to obtain. after taking into account some of these measurement issues, my colleagues at the bank estimate that the australian industry is among the world ’ s ten largest, though more likely towards the bottom of this group than in the top half. it is difficult to be more precise than this but, nonetheless, it is clear that the australian funds management industry is large by international standards. reasons for growth what has been behind this rapid expansion in the industry? a large part of the growth over the past couple of decades has been due to superannuation. superannuation fund assets have grown by an average of 14½ per cent per annum since 1990, and now comprise about half the funds under management in australia. this rise in superannuation assets reflects a number of government initiatives, such as the introduction of compulsory superannuation contributions in the early 1990s and the concessional taxation of superannuation. other parts of the funds management industry, however, have also grown quickly, reflecting more general reasons such as the increased financial awareness of households and the associated search for higher returns than those offered by traditional investments such as bank deposits ; the strength of world equity markets ; and the demographic trend of “ baby boomers ” entering the wealth - accumulation phase of their lives. as well as investing in what might be considered to be fairly conventional financial products, it is also notable that in australia there has been significant direct participation by retail investors in the markets for sophisticated financial products. for example, retail and high net worth investors account for about two - thirds of the assets of australian - based hedge funds, compared with less than half globally. the available evidence for australia also suggests a larger retail presence in the market for collateralised debt obligations than is the case in other markets. over the past five years, retail investors are estimated to have purchased around 15 per cent of the cdos issued in australia. one of the reasons for this higher participation by australian retail investors in these markets is that the regulatory regime in australia does not restrict retail access to any financial products as long as the provider meets certain disclosure requirements. this approach has been beneficial in terms of providing investors with a greater range of wealth - generating opportunities, but it does raise some important challenges. i want to spend the rest of my time today outlining these and other challenges facing the funds management industry. challenges one of the most important challenges raised by a disclosure - based regime is that it places a significant premium on financial literacy. this is because it relies heavily on the ability

of the bank. this is a key part of the governance structure. of course, these arrangements are not unique in any way. they are designed both to meet requirements for commonwealth authorities and also to be in line with good practice at commercial entities. they do, however, give us at the reserve bank an insight into some of the practical challenges facing other financial organisations. of particular importance to this audience, we also recognise the challenges involved with appointing, training and keeping an audit staff capable of assessing whether the controls are working as they should. our audit team has continually to improve its understanding of the breadth and depth of our business and changes to it. to help us maintain best practice, our auditors need to ensure that their technical skills remain up to speed. the iia ’ s training and certification processes play an important role in assisting this process. fostering improvements to the practice of identifying and managing risks, and to the audit processes that are an integral part of that, are central to development of policies aimed at bis central bankers ’ speeches fostering greater financial stability, both in australia and internationally. the financial stresses of the past few years have placed much greater emphasis on this aspect of our policy work in the reserve bank. there are few signs that the additional focus is going to lessen any time soon. if anything, it will increase. domestically, we have worked closely with the other members of the council of financial regulators on a number of initiatives including the financial claims scheme, the structure of financial market regulation and the role of central counterparties in the settlement of securities and derivatives transactions. internationally, through our membership of the financial stability board, the basel committee on banking supervision and the g - 20, along with colleagues in apra and the treasury, we have been involved in efforts to strengthen the international financial architecture, the rules governing the risks to which financial institutions are exposed and the buffers they are obliged to maintain in case things go wrong. the implications of these initiatives on the way in which financial institutions are managed are potentially far reaching. they are also important for internal auditors, in two respects. first, they are designed to make the institutions you are working for more resilient in the face of a wide range of pressures. if the changes are made effectively, they should help you sleep a little better at night. but second, many of the changes are complex and challenging, requiring important shifts in the way institutions operate, with even more emphasis on controls focused on risk than in the past