The prudential regulation is supervision of the conduct of institution, limit the risk-taking by established requirements and govern of deposit-taking institutions, such as banks, insurance (CGAP, 2002). The prudential regulation has classify into macro and micro prudential and has different examines area, however, the board aim is to insure the financial system stability and the depositors’ funds are safety (Brownbridge, Kirkpatrick and Maimbo, 2002).
The Treasury of Australian (2003) points out that the prudential framework comprises four elements, which are prudential regulation, prudential supervision, comprehensive intervention and resolution strategies and the ability to apply for winding-up. Prudential supervision is ensure to detected regulate firms of financial difficulties and to monitor and enforce compliance with prudential regulation. Prudential regulation emphasise firms to promote sound risk-management practices. The ability to apply for winding-up means allow the closure of a regulated company and distribution of its assets before the potential losses enhance. To handle regulated firm in difficulty is main points about comprehensive intervention and resolution strategies (Australian Government the Treasury, 2003).
The Banking Act 1945 although restricted the Australian central bank’s regulation, I still had some degree influence the Australian financial prudential supervision. Then, the Campbell Committee Inquiry in the early 1980s support to increase competitive neutrality in financial system which means each intermediary can be treated equally. Next, Australian Government established the Financial System Inquiry (as known as the ‘Wallis Inquire’) in 1996 advocated to continue boost the financial regulation system (Thomson and Abbott, 2000). 1.2 Main regulators
Three main regulatory model options put forward by Wallis Inquire are ‘a mega regulator’, a ‘lead regulator’ and a ‘two peaks’ regulatory. The Committee believes that the ‘two peaks’ is best structure for Australia prudential regulation system at that time and still in use today. Two peaks model means two regulators, one (APRA) responsible for any entity that should be prudentially regulated, and one (ASIC) responsible for ‘market and disclosure regulation of any financial products being offered to Australian consumers’. The Government retained the already-established Reserve Bank of Australia (RBA) which regulates monetary policy, keep the financial system stable and protect the payments system safety and efficiency, and Australian Competition and Consumer Commission (ACCC) which oversees competition policy (Cooper, 2006).
Australian Prudential Regulation Authority (APRA) established in 1998 under the Australian Prudential Regulation Authority Act 1998. It is a Commonwealth statutory authority to prudential supervision of individual financial institutions, which includes ‘banks, credit unions, building societies, and general insurance etc.’ and protects Australia financial system stability (APRA, 2012). APRA has three main types of power in regulating financial institution: supervision and monitoring power, authorization or licensing powers, and power to act in circumstances of financial difficulties (Australian Prudential Regulation Authority Act part 2-11, 1998). The powers of APRA is from the Australian Prudential Regulation Authority Act 1998 and other specific industry legislation like the Insurance Act 1973; the Life Insurance Act 1995; and the Superannuation Industry (Supervision) Act 1993 (Australian Government (APRA, 2012).
Australian Securities and Investments Commission (ASIC) is regulate financial market fair and transparent, consumer protection in financial activities and guidance and disclosure the business. Broad-ranging powers of ASIC are: prosecute in a criminal court, apply for a civil penalty order, and