Page 965 - Week 04 - Wednesday, 17 June 1992
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The scheme has a number of important features. First, an independent national body, to be known as the Australian Financial Institutions Commission, AFIC, will be established in Brisbane, under the AFIC Code, to develop prudential standards and practices and to coordinate the application of those standards by supervisors in each State and Territory.
Second, a State or Territory supervisor is to be established as an independent authority in each jurisdiction. The supervisor will undertake day-to-day prudential supervision of building societies and credit unions registered in that jurisdiction, with the objective of protecting the interests of depositors in accordance with the uniform rules set by AFIC.
Third, AFIC will coordinate uniformity, ensure that organisations providing banking services to industry are appropriately supervised, and oversee and coordinate emergency liquidity schemes for solvent institutions experiencing temporary liquidity stress. Fourth, a ministerial council will oversee the review of legislative policy for the scheme and appoint the board of AFIC. Fifth, the costs associated with supervision are to be borne primarily by the industry.
The Financial Institutions Code enables the powers of a State or Territory supervisory authority to be delegated to the authority of another jurisdiction. Given the small number of societies registered in the ACT, it may be appropriate to consider delegation of supervisory powers to a larger jurisdiction as a means of ensuring that appropriate supervisory expertise is available at a reasonable cost to industry. I understand that the Northern Territory and Tasmania are considering delegation for the same reasons.
Prudential standards will no longer be prescribed in the legislation and are instead to be set by AFIC after formal consultation with supervisors, industry and the public. These standards, which will effectively be subordinate legislation, will be published in the Queensland Government Gazette and in book form in a similar manner as the Reserve Bank publishes bank prudential standards. Preliminary exposure drafts of proposed standards have already been provided to industry for comment.
At the core of those standards will be a risk based approach to maintaining capital, which acts as a brake on high risk ventures whilst not intruding into legitimate management decisions and provides protection for depositors. Additionally, the standards will address in detail prudent practices relating to liquidity, large exposures, ownership structures, risk management systems, relationship with subsidiaries, accounting standards and other activities.
It is expected that AFIC will set standards and practices which will be equal to those applying to banks, and in some instances could be greater. State and Territory supervisors will be required to regularly inspect the institutions to ensure compliance. The responsibility for prudent management of building societies and credit unions rests with their boards and management, not with governments, supervisors or regulators, and supervision should focus on the prevention of problems. It is the role of governments to provide the right legislative environment in which this can occur. The package of supervision and the underpinning financial institutions legislation provides this environment. The codes provide that building societies and credit unions should maintain their traditional focus by meeting certain character criteria.
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