administration of the financial services regime in regulatory guides.

Prudentially regulated entities are also governed by the Banking Act 1959 (Cth), the Superannuation Industry (Supervision) Act 1993 (Cth), the Insurance Act 1973 (Cth) and the Life Insurance Act 1995 (Cth), which are administered by APRA. APRA also produces binding prudential standards that set out minimum capital, governance and risk management requirements for the institutions that APRA regulates. The Financial Sector (Collection of Data) Act 2001 (Cth) allows APRA to collect data from registrable financial corporations and facilitates the collection of statistical data.

The regulation of consumer credit occurs under a separate regime contained in the National Consumer Credit Protection Act 2009 (Cth).

The Australian Securities and Investments Commission Act 2001 (Cth) also contains a range of consumer protection provisions, including prohibitions on misleading and deceptive conduct, false or misleading representations, unconscionable conduct and unfair contract terms. Financial services firms are also subject to the Australian Consumer Law (set out in the Competition and Consumer Act 2010 (Cth)) to the extent that it applies to financial services and products.

A number of other specialised regulatory regimes apply to providers of financial services in Australia, such as the Privacy Act 1988 (Cth), which regulates the collection, use and disclosure of personal information. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) also applies to any designated service that has the potential to facilitate money laundering or terrorism financing.

What are the main areas of regulation for each type of regulated financial services provider and product?

ASIC administers a substantial proportion of the financial services legislation in Australia across many areas of regulation. ASIC monitors and promotes market integrity and consumer protection. Some of the main ways it does this are through licensing and registration, regulating product disclosure and ensuring that regulated financial services providers have the resources, competence and systems to operate efficiently, honestly and fairly.

As the prudential regulator of financial services providers such as banks, general insurance companies, life insurance companies and superannuation entities, APRA ensures that financial promises made to beneficiaries are met within a stable and efficient financial system. APRA does this through licensing, ongoing supervision, and enforcement of relevant laws and its prudential standards.

The Australian Transaction Reports and Analysis Centre regulates counter-terrorism financing and anti-money laundering aspects of the financial system to protect it from criminal abuse.

The Australian Taxation Office is also responsible for administering aspects of Australia’s superannuation system.

What additional requirements apply to financial services firms and authorised persons, such as those imposed by self-regulatory bodies, designated professional bodies or other financial services organisations?

Financial service providers that provide services to retail clients in Australia must be a member of the Australian Financial Complaints Authority (AFCA), which is an external dispute resolution body that resolves consumer complaints. Any determinations made by AFCA are binding on the financial service provider and, while AFCA will consider legal principles, applicable industry codes or guidance and previous determinations, it is not bound by any of those things.

Providers of personal advice to retail clients are bound to comply with the Financial Planners and Advisers Code of Ethics (the Code of Ethics) developed by the Financial Adviser Standards and Ethics Authority. The Code of Ethics establishes ethical standards for advisers to meet, including:

• acting in the best interests of clients;
• avoiding conflicts of interest;
• ensuring that clients give informed consent and understand the advice they receive;
• ensuring that clients clearly agree to the fees they will pay; and
• maintaining a high level of knowledge and skills.

Financial service providers are subject to a range of other laws beyond the Corporations Act 2001 (Cth), including the Privacy Act 1988 (Cth), the Competition and Consumer Act 2010 (Cth), and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). 

There are also self-regulatory codes of practice enforced by industry bodies, such as:

• the Financial Services Council’s Life Insurance Code of Practice, which is binding on life insurance companies and enforced by the Life Code Compliance Committee;
• the Insurance Council of Australia’s General Insurance Code of Practice, which applies to all general insurers who have adopted it and is enforced by the Code Governance Committee; and
• the Australian Banking Association’s Banking Code of Practice, which applies to banks with a retail presence who have adopted it and is enforced by the Banking Code Compliance Committee.