The

Australia Australia, officially the Commonwealth of Australia, is a country comprising mainland Australia, the mainland of the Australia (continent), Australian continent, the island of Tasmania and list of islands of Australia, numerous smaller isl ...

n financial system consists of the arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims in Australia, comprising: *

authorised deposit-taking institution Financial institutions in Australia are only permitted to accept deposits from the public if they are authorised deposit-taking institutions (ADIs). The ADI’s authority is granted by the Australian Prudential Regulation Authority (APRA) under the ...

s (ADIs) or financial institutions, comprising banks, credit unions and building societies, * non bank financial institutions (NBFI), * insurance (life and general), * superannuation, * financial markets—debt, equity and derivative markets, and * payments systems—cash, cheques, EFTPOS, RTGS and other high-value payment systems.

Financial markets

The main

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...

operators in the Australian

financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial marke ...

are the

Australian Securities Exchange Australian Securities Exchange Ltd (ASX) is an Australian public company that operates Australia's primary Exchange (organized market), securities exchange, the Australian Securities Exchange (sometimes referred to outside of Australia as, or c ...

(ASX) and the smaller National Stock Exchange of Australia (NSX), both of which provide stock exchange facilities for Australian listed securities. NSX acquired the Bendigo Stock Exchange in June 2012 and merged its operations. Most foreign exchange transactions are largely free from regulation, and the

Reserve Bank of Australia The Reserve Bank of Australia (RBA) is Australia's central bank and banknote issuing authority. It has had this role since 14 January 1960, when the ''Reserve Bank Act 1959'' removed the central banking functions from the Commonwealth Bank. Th ...

has largely delegated its control to authorised money market dealers and foreign exchange dealers.

Market participants

Participants in the financial system consist of

commercial bank A commercial bank is a financial institution that accepts deposits from the public and gives loans for the purposes of consumption and investment to make a profit. It can also refer to a bank or a division of a larger bank that deals with whol ...

investment bank Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

s, finance companies, building or cooperative societies,

credit union A credit union is a member-owned nonprofit organization, nonprofit cooperative financial institution. They may offer financial services equivalent to those of commercial banks, such as share accounts (savings accounts), share draft accounts (che ...

s, friendly societies, non bank financial institutions (NBFI), superannuation and approved deposit funds, public unit trusts, cash management trusts, mortgage originators,

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...

companies, institutional funds investing in and financing debt.

Financial institutions

Banking in Australia is dominated by what are known as the "big four", which are also referred to as the pillars of Australia's financial system: *

Commonwealth Bank The Commonwealth Bank of Australia (CBA), also known as Commonwealth Bank or simply CommBank, is an Australian multinational bank with businesses across New Zealand, Asia, the United States, and the United Kingdom. It provides a variety of fi ...

Westpac Westpac Banking Corporation, also known as Westpac, is an Australian multinational banking and financial services company headquartered at Westpac Place in Sydney. Established in 1817 as the Bank of New South Wales, it acquired the Commerc ...

* Australia & New Zealand Banking Group *

National Australia Bank National Australia Bank Limited (abbreviated NAB, branded and stylised as nab) is one of the four largest Banking in Australia, financial institutions in Australia (colloquially referred to as "Big Four (banking), The Big Four") in terms of mar ...

There are several smaller banks with a presence throughout the country, and a large number of other financial institutions, such as

s. Many large foreign banks have a presence, but few have a

retail banking Retail banking, also known as consumer banking or personal banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking (corporate ...

presence. The

central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...

is the

(RBA). Since 2008 the Australian government has guaranteed deposits up to $250,000 per customer per institution against banking failure.

Insurance market

Australia's

market can be divided into roughly three components:

life insurance Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typical ...

general insurance General insurance or non-life insurance policy, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance is typically defined as any insurance that is not determine ...

and

health insurance Health insurance or medical insurance (also known as medical aid in South Africa) is a type of insurance that covers the whole or a part of the risk of a person incurring medical expenses. As with other types of insurance, risk is shared among ma ...

. These markets have been fairly distinct, with most larger insurers focusing on only one type. However, in recent times several insurance companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates.

Superannuation

Superannuation in Australia is government-supported and encouraged, and minimum provisions are compulsory for employees. Superannuation arrangements are provided by banks and insurance companies, though most funds are self-managed. Superannuation funds are tightly regulated.

Payments and clearing systems

There are several payment systems in use within Australia, many of which are regulated by Australian Payments Network (AusPayNet) (previously called Australian Payments Clearing Association (APCA)), including:

Cash

The

Australian dollar The Australian dollar (currency sign, sign: $; ISO 4217, code: AUD; also abbreviated A$ or sometimes AU$ to distinguish it from other dollar, dollar-denominated currencies; and also referred to as the dollar or Aussie dollar) is the official ...

is Australia’s

currency A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a ''system of money'' in common use within a specific envi ...

and legal tender in Australia. Clearing and settling of cash payments (also called CS5) are regulated by AusPayNet as the Australian Cash Distribution Exchange System (ACDES).

Cheques

Cheque A cheque (or check in American English) is a document that orders a bank, building society, or credit union, to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing ...

s are still the most important non-cash payment instruments in Australia, in terms of the value transferred. The number of monthly cheque transactions in 2008 was 33.7 million with a value of $139.3 billion. Cheque use is in decline worldwide, but it is declining faster in Australia than many other countries. Between 2010 and 2014, cheque use in Australia declined by 42.8% with just over seven cheques written per person in 2014. In 2014, 166.6 million cheques were used in Australia, compared to 291.1 million in 2010. In 2015, cheque usage fell by a further 16.3%. Cheques and other payment instruments (such as travellers cheques and warrants) (also called CS1) are cleared and settled in accordance with the regulations and procedures set by APCS. Cheques use MICR encoding containing the BSB and account number to identify the bank and account to debit, as well as other information to streamline the processing of cheques. In 2014, the cost of processing cheques was the highest of all modes of payments at $5 per transaction, compared to about $0.20 for direct debits.Reserve Bank of Australia, quoted in Australian Payments Clearing Association
Towards a digital economy
, p.6 A recent innovation has been digital cheque imaging, which involves images of cheques being captured by financial institutions and exchanged electronically between the relevant financial institutions rather than the previous costly practice of physically transporting paper cheques around Australia. This has also ended the need for maintaining long-term storage and retrieval systems. The new system speeds up the clearing process, with cheques being able to be cleared at the end of the next weekday after being presented, as opposed to up to the six weekdays under the old system.

Direct entry

Direct entry (also called CS2) can be used to transfer funds between bank accounts in Australia. Clearing and settling is regulated by AusPayNet as the Bulk Electronic Clearing System (BECS). Direct entry uses the BSB and account number to identify the bank and accounts to debit and credit. Some common uses of the direct entry system include: * setting up monthly direct debits to pay recurring bills such as credit card bills * transferring funds to other bank accounts, also known as third party transfers * payment of wages and salaries * government tax refunds and payments. Participants of BECS exchange direct entry (DE) files at intervals through the day. Net positions are usually cleared daily.

EFTPOS

EFTPOS (Electronic Fund Transfer Point of Sale) and ATM transactions (also called CS3) occur over the EFT network. Clearing and settling of EFTPOS and ATM transactions are regulated by the AusPayNet as the Consumer Electronic Clearing System (CECS). Between 2005 and 2015, ATM withdrawals dropped by 11.5% but increased 5.1% in value.

Credit card

Several credit card systems are active in Australia including MasterCard, Visa, Diners Club and

American Express American Express Company or Amex is an American bank holding company and multinational financial services corporation that specializes in payment card industry, payment cards. It is headquartered at 200 Vesey Street, also known as American Expr ...

. The Bankcard scheme is no longer in use.

BPAY

BPAY is a bill payment system used in Australia, which is regulated by the four major banks and not by AusPayNet. As of January 2015, the BPAY payments system covered more than 156 participating Australian banks, credit unions and financial institutions. More than 45,000 businesses accept payments using BPAY and each month approximately 30 million bills are paid to the value of $24 billion.About BPAY, Overview
. Retrieved January 2015

High value payments

High value payments (also known as CS4) are regulated by AusPayNet under the Regulations for High Value Clearing System Framework. The main high value payment systems in Australia are: *

Society for Worldwide Interbank Financial Telecommunication Swift or SWIFT most commonly refers to: * SWIFT, an international organization facilitating transactions between banks ** SWIFT code * Swift (programming language) * Swift (bird), a family of birds It may also refer to: Organizations * SWIFT, ...

Payment Delivery System (SWIFT PDS) * Clearing House Electronic Subregister System (CHESS): CHESS is an automated share transfer and settlement system developed by the

. For a CHESS transaction, an interbank request is sent to RITS via SWIFT FIN, the service which sends financial information from one financial institution to another. When RITS notifies CHESS of settlement of the gross amount across ESAs, CHESS finalises the transaction by transferring share holdings at the participant level. * Financial Transactions Recording and Clearance System (FINTRACS) * Reserve Bank Information and Transfer System (RITS) is used by banks and other approved institutions to settle their payment obligations on a

real-time gross settlement Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real-time" and on a " gross" basis to avoid settlement risk. Settlement ...

(RTGS) basis. Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank.

New Payments Platform

The New Payments Platform (NPP) is open access infrastructure for fast payments in Australia. The NPP was developed via industry collaboration to enable households, businesses and government agencies to make simply addressed payments, with near real-time funds availability to the recipient, on a 24/7 basis. Each payment message is capable of carrying much richer remittance information than other systems. The NPP infrastructure supports the independent development of ‘overlay’ services to offer innovative payment services to end-users.

Regulation

Regulation of the financial system in Australia is split mainly between the

Australian Securities & Investments Commission The Australian Securities and Investments Commission (ASIC) is an independent commission of the Australian Government tasked as the national corporate regulator. ASIC's role is to regulate company and financial services and enforce laws to pro ...

(ASIC) and

Australian Prudential Regulation Authority The Australian Prudential Regulation Authority (APRA) is a statutory authority of the Australian Government and the prudential regulator of the Australian financial services industry. APRA was established on 1 July 1998 in response to the recom ...

(APRA). ASIC has responsibility for market integrity and

consumer protection Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. Consumer protection measures are often established by law. Such laws are intended to prevent business ...

and the regulation of certain financial institutions (including investment banks and finance companies or NBFI). The general regulatory position is that a

legal person In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

carrying on a financial services business in Australia must either hold an Australian financial services licence issued to that person by ASIC or fall within a licensing exemption. APRA is responsible for the licensing and prudential supervision of ADIs (banks, building societies, credit unions, friendly societies and participants in certain credit card schemes and certain purchaser payment facilities), life and general insurance companies and superannuation funds. APRA has issued capital adequacy guidelines for banks which are consistent with the

Basel II Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III. The Basel II Accord was publ ...

guidelines. All financial institutions regulated by APRA are required to report on a periodic basis to APRA. Certain financial intermediaries, such as investment banks (which do not otherwise operate as ADIs) are neither licensed nor regulated under the Banking Act and are not subject to the prudential supervision of APRA. They may be required to obtain licences under the Corporations Act 2001 or other Commonwealth or state legislation, depending on the nature of their business activities in Australia. Most investment banks are registered under the ''Financial Sector (Collection of Data) Act 2001''. This Act requires registered financial corporations to provide statistical information to APRA. The

is the country's

, with responsibility for most

payment system A payment system is any system used to settle financial transactions through the transfer of monetary value. This includes the institutions, payment instruments such as payment cards, people, rules, procedures, standards, and technologies that ...

s and setting of

monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rat ...

. Since 1996 the provision of credit to individuals for personal, household or domestic purposes has been regulated by the Uniform Consumer Credit Code, which has been implemented in all Australian states and territories. Businesses providing financial products and services are required to identify and monitor customers using a risk-based approach, develop and maintain a compliance program, report suspicious matters and certain cash transactions and file annual compliance reports.See ''Anti-Money Laundering and Counter-Terrorism Financing Act 2006'' (Commonwealth). *

Australian Competition & Consumer Commission The Australian Competition and Consumer Commission (ACCC) is the chief competition regulator of the Government of Australia, located within the Department of the Treasury. It was established in 1995 with the amalgamation of the Australian Tra ...

* Australian Payments Network

Notes and references

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