Ladies and gentlemen,
I would like to thank the Commission for inviting me to speak tonight.
You have spent the day examining some of the big issues in reforming the architecture of Australias financial system.
This evening, I would like to focus on how Australias domestic financial architecture has adapted to trends in reforming the international system.
No country can operate a financial system in isolation. It must be relevant to the international scene and able to adapt to the rapid change in global trends.
Taking the architecture analogy further, we must consider whether our Financial House, a heritage building in relation to its neighbours, is being properly re-modelled to meet the demands of modern technology.
We have to constantly monitor whether the building is functional, whether it fits the streetscape and what relationship it has with the town that has grown around it. Indeed, we have to assess whether the neighbouring buildings are up to scratch.
Our strong economic performance during the Asian financial crisis suggests our domestic financial architecture can meet those modern-day demands. We must ensure it continues to do so.
The starting role of a financial system is to collect savings from those in the market who have more money than they need and direct these funds to projects and business ventures in need of a capital injection.
A financial system that works properly does a good job choosing the most productive recipients for these funds. In contrast, poorly functioning financial systems often allocate capital to low-productivity investments.
Selecting projects is only the first stage. The financial system must then continue to monitor the use of funds and ensure they are used in the best way. It also has a role in reducing risk, boosting liquidity and conveying information to the market. All of these functions are crucial to growing capital and increasing productivity.
A financial system that functions properly has a strong flow of information. And that is where Government has a role to play.
While financial markets are concerned with the production, processing, dissemination and use of information, left to their own devices they do not naturally default to forums of perfect information.
In that respect, improving information availability and information flows is a persuasive reason for the Government stepping into the market.
In Australia, we have long held the view that government regulation of our financial house is desirable and necessary. We started developing systems to ensure more transparent corporate governance and financial markets more than a hundred years ago, after we suffered a deep economic depression in the 1890s brought about by the loss of English investor confidence in Argentina.
Now, over a century later, we are world leaders in regulatory reform.
Our regulatory regime has protected us during the recent regional instability and paved the way for our exceptional economic growth during this period.
In this way, you can see how a strong regulatory framework actually helps Australias financial industry in doing what it does best -- making money.
The Government is committed to providing a world-class financial market regulatory regime that ensures greater efficiency, greater competition, greater security and greater stability.
Following last years Wallis Inquiry, we set up an improved regime for financial system regulation, removing the barriers to contestability, competition and efficient market operation. Other measures were designed to preserve the stability of the financial system as well as strengthen consumer protection.
The changes were hailed by the International Monetary Fund as "path-breaking reforms, which put Australia at the forefront of international practice".
A good regulatory regime is firm but flexible.
Any regulatory regime must be able to handle the rapid changes occurring in financial markets. But it must not hamper Australian markets and investors from participating fully in the benefits of financial innovation and competition.
The regime must also ensure different parts of the financial services industry have a level regulatory playing field. A major move in this direction will be the transfer of building societies, credit unions and friendly societies to national regulation, which will occur shortly.
It is important to mention here the Corporate Law Economic Reform Program a program which the IMF and the OECD have acknowledged will benefit our financial markets and Australias economy more widely.
CLERP aims to ensure business regulation helps economic activity and stimulates job creation - two fundamental goals of the Howard Government.
It will further modernise our corporate laws, harmonise financial services industry regulation and make major improvements to takeovers, fund raising and disclosure.
Along with the reforms we are undertaking on the home front, Australia plays an important role on the world stage in the debate on financial systems and regulatory reform.
The unprecedented instability in international financial markets has had a profound economic and social impact on countries in our local neighbourhood.
Our strong growth and financial stability during this time reflected our great leadership and regional stewardship.
But we have not retired to the bunker to gloat.
Instead, we have played a constructive role in international forums to address the issues raised by the financial crisis. In the G22, for example, Australia was part of a number of working groups that examined reform of the international financial system.
Because individual national governments have to make major changes, our view is that any reform process must be co-operative and consensual, to ensure wide ownership of changes, which can often be painful and can often be prolonged.
Australia has taken a strong stand in APEC to encourage regional economies and markets to stay open, allowing the free flow of goods, services and capital.
The Prime Minister announced at the APEC Leaders Meeting in Kuala Lumpur that Australia would commit $50 million over 3 years to build up the regions institutions of economic governance.
This will help improve fiscal transparency, banking supervision and securities regulation. It will also strengthen institutions through better technical training of bank supervisors and improved corporate governance.
Australia is already providing technical assistance in financial sector supervisory skills. This includes conducting training courses, organising and taking part in conferences and seminars and providing secondments, internships and scholarships. The agencies involved include the Reserve Bank, the Australian Prudential Regulation Authority and ASIC.
Conversely, international forums such as the G22 play a role in strengthening domestic financial systems.
The second report of the G22 Working Groups, for example, is particularly relevant to the work of ASIC.
It looked at how to set rules that are strict enough to protect financial systems from crises, but not so onerous that finance shifts elsewhere, to unregulated channels.
It supported the implementation of standards, monitored by international bodies, especially the IMF.
And Australia has acknowledged the important work of the G22.
The Prime Ministers Taskforce on International Financial Reform, for example, supported the G22 recommendation for the IMF to prepare transparency reports.
Indeed, Australia will prepare a self-assessment transparency report for the March Manila Framework meeting, which we are hosting. The report will summarise Australias compliance record against other internationally recognised disclosure standards. In fact, an IMF team recently visited Australia to discuss progress on drafting the report.
In preparing this report, we want to demonstrate that self-assessments are feasible and can be credible. And we want to set a high standard of compliance and discussion for other countries to follow.
Australia has been actively involved in developing international standards in other crucial areas, such as corporate governance and securities regulation.
The Government is acutely aware that good corporate governance is essential to the Australian economy, which relies on both domestic and foreign investment.
Investors need to be assured of the integrity of the Australian capital market -- and corporate governance practices must compare favourably with those in other countries.
That has been demonstrated during the Asian crisis, which highlighted the cost to be paid for inadequate corporate governance and inadequate prudential regulation. As a result, corporate governance plays an important role in the capital market reforms coming out of the Asian financial crisis.
For a strong corporate governance framework, you must have transparent financial information and accountable management.
Our laws require that. Our accounting standards are formulated to ensure companies financial reports can be relied on by all stakeholders investors, creditors, regulators and customers.
But we do not regulate with an iron fist. The market is still allowed to judge what is good corporate governance and what is not. It exercises this right through its willingness to invest and its willingness to buy and sell stock, as shown in the rise and fall in share prices.
This approach promotes corporate initiative and enterprise which means jobs for Australians.
We are taking these principles to the world.
Australia has been actively involved in developing OECD standards and guidelines on corporate governance. These guidelines could help member countries improve their practices, which would in turn improve the health of the global economy.
In the area of securities market regulation, Australia has contributed to the work of the International Organisation of Securities Commissions in developing the Statement of Objectives and Principles of Securities Regulation.
The document sets out 30 principles of securities regulation, based on three objectives, namely:
- protecting investors;
- ensuring markets are fair, efficient and transparent; and
- reducing systemic risk.
The standards aim to recognise the need for practices to change as markets change and as technology and co-ordination among regulators makes other strategies available.
In each of these areas, Australia already has in place laws that meet or exceed these standards.
Our Corporations Law protects Australias investors from misleading, manipulative or fraudulent practices, including insider trading, front running and the misuse of client assets.
Our laws also require full disclosure of information material to investors decisions.
As a result, investors can better assess the risks and rewards of investments. In other words, our laws give investors the consumers of financial services the ability to make informed choices.
This is just one more example of the Howard Governments commitment to consumer sovereignty.
And to back up consumers right to choose, we have ASIC.
The Commission vigorously enforces the law for which it has regulatory responsibility for the benefit of investors. In addition, Australian securities law enables investors to take civil action through the courts as a means of redress and compensation for improper behaviour.
The trading rules of exchanges are subject to regulatory review to ensure fair and orderly markets. Information must be made publicly available on a real-time basis, further encouraging transparency. Australian law ensures investors are given fair access to reliable market facilities and price information. In fact, Australia can boast one of the worlds most advanced electronic clearing and settlement systems in the world.
We are using this to our advantage. Our exchanges are expanding their operations through strategic links and partnerships with foreign exchanges.
A case in point is the Sydney Futures Exchange agreement with Dow Jones to launch new Asian sharemarket indexes -- APELS or the Asia Pacific Extra Liquid Series -- in the second quarter of this year.
As you can see from the above examples, Australia leads the way in showing how domestic regulation can adapt to the developing financial architecture abroad.
Our Financial House has proved to be robust against recent storms and has come though with our foundations rock solid. Now, we are working with our neighbours to design dwellings strong enough to withstand future financial disasters.
Our long experience in financial regulation and dealing with previous storms can be used for the common good. Indeed, we have learnt how crucial free-flowing information is to efficient markets.
But we are not complacent. Governments must be ever-vigilant. They must be attuned to international trends and prepared to adapt to them.
To that end, more is being done in Australia, especially through the Governments efforts in corporate governance and securities markets regulation.
We are keen to ensure our domestic regulations continue to adapt to the international financial architecture.
And we are committed to keeping our house in order.