House of Representatives Committees

Standing Committee on Economics, Finance and Public Administration

Inquiry into the international financial market effects on government policy

Recommendations

Listed below are the recommendations from the committee's report International financial markets: friends or foes?

1. INTRODUCTION

2. ASIAN FINANCIAL CRISIS

Recommendation 1

The Committee recommends:

that the Government examine the feasibility of implementing those recommendations of the Group of 22 Countries Working Groups where Australia is yet to reach world's best practice, including:
- the collection of information on the foreign exchange liquidity position of the public, financial and corporate sectors;
- the collection of data on the foreign currency exposure of the corporate sector;
- the Reserve bank to join other Reserve banks and the International Monetary Fund in drafting a code of best practices in monetary policy transparency;
- further improving Australia's risk management processes;
- providing banking statistics to the Bank for International Settlements;
- implementation of an early-warning system to deal with crises in the banking sector;
- further improvements to Australia's insolvency laws; and
that high priority be given to achieving successful outcomes in the World Trade Organization negotiations on financial services. (para 2.73)

3. EFFECTS OF THE GLOBALISATION OF INTERNATIONAL FINANCIAL MARKETS ON ECONOMIC POLICY

Recommendation 2

The Committee recommends that the Government:

continue to recognise the need to determine how employees and small businessmen displaced by the globalisation process can be assisted to make the transition to new employment;
continue to explain what steps are being taken to reduce Australia's current account deficit;
carry out additional work on public discussion and the dissemination of information on the changes occurring in international financial markets;
determine whether additional measures are required to ensure that Australia does not experience a build-up of short-term foreign debt; and
determine what additional steps are needed to ensure that companies moving financial centres to Australia are able to employ the necessary specialists to staff those centres. (para 3.76)

Recommendation 3

The Committee recommends that a major study be undertaken to explore the impact of various taxation regimes in our major trading partners. The study should assess these regimes in the light of recent reforms to the Australian tax system. (para 3.77)

4. TRANSPARENCY AND INFORMATION REQUIREMENTS

Recommendation 4

It is recommended that the Government continue to give high priority to:

assisting international efforts to improve the transparency and accountability of the international financial system; and
to expanding Australia's representation in the various international committees and working groups. (para 4.55)

5. INTERNATIONAL FINANCIAL ARCHITECTURE

Recommendation 5

The Committee recommends that:

Australia continue its strong support for the review of the International Financial Architecture with the aim of modernising its institutions;
the Government encourage Australian financial authorities to make the expertise of their experienced staff available to assist developing markets to reap the benefits of globalisation in world financial markets. (para 5.54)

6. ROLE OF HEDGE FUNDS (HIGHLY LEVERAGED INSTITUTIONS)

Recommendation 6

The Committee recommends that adoption of the proposals of the Financial Stability Forum Working Group on Highly Leveraged Institutions, should be given urgent consideration. The proposals are that there should be:

stronger counterparty risk management;
stronger risk management by hedge funds;
enhanced regulatory oversight of Highly Leveraged Institution credit providers;
greater risk sensitivity in bank capital adequacy regulation;
sustained industry progress in risk management;
a firmer market infrastructure;
enhanced public disclosure by Highly Leveraged Institutions;
enhanced public disclosure practices generally;
enhanced national surveillance of financial market activity; and
established good practice guidelines for foreign exchange trading. (para 6.44)

7. DERIVATIVES

Recommendation 7

The Committee recommends that:

Given the rapid growth in derivatives trading, the Treasury, the Australian Stock Exchange and the Sydney Futures Exchange should set up a working group to ensure that proper transparency regarding derivatives exposure is maintained by major public companies and financial institutions. (para 7.38)