Welcome to the 2018 Foreign Bank Tracker (FBT) – Mapping capital flows into Australia. Now in its third year, this piece of thought leadership draws on Australian Prudential Regulatory Authority (APRA) statistics to unveil trends in the capital flow of foreign banks operating in Australia.
We have found foreign bank growth remains largely positive, due in most part to the rapid expansion of Asian banks. For this reason, this year's report focuses heavily on mapping Asian bank growth using European and North American statistics as a baseline for comparison.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Commission) held its initial public hearing on 12 February 2018. The Commission, which is being led by former High Court Justice Kenneth Hayne, will inquire into the nature of misconduct by financial services entities, the adequacy of existing laws and the effectiveness of regulators and the current legal framework. It is expected the Commission's final report, due February 2019, will include recommendations for legislative change, which may affect foreign banks in Australia.
"Since the financial crisis… there have been examples of misconduct by financial institutions - some of them extremely serious and that's demanded a response from the institutions themselves and from government."
The Hon. Malcolm Turnbull MP,
Australian Prime Minister
The Australian Government has introduced a new accountability regime, which applies to ADIs as well as their directors and senior executives who are 'accountable persons' (APs) under the regime.
BEAR commences on 1 July 2018 for large ADIs and 1 July 2019 for all other ADIs. BEAR will apply to ADIs that are Australian branches or subsidiaries of foreign banks.
The regime imposes new 'accountability obligations' on ADIs and APs, obligations on ADIs regarding the remuneration of APs and requires ADIs to report certain matters to APRA. Under BEAR, APRA will have new enforcement powers, including the power to impose substantial fines on banks and disqualify APs.
Australia's foreign investment regime was significantly amended in December 2015 and is now more complex, more costly and exposes foreign investors (and their financiers) to increased transaction uncertainty.
While foreign financiers are often able to rely on the moneylending exemption for their transactions in Australia, the availability of the exemption needs to be tested on a case-by-case basis. In addition, it is in every financier's interest to take measures to ensure its borrowers are compliant with Australia's foreign investment legislation, as misapplication of the legislation by borrowers can affect the priority of financier's security interests.