ADDRESS TO THE
25^th ANNUAL CONFERENCE OF THE INTERNATIONAL ORGANISATION OF SECURITIES COMMISSIONS

DARLING HARBOUR

WEDNESDAY, 17 MAY 2000

Thank you so much Alan Cameron. To our distinguished guests

Guillermo Hartenek, Michel Prada, Paul Melly, to those of you who have come to this IOSCO

Conference from overseas, can I say first of all welcome to Sydney, the Olympic city. And

in four months time we will see on the athletics track, and in the swimming pool, and in

the sports, friendship and competition which I hope will symbolise some of the best of

international competition. There’s been a lot of fuss in Australia about ethics and

the IOC, drug enhancement, accepting hospitality and who should carry the torch. And I

feel rather reassured today to know that all of the world’s regulators are on the

spot to give ethical rulings in relation to these issues. I can boast today, for the first

time in its history, Sydney is the most ethical city in the world as a consequence of your

presence.

Think of the changes that we’ve seen in world sport over the last

decades, with technological advances, with enhanced training as world records tumble one

after the other. And much the same can be said of financial markets. As technological

innovation, more competition, improvements in service delivery, the change to the kind of

world that we used to know over the last twenty or thirty years.

In 1941 the Sydney Stock Exchange passed a rule banning people from throwing paper

aeroplanes in the exchange. Today there is no pit of the exchange. I doubt that a dealer

could make a paper aeroplane today. The nuisance on our stock markets today comes from

electronic mail, people who’ll send letters saying, “I love you”. One was

actually sent to me. I didn’t open it, I smelled a rat immediately. Nobody has ever

written to a Treasurer saying, “I love you”.

Rapid change is a permanent feature of the environment within which financial markets

operate. And one of the most obvious factors driving change is technological development,

which has had a dramatic impact on all aspects of the supply of financial products.

It’s exposed domestic suppliers to greater competition, it’s driven innovation

in developing products, and it’s driven innovation in distributing products. Now

producers and suppliers can reach across geographic barriers to different cities, and

different countries, and different parts of the world, to different consumers, with an

explosion of products matching the demands of increasingly sophisticated consumers who can

access those products via the internet. In the past where they were banned because of

geographic barriers, now they reach across those barriers, they reach across the

regulatory geographic areas, they reach across the old characteristics and the old

demarcation lines. And technology, competition and consumer demand are blurring

traditional boundaries between products.

These are great challenges for our policy makers. Challenges which will require cross

border cooperation. Challenges to require that there is a diversity of consumers, some

educated and sophisticate, and many not. Challenges requiring us to think above our

localised jurisdictions and paper based transactions to global electronic commerce. And as

we seek to meet these challenges, we know there is no breathing space. The entrepreneurs

and their consumers will not wait for the regulators. The regulators are going to have to

stay in front of the developments as they occur in the next decade.

And today I want to suggest to you that although we have a new economy, if it is to

work we need some old values. Old values for a new economy. Old values. Sound laws. Active

corporate regulators. Independent courts to enforce the laws. Encouraging growth and

innovation whilst protecting people from dishonesty. But, as we know, laws and regulators

and the courts only go so far. At the end we rely on individuals, on company managers, on

directors, to conform to standards which go beyond the legislation, standards of behaviour

that investors can rely on. What we need from our company managers and our directors is

standards.

Regulation is vital, but if the chances of prosecution are low, if bad practice becomes

morally acceptable, if peer standards do not reinforce standards, our laws will not be

sufficient in themselves. And business leaders, Government officials, have a central role

in reinforcing and upholding standards. If they fail, a great restraining force is lost.

This is also the basis for transparency. Transparency enfranchises the public, the press,

creditors, in ensuring that standards are upheld. Unethical behaviour is less likely to

flourish in an environment where there is transparency. This has been noted, sunlight is

the best disinfectant.

In Australia we have been reviewing our regulatory framework, financial services, in

the light of the rapid transformations that are now taking place. As a medium sized

economy we must keep step with international developments. And we believe we are now well

on the way to providing a sound framework for innovation, for growth, and for confident

consumer decision making. We want to ensure Australia is well placed to take advantage of

globalisation and technological advancement. Our recent reforms have been aimed at

promoting greater efficiency, enhanced competition, whilst maintaining system stability

and consumer protection. Some of these reforms which Alan referred to, arising out of our

Wallis Inquiry, have been described by the IMF as path breaking. We now have a framework

for dealing with financial conglomerates. We now have regulatory consistency across all

products. We have a better focussed, accountable structure for consumer protection.

We have established a twin peaks model of consumer regulation, a single prudential

regulator – APRA, which goes across all financial products – banks, non-bank financial

deposit taking institutions, superannuation funds – and focuses on the peak of prudential

regulation. And the market integrity regulator – ASIC, the Australian Securities and

Investments Commission, your host for this conference. And now we are implementing a new

system of corporate law reform, which we call the Corporate Law Economic Reform Program.

We call it that because we wanted to remember what the ultimate goal of corporate law was.

We wanted to bear in mind that the Corporation is a vehicle for creating economic activity

by which people can join together with limited liability to accomplish economic goals they

could not accomplish as individuals. And to bear in mind that consumer protection has an

economic focus as much as an ethical focus. We announced our first tranche of reforms

earlier this year, with fundamental changes to fundraising, takeovers, corporate

governance and accounting standards. And a second wave of reforms is now out for public

consultation, to put in place a flexible regulatory framework to cater for changing

consumer needs.

They are ambitious proposals. An integrated framework for all financial products, all

financial service providers and all markets. Comparable and consistent regulatory

treatment of all advice and selling activities. Single licensing for all financial

intermediaries, including insurance agents, brokers, securities advisers, dealers, futures

brokers, as well as any other person engaged in financial services. We believe this will

benefit consumers who will have less confusion when they deal with intermediaries acting

in a consistent way and subject to a comparable set of obligations. The Bill will put in

place a simplified authorisation process for market operators, and clearing and settlement

facilities. And we are confident it will provide a model of international best practice,

amply satisfying the benchmark set by IOSCO’s objectives and principles of securities

regulation adopted in Nairobi in 1998. As I said, markets do not stand still. They will

not wait for our regulators to catch up.

I speak from experience. Shortly after becoming Treasurer, the Australian Stock

Exchange came to me and asked for permission to demutualise. The concept at that time not

known in relation to stock exchanges. And as we worked that through, with some

trepidation, we came to the conclusion that this could be facilitated. And in 1998 it

became the first demutualised major stock exchange in the world listed on itself. On

itself. And I commend the organisers of this Conference for devoting time and discussion

on the impact of market structures, such as demutualisation and self-listing. These are

significant, topical and very important matters. Investors are attracted to markets by

their depth, quality and integrity. And the dynamism of our market system depends on the

confidence of users, their quality and their integrity. Confidence is something hard won,

but easily lost.

We had experience of that in Australia in the late 1980’s, where there was a loss

of confidence in many of our regulatory arrangements. And it was because of that loss of

confidence in the late 1980’s that we began to get serious about world best practice

in relation to corporate regulation. It was a good time to get serious, because one of the

experiences that we learnt as this region went into the financial and economic crisis in

1997/1998, when much of the region, nearly all of the region, was in severe recession, was

that institutions count. It makes a difference to have strong institutions. And regardless

of macroeconomic policy, which should always be good in any event, strong fiscal policy,

strong microeconomic policy, good monetary policy, when a crisis occurs the strength of

institutions counts. It counts whether you have a good corporate regulator. It counts if

you have good insolvency laws. It counts if there is strong prudential supervision.

I want to make one other mention of Australian policy developments in my opening

remarks this morning. Something that we see as important, the development of Australia as

a financial centre. The financial services sector has grown rapidly in recent years in

this country, like most other countries of the world. More than twice as much a

contribution to GDP comes from the financial sector, as compared to agriculture in

Australia. We have some key advantages. Our time zone spans the close of business in the

United States, and the opening of business in Europe. We take up new technology quickly,

more computers per capita than any other country in the region, second highest per capita

ownership of computers in the world.

The telecommunications market is very competitive, the most deregulated in Asia. The

work force is multilingual, stable and highly skilled. And the cost of prime CBD office

space in Australia is significantly lower than Tokyo, Hong Kong, Singapore or Beijing.

It’s the strength and diversity of our financial sector and the favourable

business environment which will make Australia an attractive destination as a financial

centre.

We’ve established a Centre for Global Finance to make Australia a leading centre

for financial services in the Asia Pacific Time Zone. It’s headed by Les Hosking, the

former CEO of the Sydney Futures Exchange, recognised as making that Exchange one of the

world’s leading financial exchanges.

And this Centre is playing an important role in increasing awareness and understanding

of the opportunities, and promoting the effectiveness of our regulatory framework. It has

a one-stop-shop to assist international companies exploring business opportunities. And

although it was only launched last year, a number of leading multinational market players

have announced new or expanded operations in Australia. These are important first steps.

I want to take this opportunity to commend IOSCO on its work in helping to promote

regulatory convergence, and strengthening the international financial architecture. It has

provided a useful benchmark for assessing regulatory frameworks. The work of its technical

committees is essential to developing a unified approach to market regulation. Australia

strongly supports this work. And I look forward to a favourable announcement on the

proposal to endorse a core set of international accounting standards for use in

cross-border raisings and listings.

Globalisation of capital markets highlights the need for globalisation of financial

reporting requirements. It is no longer appropriate for any one market to develop

reporting requirements without regard to what is happening elsewhere. We recognise the

importance of common accounting standards worldwide, and we’ve recently reformed our

standard setting arrangements with that objective in mind. And Australia maintains a

strong technical contribution to the work of bodies such as the International Accounting

Standards Committee and the G4+1.

We would like to see steady progress in the improvements of the international financial

architecture. We are doing it in a number of ways. In the Manila Framework Group, a Group

which was established in response to the Asian economic and financial crisis, we prepared

a transparency report on all of our institutions to assess ourselves on meeting

world’s best practice, and offered the opportunity to other countries in the region

to help with similar examinations. We’ve been active on international financial

architecture within the G20. We’ve contributed to the important work of the Financial

Stability Forum on highly leveraged institutions. And we’ve been working hard to

extend the application of relevant principles through bodies such as the OECD, the World

Bank and UNCITRAL. We’ve been active in promoting institution and capability building

in our region through APEC, for example, in corporate governance and through a newly

launched initiative on company accounting and financial reporting. The importance of

strong institutions brought home to this region how essential stability and good

regulatory practice is for economic outcomes. And during the financial crisis many of the

economies in this region commenced rebuilding their financial framework. I hope it is not

the case that as the region picks up, as these economies experience strong growth again,

that the importance of building a strong regulatory framework will be overlooked. One

commentator suggested that the game of rebuilding institutions was cancelled on account of

an outbreak of sunshine. I hope it is not the case that as the crisis passes we forget the

lessons, and cease working with our utmost ability on some of the answers.

It’s when markets are booming that policy makers have to be their most active.

Everybody loses interest in corporate regulation when a market booms. It’s only when

it fails, they look to allocate liability. But it’s when it’s booming, when the

activity is going on, that people need to be at their most vigilant. And now, during a

period of strong world economic growth, is the most important time to be strengthening our

architecture for the challenges of the future.

We may well be in an era which will become known as the new economy, but if the global

economy is to prosper some of the old rules must be reinforced to apply. Rules as old as

the Ten Commandments themselves. Rules like, thou shalt not steal. Rules which are

important to maintain honesty in financial markets. Ensuring the primacy of those values

in the new economy is a great policy challenge, a great policy challenge that today’s

makers and regulators must meet. For many, continuous change will demand that you respond

quicker and quicker, and that you respond in ways which will not stifle innovation, but

create growing wealth for all. The task of all of us, as people in public service and

engaged in regulation, is to maximise those economic benefits for our citizens whilst

maintaining trust and confidence for our investors. This is important work which you are

called to do. It is important that it be coordinated through institutions such as IOSCO. I

know that the members that are here today are committed to continuing these important

discussions. It is a great honour for us in Australia to be able to host you. It is with

warmness from the bottom of our hearts that we welcome you, and I wish you well in your

deliberations.