Corporate governance—enhancing capacity of regulators

Budget Review 2012–13 Index

Kali Sanyal

The Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Australian Competition and Consumer Commission (ACCC) are the three national agencies that provide the regulatory supervision of corporate governance in Australia.  With the backdrop of implementing the BASEL III framework in the Australian financial sector, the introduction of the carbon pricing scheme, the Future of Financial Advice (FoFA) reform, and the need to ensure that the competition in the market remains intact, the regulatory capacity of these agencies was enhanced in the Budget.

Australian Prudential Regulation Authority (APRA)

In the 2012 Budget, the Government announced that APRA would receive $82.4 million over the forward estimate period of four years (including capital funding of $6.9 million over two years) to ensure the agency’s continued capacity to supervise Australia’s financial system, including the implementation of global regulatory reforms.[1]

As an aftermath of the Global Financial Crisis (GFC), the international financial market faced a new set of financial guidelines as outlined by the Bank for International Settlements (BIS) through its BASEL III framework. [2]

BIS announced the package of reforms (the BASEL III framework) in December 2010 (revised in June 2011) to raise the level and quality of regulatory capital in the global banking system. In response, APRA released a discussion paper, suggesting roadmaps for implementing such reforms in Australia, and solicited formal public consultation on Basel III measures relating to the quality, consistency and transparency of capital, capital buffers and the leverage ratio.[3]

Debt-Equity rules—treatment of Tier 2 capital instruments under the Basel III capital reforms

In the Budget, the Government announced that on commencement of the Basel III capital reforms on 1 January 2013, certain capital instruments issued by authorised deposit taking institutions (ADIs) can be treated as debt for income tax purposes. APRA can ask ADIs to write off or convert such debts into ordinary shares if the regulator deems that the ADI would otherwise become nonviable. (Currently the tax law provisions allow those instruments as equity for income tax purposes, and their funding costs would not be tax deductible.) Certain Tier 2 regulatory capital instruments issued by ADIs and certain other related entities regulated by APRA will be subject to these changes.

This measure is estimated to have an unquantifiable but small revenue impact over the forward estimates period. [4]

As the process of implementing the global standard is maturing, APRA has been finalising the implementation of the modified capital standard framework in Australia. In addition, APRA would implement relevant aspects of the Government’s Stronger Super reforms and this mostly accounts for the need to upgrade its functioning capacity.[5] (The budget brief on Stronger Super contains more details on this).

The cost of this measure will be fully recovered through financial sector levies paid by APRA regulated entities.[6]

Australian Securities and Investments Commission (ASIC)

From 1 July 2012, the Government’s carbon pricing scheme will commence and carbon units issued under that scheme, as well as Australian carbon credit units issued under the Carbon Farming Initiative and some international emissions units (together, regulated emissions units), will be recognised as 'financial products' under the Corporations Act 2001.

Therefore, ASIC will be responsible for regulating entities and individuals that provide financial services in relation to emissions units. ASIC has announced a relevant regulatory guide to assist the operators in this regard.[7]

In order to enhance the capacity of the ASIC’s market supervision, the Government has earmarked an outlay of $43.7 million over the forward estimates period (including $16.3 million in capital) to replace its current market surveillance system with an enhanced, integrated system with increased data mining and analysis capacity. In addition, the Government increased operational funding of ASIC by $101.9 million over the four years of the forward estimates period.

With the introduction of the Government’s Future of Financial Advice (FoFA) reform, there has been a greater role for ASIC. Accordingly, the Government has set aside an amount of $23.9 million for four years to ASIC.

The FoFA package of legislation was passed by the House of Representatives on 22 March 2012 and was introduced into the Senate on 10 May.[8] It amends the Corporations Act 2001 to introduce a prospective ban on conflicted remuneration structures, a statutory fiduciary duty so that financial advisers must act in the best interests of their clients and an opt-in obligation that requires advice providers to renew their clients' agreement to ongoing fees every two years.[9]  

The cost of this measure is expected to be met by additional fees of $33.0 million over four years on market operators and participants.[10]

Australian Competition and Consumer Commission (ACCC)

The ACCC estimated an operating loss of $17.0 million in 2011–12 and break-even results for the forward estimates. The operating loss was a result of higher than anticipated legal expenditure due to increasing complex legal cases undertaken by the ACCC.[11] Hence the Budget allocated an extra $4.3 million in 2012–13 to the ACCC to fund additional external legal costs in performing its statutory duties.[12]



[1].      The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no: 2: 2012–13, Commonwealth of Australia, Canberra, 2012, viewed 12 May 2012.

[3].      Australian Prudential Regulation Authority, Response to Submissions, Implementing Basel III capital reforms in Australia, viewed 16 May 2012.

[4].      Australian Government, Budget measures: budget paper no: 2: 2012–13, Commonwealth of Australia, Canberra, 2012, p. 23, viewed 14 May 2012.

[5].      Australian Prudential Regulatory Authority (APRA) - Response to Submissions Implementing Basel III capital reforms in Australia, 30 March 2012, viewed 12 May 2012. 

[6].      Australian Government, Budget measures: budget paper no: 2: 2012–13, Commonwealth of Australia, Canberra, 2012, p. 276, viewed 15 May 2012.

[7] .     Australian Securities and Investment Corporation (ASIC), 12-45AD ASIC releases guidance and policy proposals for carbon financial products 9 March 2012 and  Regulatory Guide 236, May 2012, viewed 14 May 2012. 

[8].      Parliament of Australia, Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, viewed 16 May 2012.

[9].      ASIC, Future of financial advice, May 2012, viewed 14 May 2012.

[10].    Australian Government, Budget measures: budget paper no: 2: 2012–13, Commonwealth of Australia, Canberra, 2012, p. 277, viewed 15 May 2012.

[12].    Australian Government, Budget measures: budget paper no: 2: 2012–13, Commonwealth of Australia, Canberra, 2012, p. 276, viewed 15 May 2012.

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