WORLD TRADE  
ORGANIZATION  RESTRICTED 
S/FIN/W/77 
23 September 2011  
 
(11-4599) 
Committee on Trade in Financial Services Original:  English 
  
 
COMMUNICATION FROM AUSTRALIA 
 
Financial Services and Development 
  
 The following communication, dated 22 Septem ber 2011, from the delegation of Australia is 
being circulated to the Members of the Committee on Trade in Financial Services. 
 
_______________ 
  
1. Australia has undergone major reforms to its fina ncial sector over the past three decades.  As 
shown by the Secretariat Paper (S/FIN/W/76), evid ence strongly suggests that financial sector policy 
initiatives have played an important role in prom oting economic development.  This paper discusses 
the role of Australia's reform of financial sect or policy and regulations in both promoting economic 
development, and encouraging trade in financial services. 
I. AUSTRALIA'S FINANCIAL SERVICES SECTOR 
2. Australia has become a major finance market in the Asia-Pacific region, due to the liquidity 
and strength of our assets pool, our secure regulatory systems and our capabilities in investment banking, funds management and property and infr astructure funds.  Australia's large and mature 
financial services sector has assets of more than A $5.1 trillion, which is equivalent to almost five 
times GDP.   
3. The major components of Australia's financial sector are commercial and investment banking, 
insurance, and funds management.  Australia's financ ial services sector is extremely strong, with four 
of its commercial banks achieving credit ratings of “AA” or above.  The Australian stock market is 
the 7th largest in the world.  Australia has one  of the largest pools of funds under management 
globally (A$1.7 trillion).  In the Asia-Pacific, it ra nks as the largest securitisation market, the second 
largest debt securities market, the fourth largest in surance market, the largest merger and acquisition 
market, and the largest hedge funds market
1. 
4. Australia's financial sector's contribution to  economic growth and output is much more 
important than its direct contribution to GDP and employment .  The financial sector is the largest 
contributor to Australia's national output, genera ting more than 10 per cent of Australian output or 
A$121 billion of real gross value in 20102.   
 
                                                      
1 'Australia:  A Global Financial Services Centre; Benchmark Report 2010' – Australian Trade 
Commission. 
2 Australian Bureau of Statistics – Australian System of National Accounts, Table 5, Gross Value 
Added (GVA) by Industry.  S/FIN/W/77 
Page 2  
 
 II. AUSTRALIA'S FINANCIAL SECTOR POLICY AND REGULATION  
5. Australia's financial sector policy has recognised  that efficiency and competitiveness are more 
likely to be evident in an economy that is open to international competition and world's best practice.  
Australia's financial sector policy has undergone major reforms over the l ast few decades. The 
financial reforms initiated by the Australian Financ ial System Inquiry (the  Campbell Inquiry) (1981) 
sought to enhance the competitiveness, including in ternational competitiveness, and efficiency of 
Australia's financial system.  It also sought to improve the choice and qualit y of financial products. 
6. In the late 1990s, Australia undertook an Inquiry into the Australian Financial System (the 
Wallis Inquiry (1997)).  The objective of the revi ew was to ensure an efficient, responsive, 
competitive, flexible and stable financial system.  The major outcome of the Wallis Inquiry was the 
adoption of the 'twin peaks' model of financial supe rvision.  The twin peaks model provides financial 
system supervision by two specialist, independent  regulatory institutions:  the Australian Prudential 
Regulation Authority which is responsible for the prudential regulation of de posit taking institutions, 
general and life insurance companies, and supe rannuation funds (i.e. pension funds), and the 
Australian Securities and Invest ments Commission which is res ponsible for  regulation and 
supervision of real-time financial markets, market  conduct regulation and consumer protection.  This 
supervision is supplemented by the oversight of th e Reserve Bank of Australia, Australia's central 
bank which is responsible for monetary policy, pa yments system regulation and overall systemic 
stability.  
7. In 2001, the Financial Services Reform Act 2001 (FSR Act) was passed through parliament 
following an extensive examination of the regulator y requirements applying to the financial services 
industry.  The FSR Act introduced amendments to legislation and introduced a single licensing regime 
for financial services and dealings in relation to financial products.  The regulatory framework covers 
a wide range of financial products, including secur ities, derivatives, general and life insurance, 
superannuation, managed investments, deposit acco unts, non-cash payments and foreign exchange 
contracts.  
8. The reforms undertaken in Australia over the last  few decades have ensured that Australia's 
financial services sector is underpinned by a ro bust regulatory and supervisory environment and 
strong prudential requirements.  This framework help ed ensure that Australia's financial system was 
well placed to weather the global financial crisis.   
9. Australia is committed to building on this st rong regulatory framework and is an active 
participant in the work being undertaken throu gh the G20 and related inte rnational regulatory bodies 
to strengthen the global financial regulatory frame work.  Australia is committed to adopting new 
international rules for prudential capital and liquidi ty that will further strengthen our financial 
system's ability to withstand future financial crises. 
III. TRADE IN FINANCIAL SERVICES  
10. The reforms undertaken in Australia have helped to facilitate improvement in the 
international competitiveness of Australia's financial sector.  The Wallis Inquiry showed that trade in 
financial services (other than insu rance) turned from a deficit prio r to deregulation to a surplus – 
shown in figure 1, which can be taken as pr ima facie evidence of improved competitiveness.3 
Financial services trade data were available only fo r fee based sales of financial services (i.e. fees and 
charges associated with banking transactions, loan raising and funds transfer services,  underwriting 
                                                      
3 Not all financial services share this trend.  While  data for insurance services are not included because 
of their poor quality, they indicate that trade in insurance services has been in deficit over the period 1984-85 to 
1995-96.  S/FIN/W/77 
 Page 3 
 
 
 and brokerage, and commissions associated with shar e transactions and investment activity, finance, 
leasing and account management)4.  
 
11. Figure 1:  Trade Balance on Financial Services  
-100-50050100150
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96$million
 
Source :  ABS Cat. no. 5363.0. 
 
12. Focusing on improving Australia's trade in financ ial services, Australia's industry experts note 
that cross-border transactions are not so much an end in themselves as the likely and desirable 
consequence of a financial sector that is open, co mpetitive, efficient, and where there are no major 
policy constraints to 'trading' in financial services with other countries.5 
AUSTRALIA 'S TRADE IN FINANCIAL SERVICES  
13. Australia's trade in financial services (including insurance and pension) represents about three 
per cent of Australia's total trade in services6.  Financial services expor ts in banking and related 
services were slightly in excess of A$1 billion in 2008, while exports of insurance and pension 
services amounted to about A$400 million.  Imports of financial services were also just over A$1 
billion, while imports of insurance and pens ions were nearly A$950 million in 2008.  
14. Trade in financial services, and its contributi on to economic development, is much greater 
than the official statistics above in dicate. Trade by foreign affiliates abroad make up a substantial part 
of Australia's financial services trade.  In a survey7 conducted by the Australian  Bureau of Statistics, 
found that there were 1,245 Austra lian foreign affiliates operating in 70 countries, providing financial, 
insurance and pension services with a total econo mic value of A$38.9 billion in 2009-10.  These 
affiliates earned profits of A$6. 5 billion in 2009-10, 75 per cent of  which were attributable to 
Australia's Gross National Income.  Delivery via fo reign affiliates accounted for 96 per cent of total 
sales – and 95 per cent of total purchases in 2009-10.  Finance and insurance foreign affiliates of 
                                                      
4 Financial services trade excludes fees associated with professional services . Profits earned overseas 
by Australian financial institutions and repatriated to Australia are not included as exports of financial services. 
5 'Australia as a Financial Centre – Building on our Strengths' (2009) (page 27). 
6 'PricewaterhouseCoopers Melbourne Institute Asia link Index:  ANZ Services Report' (page 25). 
7 Australian Bureau of Statistics, Catalogue 5485.0, 'Survey of Australian Outward Finance and 
Insurance Foreign Affiliate Trade,  2009-10', released May 2010. S/FIN/W/77 
Page 4  
 
 Australian companies employed nearly 76,000 sta ff and paid wages and salaries of A$6.7 billion 
in 2009-10.  Australia is a significant direct invest or abroad, with A$335 billion invested in affiliated 
companies around the world at the end of 2010. 
15. As the WTO Background Note by the Secretaria t (S/FIN/W/76) notes, there are few studies 
on the direct link between trade in financial servi ces and economic development.  However a common 
theme in the existing literature is that the more  competitive financial sectors generally experience 
more rapid growth, and that competitiveness can be achieved by more financial sector openness .  
16. Following the Campbell Inquiry in 1981, Aust ralia progressively opened its banking system 
to foreign banks with the relaxation of foreign in vestment guidelines on the ownership of merchant 
banks in 1984; the issuing of 16 new trading bank licences to foreign ba nks in 1985; and the 
authorisation of foreign banks to operate branches in Australia in 1992.8  Today there are 35 foreign 
bank branches operating in Australia, as well as nine subsidiaries of foreign banks.   
17. Foreign banks are also well represented in the Australian market with 20 of the Forbes top 25 
banking institutions having a presence in Australia .  The majority of these foreign competitors are 
focused on commercial banking and capital market activities, although a number are now significant 
players in the retail banking market.  Australia's re tail banking sector is dominated by some twenty 
banks providing the bulk of banking services to co nsumers – of these, 9 banks are foreign owned 
subsidiaries.  Foreign Direct Investment into the financial sector reached A$53 billion in 2008, 
representing 13 per cent of total FDI and com pounded annual growth rate of 8.5% since 20019. 
 
References 
 
Australian Financial System:  Final Report of the Committee of Inquiry into the Australian Financial 
System , report by Mr J. K. Campbell, 1981 
Financial System Inquiry Final Report, report by Stan Wallis,  March 1997  
Australia Trade Policy Review Report by the Secretariat , 1 March 2011, WT/TPR/S/244 
Australia as a Financial Centre – Building on our Strengths , report by the Australian Financial Centre 
Forum, November 2009 
Australia's Restrictions on Trade in Financial Services, report by the Australian Productivity 
Commission, November 1998 
Strong and Sophisticated Financial Services Sector , report by the Australian Trade Commission, 
May 2011 
PricewaterhouseCoopers Melbourne Institute Asialink Index:  ANZ Services Report,  2010   
Australia:  A Global Financial Services Centre; Benchmark Report 2010, report by the Australian 
Trade Commission, 2010 
Financial Services for the Poor:  A strate gy for the Australian aid program 2010-15  – Australian 
Agency for International Development, 2010  
 
__________  
                                                      
8 'Financial System Inquiry Final Report' – report by Stan Wallis (1997) (page 618) 
9 Australian Bureau of Statistics, catalogue no. 53520, International Investment Position, Australia: 
Supplementary Statistics, 2008, Ta ble 15a (released February 2010).