Difference and Similarities


Hongkong and Australian Financial Regulatory System


 


            Financial regulation is an act to which a government or a non-government organization regulates the financial sector. It subjects the financial sectors to guidelines chose main objective is to keep the “integrity of the financial system” in check ( 2007). Financial regulation is also an act that helps stabilize the economy and aids the citizens as well.


            The common goal of financial regulation is usually the following:


“To minimize financial loss of depositors in banks or policy holders of insurance companies


To enforce applicable laws


To prosecute cases of market misconduct, such as insider trading


To license providers of financial services


To protect clients, and investigate complaints” (Wikipedia, 2007).


            There are many existing financial regulatory systems in the world. There are 21 existing in the list in the website, Wikipedia. And here are some of them: Securities and Exchange Board of India (SEBI), Israel Securities Authority (ISA), The Financial Markets Service (FFMS) for Russia, to say the least. In the context of this paper, only the financial regulatory systems of Australia and Hongkong will be discussed.


           


           


Hong Kong’s financial regulatory system consists of two organizations that regulate and ensure the future of Hong Kong’s financial system. The Hong Kong Monetary Authority (HKMA) manages and supervises the banking industry, so as to ensure its efficiency. It was established in 1993 to help regulate the monetary stability of the central bank. It acts as a checker, constantly checking on the central banking system to ensure that the monetary and banking stability functions are working thoroughly and efficiently. It uses a wide range of methods that ensures the continuity and efficiency of the banking system. It also makes sure that no problems arise within the system, and if any do arise, it would be able to locate the problem and act on it immediately so that virtually no damage can be done. It follows the laws put down by the ”Basle Committee on Banking Supervision, including the capital adequacy framework and Core Principles for Effective Banking Supervision” ( 2000).  The Aside from these functions, “other functions and objectives of the HKMA include the maintenance of currency stability, and promotion of the efficiency, integrity and development of the financial system.” (2000). The latter are in line with the functions and objectives of other central banks in other parts of the globe.


The Securities and Futures Commission (SFC), on the other hand, was established in 1989, as an autonomous organization which aims to oversee the stability of “the securities, futures and financial investment industries.” (2000).  It is also responsible for enforcing the laws and rules regarding these three fields. The SFC also acts as an overseer for the “Stock Exchange of Hong Kong, the Hong Kong Futures Exchange (check names since merger) and three recognised clearing houses.” ( 2000).


According to  there are four reasons why financial markets fail. These are: “anti-competitive behavior; market misconduct; information asymmetry; and systemic instability.” These four reasons fueled Australia to make a regulatory system that addressed all of these things. (2000).


Australia’s financial regulatory system consists of four main organizations. These are:


·         “The Australian Competition and Consumer Commission (ACCC) – responsible for competition;


·         The Australian Securities and Investment Commission (ASIC) – responsible for market conduct and consumer protection;


·         The Australian Prudential Regulation Authority (APRA) – responsible for prudential regulation of deposit-taking, insurance and superannuation; and


·         The Reserve Bank of Australia (RBA) – with responsibility for overseeing systemic stability through its influence over monetary conditions and through its oversight of the payments system.” ( 2000)


 


 


 


The Hong Kong and Australian financial regulatory systems have similarities and differences on their own. Hong Kong’s HKMC enhanced the competitiveness and security factors of the financial district, just as the ACCC. Another similarity can be that both countries are able to keep their currency and other financial liabilities relatively stable. Also, they both founded their regulatory systems in fear of market failure, where, according to the “Financial System Inquiry: Final Report Overview”, that market outcomes might be inhibited. According to lecture given by  which was entitled “Financial Regulation”, Hong Kong also has 4 broad grounds which may justify the cause for external regulation because of market failure. These are:


§  first, the moral hazard argument. If a market participant believes that the state will underwrite his losses, then behaviour will change. A good example is how deposit insurance encourages depositors and bankers to engage in risky behaviour that forces the state to pay in the end, thus undermining market discipline and entailing regulation.
 


§  second, the widows and orphans argument. These regulations provide protection to poorly (asymmetrically) informed clients, based on the view that small depositors and investors cannot assess properly the riskiness of financial institutions they deal with.
 


§  third, the public policy argument. In free market economies, public policy arguments call for competition and free trade. An example would be anti-trust laws in some countries to prevent monopolisation of certain markets.
 


§  fourth, the systemic risk issue, which allows the state to prevent the failure of one participant to destabilize the whole system. This justifies the regulation, for example, of the payment system and the banking sector. (1997).


Also, still according to the same reference, “Regulation imposes costs both directly and on the wider economy. This highlights the need to balance prudential and efficiency considerations.” (1997).


The main difference of the two is that Australia divided the load into four different bodies for more defined and efficient regulation, whilst Hong Kong opted to divide the load into two organizations, an autonomous and a government controlled. As pointed out, the four factors that can lead to the eventual downfall of a financial industry. Australia opted to act on these factors individually, which may have made their regulation of financial attributes easier. They may have had a better chance of facing all the factors and addressing all these needs successfully.  Focusing on all the aspects individually can create a better outcome since the sector that deals with one factor can thoroughly concentrate on the factor that it was assigned to. Moreover, it can come up with better solutions since its only thinking of the problems that arise in that sector, whereas in the Hong Kong model, two sectors divide the whole load. If many problems would come up at the same time, the sectors will have a hard time coming up with solutions and continually regulating the financial district.


This difference still may have a great impact on the efficiency of the regulatory systems they put up. But the two countries seem to have gained security and better regulation in the systems they adopted so in is still correct to conclude that the two systems adopted are very efficient for either country. One must also remember that Hong Kong is an independent state; Australia on the other hand is almost a continent on its own. One must note that the systems adopted are both to their advantages. It may work only for the nation who chose to adopt it; it may not work for the other. The styles adopted by both are unique and had done wonders for both parties. They have successfully regulated all their financial liabilities and have kept their currency in a good and high state.


All in all, one could conclude that though a difference may seemingly lie in both, both parties’ adopted systems are effective and unique in their own right.


 



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