Law of Financial Institutions and Securities

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Word Count

2500 words


5 Days

Assignment Criteria


A consortium of investors proposes to form a bank that will operate throughout Australia. The new entity will be a public company operating under the name, Oz Bank Ltd.
Oz Bank Ltd will offer the same range of services and products as other major trading banks in Australia.
Write an essay or report describing amongst other things:
• The regulatory requirements ( describing the regulatory framework) that Oz Bank will need to satisfy in order to gain authorisation from the relevant regulator to engage in a banking business
• The regulatory environment and legal matters Oz Bank will need to comply with in the course if its business, including on-going disclosure obligations in providing a variety of services to its customers.
You may select one retail trading bank operating in Australia, using its corporate and organisational structure as a model for Oz Bank Ltd.


Jill is about to open accounts with Nova Bank Ltd ('Nova') in Melbourne, and requests a savings account and a credit card facility.
Currently, she has a credit card account with Elbe Bank, and a personal, unsecured loan of $2,000 from Aspen Finance Ltd.
As part of the procedure for opening the accounts with Nova, she signs various forms that she does not read. She is informed that further information about these account facilities will be sent to her in the mail.
A few days later, her application has been duly processed and she is issued with the requested accounts.
Later, Jill learns that Nova had conducted credit checks on her with a Credit Reporting Agency (CRA) prior to issuing the accounts to her, and Nova had approached her former employer to glean information about her employment history, revealing that Jill had applied to Nova for a credit card with a $4,000 limit.
In respect of all of these matters, Nova denies it has done anything wrong.
Describe the information about Jill that is likely to be in the credit report from the CRA, and advise Jill of her legal position in respect of Nova's actions.

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Assignment Solution

The regulatory framework in the country of Australian of monitoring and regulating financial institutions and banks lies essentially with multiple regulators in the Australian Prudential Regulation Authority (APRA), Australian Securities and Investments Commission (ASIC) , and the . The APRA is committed to promoting sound risk management practices among the banks and ensuring that the banks' behavior is within the norms and limits that have been set out in their regulatory framework. Before the establishment of APRA, the regulation of banks in Australia was in the hands of Reserve Bank of Australia. The banking act is also the most essential regulatory document which has to be adhered by every bank in the country of Australia. Additionally, all the banks in the country of Australia have set up Baking Ombudsman, a self-regulatory initiative of the Australian Bans, which oversees and investigates complaints of the consumer so that a feasible solution is reached outside the confines of the courts. It is not compulsory for all the banks to be associated with the ombudsman, but there has been pressure from the regulators that all the banks should some under its purview and compliance norms. The Australian banks also have to be constantly monitored to enforce compliance with prudential regulation so that any evidence of financial difficulties can be handled with diligence at the earliest. The APRA also has the power to make sure that in case of any difficult situations for the bank, it can for the welfare of the account holders, and make changes as it sees best in the management board, or can also instill a merger of this bank with another bank with sound and healthy finances.

The Australian banks also have to comply with the capital adequacy norms that are in conjecture with the international standards in line with the recommendation of the Basel committee. The Australian banks in line with the Basel 2 have to hold a certain limited amount of capital that just offsets its likelihood of incurring losses. The APRA in line with the Basel standards makes it mandatory that no more than 25 percent of capital in the form of ordinary shares, convertible securities and retained earnings can be a part of the Tier 1 capital because of the difficulty to assign losses to these instruments. The Tier 2 capital of the banks has to be in the form of subordinated debt and Cal also includes preference shares. (Reserve Bank of Australia, 2010)

For the purpose of measuring the adequacy of capital, the banks have to provide a quantitative measure for their credit, market and operational risk undertaken by the banks in their business. However, according to the APRA, the most important risk metric measure that the banks have to comply in accordance with the norms set is the credit risk measure.  The risk weights are prescribed by the APRA in terms of the banks individual credit exposure, which gives rise to risk weighted assets. However, the APRA has granted the four largest banks to use their modeling of the risk weights based on their estimated probability. But these banks have to, without fail, meet with risk governance and risk modeling criteria. The market and operational risk are also measured in terms of the risk weighted assets in conjecture with the results in the balance sheet. Some of the smaller banks are also required to quantify their interest rate risk in the banking book to make sure that there is no potential for loss arising for the timings and mismatches in the re-pricing of banks funding and lending positions.

In this regard the ASIC has prepared regulatory guide which explains the methods through which it seeks to control financial institutions. ASIC has also prepared regulatory guide 121for people and companies from overseas who are interested in conducting financial services business in Australia. (Jong, 2004)

Australian Securities and Investments Commission (ASIC) is responsible primarily for the protection of consumers and it has the role to monitor the deposit taking activities of the banks and it, therefore, develops appropriate policies and develops compliance so that the banks can adhere to the code of the banking practice, the credit union code of practice and electronic funds transfer code of practice. ASIC is also responsible for the banks getting streamlined under Financial Services Reform Act, 2001so that there is proper integration of market integrity and consumer protection across the range of financial services industry into the corporations act, 2001. (Jong, 2004)

The regulatory framework also makes it important for the banks to indulge in transactions that they believe it safe and without any suspect. Further, in the light of such understanding, the regulators have made it necessary to record transaction that they believe if skeptical in terms of trying to evade tax or unlawful activities and also to record transactions that is above 10,000 Australian dollars. Further, there have been a series of financial reforms instituted by the regulatory agencies which have attempted to modernize the financial services and banking regime of the country and this has been achieved rather successfully. For example, the government had enacted the financial services reform act way of amendments to the Australian corporations act.

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