Bank scrutiny on the rise

By Steven Munchenberg, Chief Executive, Australian Bankers' Association

9 September, 2016: There has been a lot of debate about the merits of a royal commission into banks. The industry acknowledges there have been issues in the past, and banks have programs in place to compensate customers. The industry is also making fundamental changes in response to criticisms and to improve the conduct and culture of banks.

In addition, Australia’s banks are highly regulated and they are now being held accountable in more and more ways.

There is a significant amount of work underway to ensure banks are behaving ethically, acting in customer interests and responding to the changing expectations of the community.

This includes:

1) The Federal Government has increased by $127 million the funding of the Australian Securities and Investments Commission to ensure better behaviours within the financial services industry. ASIC is also being given new powers to intervene in markets and ban entire classes of financial products.

2) The Prime Minister has required the CEOs of major banks to appear before a Parliamentary committee at least once a year to explain pricing decisions and respond to issues of the day.

3) The Government’s Ramsay1 review into external dispute resolution aims to improve the system of dealing with customer complaints. The report will be provided to the Government no later than March 2017.

4) The Government’s Carnell2 review will examine banks’ treatment of certain small business customers, to build on the cases that were heard as part of the Parliamentary Joint Committee inquiry into impaired loans in 2015. The findings will feed into the Ramsay review.

5) Recommended by the Murray3 inquiry, the Government is progressing with reforms to introduce new obligations on product manufacturers to improve consumer protections.

6) The Government is looking into the credit card market to see if consumers would benefit from more competition.

7) Legislation is being introduced to lift the professional, ethical and education standards for financial advisers, after an extensive Government review.

8) The Government is looking at introducing reforms based on the recommendations of the Trowbridge review to improve the life insurance industry.

9) The Productivity Commission is reviewing the efficiency and competitiveness of the superannuation system. A final report is due to the Government by November this year.

10) The banking industry has commissioned former Australian Public Service Commissioner, Stephen Sedgwick, to conduct an independent review of how bank staff, and others who sell and distribute retail banking products, are paid. This will help ensure that when people are rewarded for selling products and services, they are putting customers’ interests first. Interested parties are invited to make a submission by 23 September.

11) Banks have committed to having overarching principles on remuneration and incentives that apply at all levels in a bank, to support good customer outcomes and sound banking practices.

12) An independent review of the Code of Banking Practice is underway. This will look at how bank conduct standards can be improved to better meet customer needs.

13) Banks are establishing a dedicated customer advocate to give more support to people when they have a complaint, issue or problem with a bank. Some banks have already announced their customer advocate.

14) The banking industry is examining how to establish a register to identify employees who have breached the law or code of conduct, so that poor behaviour doesn’t move around the financial services sector.

15) Banks will ensure they have the highest standards of whistleblower protections, so that people feel able to speak out against poor conduct and practices and are not disadvantaged if they do.

16) Banks support the introduction of a mandatory, prospective last resort compensation scheme for consumers of financial products who receive a Financial Ombudsman Service determination in their favour, so they have access to capped compensation where an adviser’s professional indemnity insurance is insufficient or the business is insolvent and unable to meet claims.

Against the backdrop of this ongoing scrutiny on banks and the work the industry is doing to fix issues, a royal commission is unnecessary. It would be a one-off, two (or more) year exercise which produces a report at the expense of millions of dollars of taxpayers money.

Banks have listened and heard that the community wants change – a royal commission would only serve to delay change. We are committed to action now.

1 The Independent Expert Panel is being headed by Professor Ian Ramsay, with Mr Alan Kirkland and Ms Julie Abramson as members.
2 This review is being conducted by the Small Business and Family Enterprise Ombudsman, Ms Kate Carnell.
3 The Financial System Inquiry was chaired by Mr David Murray AO, with Professor Kevin Davis, Mr Craig Dunn, Ms Carolyn Hewson AO, and Dr Brian McNamee AO as members of the panel.

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