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Australia
Score Rank
Financial Standards Index 69.17 out of 100 4
Business Indicator Index 9.98 out of 12 33

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Overall Standards Summary

Australia achieves high overall compliance with international standards and codes, with a score of 69.17 out of 100 in our Standards Compliance Index. Australia's compliance in the areas of macroeconomic fundamentals and financial supervision is high. Observance of international standards on money laundering, however, lags behind. In the Financial Action Task Force mutual evaluation, Australia was rated non compliant with two of the FATF's core recommendations. A country needs a largely compliant or compliant rating for the core recommendations to be deemed as having in place a proper functioning AML/CFT regime. The government has had a long-standing policy of moving toward convergence of national standards with International Standards on Auditing (ISAs). In July 2004, Australia formally made the International Financial Reporting Standards the basis of Australian Accounting Standards. There is no assessment available of Australia’s compliance with the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. However, in January 2010, a corporate insolvency reform package was introduced that included provisions that aimed to streamline the insolvency regime and to address a number of issues that are seen to inhibit debtor firms from attempting reorganization proceedings.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
CP
Code of Good Practices on Transparency in Monetary Policy
FC
Code of Good Practices on Transparency in Fiscal Policy
CP
Effective Insolvency and Creditor Rights Systems
II
International Financial Reporting Standards
EN
Principles of Corporate Governance
CP
International Standards on Auditing
EN
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
FC
Core Principles for Effective Banking Supervision
CP
Objectives and Principles of Securities Regulation
CP
Insurance Core Principles
CP
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

CPSpecial Data Dissemination Standard

Australia became a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) in April of 1996. According to the SDDS website, as well as the IMF's 2009 Article IV Consultation report, Australia's data dissemination regime complies with SDDS specifications and is "adequate for surveillance purposes." Australia provides and adheres to advance release calendars as required by the SDDS, as well as summary methodologies for all data categories. Requirements of simultaneous release and the protection of confidentiality are fulfilled, and Australia makes available the information needed to assess the integrity of official statistical data. In most cases, advance notice of changes in methodology is provided. However, for a few data categories such notice is provided only at the time of release. Also, in terms of certain aspects of the integrity dimension for data on analytical accounts of the banking sector, the Australian authorities fail to provide the required information on the IMF's SDDS website. Both the IMF's 2009 Article IV Consultation report and its 2008 Annual Observance report, conclude that Australia has continued to make improvements in its data dissemination practices.

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FCCode of Good Practices on Transparency in Monetary Policy

The primary source by which to assess Australia's compliance with the monetary policy transparency practices set forth by the International Monetary Fund (IMF) in its Code of Good Practices remains the 1999 self-assessment carried out by the Australian Treasury department. The self-assessment was benchmarked against the underlying principles of the IMF's Code. The Treasury report found Australia to be generally consistent with the Code, but recognized a deficiency arising from Australia's reliance on convention rather than legislation to establish its accountability framework. The IMF's 2004 Article IV Consultation report affirmed that Australia's monetary policy framework is both transparent and effective, and this judgment has been confirmed in subsequent Article IV reports. As set forth in the provisions of the Reserve Bank Act of 1959, Australia's primary monetary policy objective was to maintain currency stability, but in 1993 that objective began to shift toward inflation targeting. The 2007 IMF Article IV Consultation noted that Australia's prudent monetary policy has resulted in relative strength, even in the context of the U.S.-led credit crisis.

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CPCode of Good Practices on Transparency in Fiscal Policy

The most recent assessment of Australia's fiscal policy transparency practices was carried out in 1999, when the International Monetary Fund (IMF) had not yet formalized its draft Code of Good Practices on the subject. Instead, the Australian Treasury carried out a self-assessment against the principles contained within that draft Code and found that Australian practice was generally compliant, with some discrepancies. In that same year, the IMF determined that this self-assessment was both objective and credible. Since that time, the IMF has published several Article IV Consultation reports that describe Australia's fiscal policy framework as both transparent and effective, and consistent with the IMF's Code of Good Practices, again noting only minor deficiencies. The IMF reports from 2004 to the present applaud the Australian government's ongoing commitment to improving its already high standards. Australian fiscal policy is based on the principles of fiscal management set forth in the 1998 Charter of Budget Honesty Act, which mandates a balanced budget, on average, and requires that, in periods of strong economic growth, the government maintain a budget surplus on forward estimates. This policy framework has enabled Australia to enjoy the benefits of fiscal surpluses over most recent years, leading the IMF to observe in its 2008 Article IV Consultation "Concluding Statement" that Australia's current fiscal position is "an enviable situation by international standards." The IMF's 2009 Article IV report goes so far as to credit Australian fiscal management with having contributed to Australia's resiliency in the face of the global economic downturn, as compared to the experience of other developed economies.

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Institutional and Market Infrastructure

IIEffective Insolvency and Creditor Rights Systems

There is insufficient publicly available information regarding Australia's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. Insolvency procedures applying to corporate entities are provided for in Chapter 5 of the Corporations Act of 2001 and the Corporations Regulations. The Australian Securities and Investment Commission (ASIC) supervises all corporations and financial system participants in Australia. Among its roles, the ASIC regulates the corporate insolvency system, but it does not administer any insolvency cases directly. General oversight of the corporate insolvency system falls to the courts. The website of the International Association of Insolvency Regulators discloses that Australia launched a package of reforms in October of 2005. These reforms were aimed at improving the nation's insolvency regime by enhancing protections for creditors, impeding the ability of company officers to commit misconduct, improving regulation covering insolvency practitioners, and fine-tuning the voluntary administration procedure. Draft legislation was circulated for public comment in early 2006 and was passed in 2007. More recently, in January 2010, a corporate insolvency reform package was introduced that included provisions that aimed to streamline the insolvency regime further and to address a number of issues that are seen to inhibit debtor firms from attempting reorganization proceedings. Observers have expressed the concern that the proposed reforms could, in fact, result in increasing the number of insolvencies.

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ENInternational Financial Reporting Standards

According to a 2006 National Institute of Accountants in Australia (NIAA) self-assessment, Australia adopted International Financial Reporting Standards (IFRSs) promulgated by the International Accounting Standards Board (IASB) effective January 1, 2005. However, the Deloitte IAS Plus website noted that at the time of issuance, the Australian Standards were not 100 percent compatible with IFRSs. IFRSs were adopted with some modifications - such as removing options and adding Australian paragraphs - due to the fact that Australian standards, unlike the international standards, are not exclusively meant for the for-profit sector. As a consequence, to bring Australian standards in line with IFRSs, in November 2006, the Australian Accounting Standards Board (AASB) issued Exposure Draft (ED) 151 "Australian Additions to, and Deletions from, IFRSs" for comment. The Deloitte Accounting Alert of September 2007 noted that in March 2007, the AASB released Amending Standard AASB 2007-4 "Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments" which implements the majority of the proposals in AASB ED 151 and also includes other amendments arising due to changes introduced by the IASB. The update further noted that these amendments would bring Australian standards in line with IFRSs. In addition, the text of the amended Australian standards confirms that entities in compliance with Australian standards are in compliance with IFRSs except for certain not-for-profit and government controlled entities. As noted in the 2010 PricewaterhouseCoopers report on the adoption of IFRSs, Australian standards contain specific provisions for not-for-profit and public sector entities which may not be in compliance with IFRSs. Also, the AASB has not adopted International Accounting Standard (IAS) 26 as superannuation plans are regarded as not-for-profit entities in Australia and, therefore, subject to domestic regulation.

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CPPrinciples of Corporate Governance

According to a 2006 report published by the International Monetary Fund (IMF), the corporate governance framework in Australia is "largely healthy and dynamic" and built on a solid legal and regulatory foundation. The report finds that shareholder activism is high and periodic disclosure requirements are in line with international best practices and exceed the requirements in many other countries. Overall, implementation and enforcement of disclosure and corporate governance requirements was found to be strong, specifically among the top tier listed companies. However, there seems to be a significant gap in corporate governance disclosure compliance between larger listed companies and smaller companies. The IMF notes that following the implementation of the reforms introduced under the Corporate Law Economic Reform Program Act (CLERP 9) of 2004, the Australian government strengthened auditor independence and improved financial reporting and disclosure. In addition, in 2003, the Australian Securities Exchange (ASX) Corporate Governance Council released its Principles of Good Corporate Governance Practice and Best Practice. They were updated in August of 2007, and in April 2010 a new draft of the Principles was released for public comment. The draft includes recommendations on board diversity, executive remuneration and trading policies. The ASX Principles are not prescriptive and listed entities follow a comply-or-explain approach towards compliance. The oversight authority for corporate governance is the Australian Securities and Investments Commission which is considered to have wide-ranging enforcement powers.

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ENInternational Standards on Auditing

According to numerous sources on the subject, Australia has had a long-standing policy of convergence and harmonization of national standards with the International Standards on Auditing (ISAs) promulgated by the International Auditing and Assurance Standards Board (IAASB). In 2004, this policy was further consolidated with the enactment of the Corporate Law Economic Reform Program and the subsequent issuance of the Financial Reporting Council's (FRC) strategic direction with regard to the Australian auditing framework. In 2005, the FRC directed the Australian standard-setter, the Auditing and Assurance Standards Board (AUASB), to use ISAs as a base for the redrafting of Australian standards issued prior to 2004. On May 1, 2006, the Auditing and Assurance Standards Board (AUASB) issued 35 new legally enforceable Australian Auditing Standards (ASAs), following a review of the existing auditing standards. The AUASB website indicates that efforts were ongoing to align ASAs with the latest version of ISAs. In line with the IAASB Clarity project, the AUASB embarked upon redrafting and revising all extant ASAs. In October 2009, the AUASB Clarity Project was finalized and the AUASB issued revised and redrafted ASAs in Clarity format effective January 1, 2010. Per the text of the ASAs, compliance with the national standards enables compliance with the corresponding ISAs. Furthermore, all additional local requirements not part of the corresponding ISA are identified with a prefix ‘Aus.’ Per the Corporations Act, listed and unlisted Australian companies follow the same set of ASAs issued by the AUASB.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

The Financial Action Task Force (FATF) conducted a mutual evaluation of Australia's Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime against the FATF’s 40 recommendations and 9 special recommendations in 2005. In its assessment, the FATF concluded that Australia was fully compliant with 12, largely compliant with 15, partially compliant with 13, and non-compliant with 9 recommendations and special recommendations. More importantly, Australia was rated non compliant with recommendations 5 (on customer due diligence) and 10 (on internal controls), both designated as core recommendations by the FATF. A country needs a largely compliant or compliant rating for the core recommendations to be deemed as having in place a proper functioning AML/CFT regime. However, according to the FATF's mutual evaluation and a 2009 report by the U.S. Department of State (DoS), the Australian authorities are aware of these shortcomings and are committed to remedying them. The 2009 DoS report pointed to the Australian authorities' intent in implementing the FATF’s revised 40 plus 9 recommendations and thus bringing the country's AML/CFT regime in line with international standards. To this end, Australia introduced the Anti-Money Laundering and Counter-Terrorism Financing Act in 2006 as part of a legislative package that has implemented one tranche of reforms in the regulatory regime (with a second tranche pending, according to a 2010 report by the U.S. DoS). Some of the weaknesses with regard to customer due diligence and designated non-financial businesses and professions pointed out by the FATF have been addressed by the new reforms. Nevertheless, there is no recent public information assessing the effectiveness of these reforms or the present AML/CFT framework in Australia. In its 2008-2009 Annual Report, the FATF names Australia as one of the countries that has committed to implementing the organization's 40 recommendations and 9 special recommendations.

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FCCore Principles for Systemically Important Payment Systems

Information from recent sources, such as the Reserve Bank of Australia's (RBA) 2009 self-assessment of its payment system, indicates that there is only one systemically important payment system for the country, namely, the Reserve Bank Information and Transfer System (RITS), which is owned and operated by the RBA. The RITS was assessed by the International Monetary Fund (IMF) in 2006 and in its Financial System Stability Assessment (FSSA) report on Australia, the IMF concludes that RITS complies with all the Core Principles (CPs) for Systemically Important Payment Systems (SIPS) developed by the Committee on Payment and Settlement Systems. The 2009 RBA self-assessment also reaches a similar conclusion. RITS, which has been operational since 1991, was launched as a real time gross settlement system in 1998. The RBA oversees RITS and other payment and securities clearing and settlement systems operating in Australia and its oversight of RITS is deemed robust by the FSSA. The payments system policy and oversight are the responsibility of the Payments System Board (PSB), which resides within the RBA. RITS is judged to be operating on a solid legal basis, with appropriate risk management structures and an effective and transparent governance framework. The IMF's recommendations pertaining to some CPs are made only in order to further enhance the operations of RITS and its regulatory environment. However, the Australian authorities declared their intent to work towards addressing the potential gaps brought up by the FSSA. In fact, the PSB's 2009 Annual Report states that some changes have been subsequently implemented that have made RITS more efficient, cost-effective and user friendly.

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Financial Regulation and Supervision

CPCore Principles for Effective Banking Supervision

In 2007, the International Monetary Fund (IMF) stated that banking supervision in Australia meets very high international standards and that prudential supervision by the Australian Prudential Regulation Authority (APRA), the banking sector supervisor, is well established. The financial crisis also showcased very robust supervision by APRA, which ensured that no major domestic bank failures occurred and no regulatory gaps had to be plugged on an emergency basis. In a 2006 assessment, the IMF concluded that Australia had a high overall level of compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision. Australia was adjudged compliant with 26 of the 30 BCPs (considering that Principle 1 is divided into 6 subsections), largely compliant with 3, and materially non-compliant with 1. The report found Australia materially non-compliant with BCP 15 relating to the monitoring of banks for money laundering activities but acknowledged Australia’s active efforts to close regulatory gaps. A 2010 report by the IMF notes progress in addressing this issue. The Anti-Money Laundering and Counter-Terrorism Financing Act was passed in December 2006 with the aim of addressing many of the weaknesses pointed out in the 2006 IMF assessment. Domestic and international regulatory coordination has also been enhanced. In general, the IMF reports published subsequent to 2006, point to ongoing measures by Australian authorities to meet international standards. Moreover, Australia has moved towards a risk-sensitive and principles-based framework of supervision with the adoption of the Basel II framework in January 2008. Several IMF reports published in 2010, however, advise APRA to make stress tests more rigorous.

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CPObjectives and Principles of Securities Regulation

In 2006 the International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP), and concluded that Australia had a high overall level of compliance with the International Organization of Securities Commissions (IOSCO) Principles. The assessment adds that the Australian Securities and Investments Commission (ASIC) - the securities regulator in Australia - is generally at the forefront of international best practice in supervision and regulation. The areas with less than full compliance include operational independence of the supervisor, disclosure and insolvency regimes, and licensing and regulation of collective investment schemes, where Australia is only broadly compliant; prudential regulation of intermediaries, and regulation of large exposures, defaults and market disruptions, where Australia is partly compliant; and inspection, investigation and surveillance powers of the regulator, where Australia is adjudged non-compliant. A 2008 IMF report notes the progress made by Australia to implement the 2006 FSAP recommendations and reports that funding to the ASIC was increased in the 2007-2008 budget to support better regulation and enhance its supervisory resources and practices, streamline the corporate register, and develop its information technology systems. The report welcomes the continued effort of the Australian authorities to formalize the failure resolution and crisis management framework. Several other laws, ASIC Policy Statements/Regulatory Guides, and auditing standards have been framed or amended after the FSAP that bring Australia closer in line with IOSCO requirements. Beginning August 2009, the ASIC took over market supervision powers from the Australian Securities Exchange and is developing new rules and units to complete the transition.

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CPInsurance Core Principles

According to a detailed assessment by the International Monetary Fund (IMF) in 2006, the insurance regulatory and supervisory regime in Australia highly observes the Insurance Core Principles of 2003. Given the distinct regulatory regimes of the general insurance sector and the life insurance sector, the IMF conducted separate assessments of these sectors and assigned to them different compliance levels for individual principles. Both sectors get high grades from the IMF. Recommendations to further improve Australia's supervisory regime pertain to the supervisory authority of the Australian Prudential Regulation Authority (APRA), the integrated financial sector supervisor; the regulatory role of the Treasury; insurance fraud; and the country's anti-money laundering/combating the financing of terrorism (AML/CFT) framework. However, since then Australia has undertaken substantial reforms in order to incorporate international best practices. Australia has moved towards a risk-sensitive framework of supervision, harmonized prudential standards for the life insurance sector, refined and updated standards for the general insurance sector, tightened disclosure requirements, and enhanced overall supervisory consistency and flexibility. The APRA received additional funding in the 2007-2008 Budget to enhance its staff capacity, and its operational autonomy was also strengthened. The regulator also got new powers to appoint managers during the wind-up of general insurers. A new prudential framework for group-wide supervision by APRA meets International Association of Insurance Supervisors (IAIS) standards. APRA became one of six countries to sign the 2009 IAIS multilateral memorandum of understanding for international cooperation and information sharing. The APRA's crisis management framework was broadened and cross-border coordination in crisis management between the APRA and the New Zealand supervisor was increased.

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Business Indicators

With an overall score of 9.98/12, Australia is at standard on the economic, legal, and political indicators that make up our Business Index. Australia is a market-based economy. The Heritage Foundation's 2010 Index of Economic Freedom found that Australia's total government spending (including consumption and transfer payments) was moderate, equaling 34.2 percent of GDP. The service sector dominates the economy. Exports are led by the agricultural and mining sectors. The manufacturing sector has been in decline for some time, and now constitutes about 10 percent of GDP. The Australian government welcomes foreign investment and recognizes its role in the country’s economic growth. Australia provides incentives for investment and maintains a strong record of property rights protection. The top tax rates for individual and corporate income are relatively high and the differences between the U.S. and Australian tax systems have potential implications for foreign business. Corruption is of no concern for investors, reflected in Australia’s ranking of 8th out of 180 countries in Transparency International’s 2009 Corruption Perceptions Index.

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Global Indices & Quick Facts

Australia is ranked in the 1st quintile in all the global indices benchmarking political, economic, business, and human capital climates, as shown below. Australia is an established democracy and achieves high scores for political and civil rights, although its treatment of the Aboriginal population and immigrants continues to be controversial. Australia scores high on virtually every economic indicator, as well as on the UNDP's Human Development Index. Corruption is perceived to be very low, as indicated by its high ranking in the Transparency International Corruption Perceptions Index.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010
Heritage Foundation Economic Freedom Index 2010 3/179 82.6% 1
Economic Freedom of the World Index 2009 9/141 7.89/10 1
World Economic Forum Global Competitiveness Index 2009 15/133 5.15/7 1
Milken Institute Capital Access Index 2009 9/122 7.26/10 1
World Bank Ease of Doing Business Index 2009 9/183 N/A 1
UNDP Human Development Index 2009 2/177 0.97/1 1
Transparency International Corruption Perceptions Index 2009 8/180 8.7/12 1
Freedom House Index 2009 Free 1/7

Credit Ratings

AA+/Stable Fitch

Aaa/Stable Moody's

AAA/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 755.1 billion USD (IMF)

2009 GDP (Per Capita): 34,974 USD (IMF)

2010 GDP (Growth Forecast): 2% (IMF)


2009 Inflation (CPI): 1.6% (IMF)

2008 Unemployment: 4.2% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 46.8 billion USD (UNCTAD)

FDI (Outward): 35.90 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): 2,669 million USD (OECD)

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