Chapter 2 Flashcards
What are the the function of ACIS
Enforcement
Consumer Protection
Compliance
Regulation
Operations
Finance
What is the 3 components of regulatory framework
RBA
APRA
ACIS
RBA main responsibility
The determination and implementation of monetary policy
Explain monetary policy
Actions taken to affect the cash rate to help achieve economic objectives of low inflation and sustainable growth
What is the objective of monetary policy
Maintenance of stable currency of Australia
Maintenance of full employment in Australia
Maintenance of economic prosperity and welfare of the people of Australia
What is the key role of CFR and two other functions that it serves
Serve as a forum to exchange information between RBA, APRA and ACIS
Also allows representation from federal government
No overlap and no inconsistencies
notification of regulatory decisions that may affect other agencies and cooperation in the event of financial disturbances
avoid overlaps and gaps in regulatory coverage that sometimes occur when more than one party deals in similar issues
Either than the main responsibility what are the other responsibilities of the RBA
4 points
- Maintain financial system stability
- overseeing the payment system
- market operations
- Production and issue, reissue and cancellation of Australia’s notes
Explain how the RBA tries to manage financial instability
RBA concerned of the whole system not individuals FIs
Respond to events that cause disturbances in the financial system
It can lend to FI’s as a lender of last resort if failure has serious implication
Explain a stable financial system
One in which financial intermediaries, markets and market infrastructure facilitates the smooth flow of funds between savers and investors.
What is the payment system and what does the RBA try and achieve by overseeing the payment system
The “payment system” refers to arrangements which allows consumers, businesses and other organisations to transfer funds to one another
To enhance the safety and efficiency of the payment system
How is the cash rate determined
The rate is a market-determined through the supply and demand of market funds in the the exchange settlement accounts. Funds are negotiated between borrowers and lenders in the overnight bank market in which banks lend overnight funds to one another
How does the RBA control the ESA Funds.
How does it increase or decrease the cash rate
Through the supply and demand of government securities.
The cash rate and quantity of ESA funds are inversely related.
Why does the RBA intervene in the forex
To maintain a stable currency, which is one of its objectives
What is the objective of ACIS
4 points
- uphold the law uniformly, effectively and quickly
- promote confident and informed participation by investors and consumers in the financial system
- make information about companies and other bodies available to the public
- Improve the performance of the financial system and entities within it
What is ACIS responsible for
3 points
Consumer credit regulators
Market regulators
Financial Service regulators
Explain prudential supervision and what is the aim
Prudential supervision involves controlling the risks taken by financial institutions
The aim is to increase the safety of depositors funds
List the FI’s that APRA have prudential supervision of
- banks
- Insurance companies
- superannuation companies
- non-bank deposit-taking institutions
What is the Financial Claims Scheme
The FCS applies to deposits held with ADIs incorporated in Australia. Guarantees deposits of 250 000 per customer per ADI
Explain how APRA achieves prudential supervision instead of strict regulation
5 points
It does not apply a one size fits all model for supervising FI’s
APRA does not restrict what risk a FI can take but provides regulation in which FI’s must prove they can handle the risk
It approaches supervision through a risk based approach in which to maximize deposit safety and systemic stability
It is a single regulator which applies consistent regulation to all FIs therefore maintaining systemic stability
Can take over FI when it faces serious financial securities
What is money laundering
Converting profits from illegal activities to give the perception that it originated from legitimate origins
Explain the three main steps in money laundering
Placement — The initial point of entry for funds derived from criminal activities. The large initial amount is broken up into smaller less conspicuous sums. The deposit of funds are placed into accounts where the FI’s are relaxed about the origins of funds. Somewhere where high traffic will bot be noticed or where money can easily be transported to without detection
Layering — Uses companies and banks registered in off-shore centers to confuse the paper trail, Complex network of transaction which attempt to obscure the link between the initial entry point. Makes it more difficult to traces the origin of the funds
Integration - The money is funneled back into the economy to give the appearance that the funds are legitimate. E.G. you could argue that the funds are from the sale of an asset. OFC can be used if it is reliable
Explain how FATF is trying stop ML
Provides a guidance on regulation that should be implemented which will strengthen financial system to increasing the difficulty of money laundering
It uses a name and shame policy to try and get financial institutions to implement the recommendations, this has been extended towards terrorism
How does an offshore center operate
Jurisdiction where financial institutions and business are set-up which do not conduct or conduct very little domestic business. If well supervised and regulated and cooperate with other jurisdiction are not problematic
