David Coleman (Banks, Liberal Party) Share this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's report, incorporating dissenting reports, entitled Review of the four major banks: first report, together with the minutes of proceedings and evidence received by the committee.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—I am pleased to present the first report of the House Standing Committee on Economics as part of its review into the major banks.

In September, the Treasurer referred this inquiry to the committee, asking us to review the operations of the major banks. In October, we held public hearings with the chief executives of the banks over three days in Canberra. We now present our first report.

Banking regulation should have two key goals: promoting financial stability and achieving strong outcomes for consumers. Financial stability is critical—but so is ensuring that consumers get a fair deal.

Due to Australia's strong regulatory framework and the banking sector's management of financial risk, no Australian bank regulated by the Australian Prudential Regulation Authority has failed. We need only consider the economic impact of bank failures in other nations to understand the importance of a stable banking system.

However, while Australia's major banks have remained financially strong, they have let Australians down too frequently in too many other ways. There have been too many failures and too many scandals. In this report we focus on practical, concrete recommendations that will give consumers better outcomes from the banking system.

The committee makes 10 recommendations in this report. Each is designed to make the banking system work more effectively for the Australian community.

First, we should establish a banking tribunal. A banking tribunal will be a one-stop shop that allows individuals and small businesses to gain recompense when they are wronged by a bank. The current system does not provide consumers with a simple means of redress, often leading to individuals having to pursue banks through the courts. This must change. A banking tribunal will provide practical relief to people with legitimate cases against banks. We should establish a banking tribunal, and it should be in place by July next year.

Second, we need to shine a bright and public light on senior executives when banks breach the trust of consumers. The inquiry hearings and the written answers to the committee's questions provided by the banks made it clear that senior executives are not suffering the consequences of poor consumer treatment. Simply put, when customers are continually let down, bank executives should be fired. This is not occurring at present. The committee recommends that banks are required to publicly name senior executives who are responsible for divisions that breach bank licence conditions, and also publicly state the consequences for those executives. Breach reports are not currently made public: they should be, and the responsible senior executives should be named, along with the personal consequences for those executives. If a senior executive is not terminated following a breach of a licence condition, the bank should be required to justify this decision. In the committee's view this reporting regime is likely to lead to a substantial change in the level of focus of senior executives on these matters, to the substantial benefit of consumers.

Thirdly, the committee recommends that ongoing monitoring of competition in the banking sector be introduced. In the committee's view, it is remarkable that no entity is currently focused on making recommendations to government about how to improve competition in the banking sector. This is particularly the case given the fact that the chairmen of both the ACCC and ASIC have stated that there are clear problems with competition in the banking sector. While the ACCC looks for breaches of competition law, it acknowledged to our committee that it does not monitor the banking sector to address systemic competition issues. Effectively, the ACCC says, 'There is a systemic problem with competition in the banking sector, but we are not doing anything about it.' This must change. The committee recommends that the ACCC, or the proposed Australian Council for Competition Policy, be required to continually monitor competition in the banking sector, and provide recommendations to the Treasurer on regulatory measures to improve competition every six months. While the upcoming Productivity Commission review into financial sector competition is welcome, it is critical in the committee's view that a permanent, ongoing function is established in this area.

Fourthly, we need to force banks to open up access to data to give consumers more power. Through access to their own customer data using open APIs, consumers will be able to get better deals from banks. Banks and smaller financial services providers will be on an equal footing in offering products to consumers, as they will be able to look at the same data. This means more and better competition in the provision of banking services. Banks should be forced to open up access to data by July 2018. This process must be backed by the force of law, with substantial penalties for noncompliance. While the banks say that they are open to allowing open access to consumer data, this process is unlikely to be positive for their business models, as it will make public data which is currently proprietary to them. As a consequence, the regulator must be vigilant in ensuring the compliance of banks with this process. Motherhood statements about supporting open data are meaningless—what is required is open APIs by July 2018. The UK are already on this path—we must join them.

Our fifth recommendation is that the government monitor the impact of the New Payments Platform over 2017, and if necessary introduce further measures to make it easier for consumers to switch accounts. The current government account-switching service is an abject failure, as indicated by evidence provided to our committee about the tiny numbers of people who are using it. The committee is optimistic that the combination of the New Payments Platform and open data will have a substantial positive impact on the ability of consumers to easily switch accounts. However, government should assess the situation after the introduction of the national payments platform to see if more needs to be done.

Our sixth recommendation is about making it easier for Australian start-ups to get into the banking sector. More bank start-ups means more competition, and better deals for consumers. During our inquiry, the committee became aware of a troubling fact: in the last decade, only one Australian entity has obtained a licence to become a bank. While some subsidiaries of foreign banks have been licensed, our local start-up sector in banking is effectively non-existent. This is deeply concerning. While some of the reasons for this relate to commercial matters, the committee believes that it is probable that regulatory matters play a role also. APRA has done an outstanding job in protecting the stability of the Australian banking sector. But it is impossible to say that our regulatory system has encouraged domestic competitors to enter the banking market: it has not. The committee believes that APRA's rules related to the establishment of a new bank may be unduly restrictive, and should be thoroughly reviewed by government. Rules such as the requirement that no one entity owns 15 per cent of a bank may be having the impact of stopping new start-ups from setting up, as typically one investor will own more than 15 per cent of an early stage company. In addition, the committee believes that APRA should improve the transparency of its processes in assessing banking licence applications.

The committee's seventh and eighth recommendations relate to putting more steel into internal bank processes that are meant to protect consumers. There are two main ways in which banks should protect consumers before a dispute becomes public: firstly, they should have good internal risk management systems, so that problems are identified before they hurt customers; and, secondly, they should have good internal dispute resolution processes, so that when a dispute does arise, customers get a fair and speedy outcome.

It is very clear from the many examples of serious problems affecting bank customers that both risk management and internal dispute resolution processes are not working as they should. To address this, the committee recommends two actions. Firstly, banks should be required to commission a full, independent external review of their risk management systems. These reviews should be completed by July 2017, with the reports provided to ASIC. ASIC should then monitor the implementation of the recommendations of these reviews. Better risk management will mean less problems for customers.

The rules related to internal risk management processes are clearly flawed in the committee's view. At present, there are broad principles provided by ASIC about how internal dispute resolution processes should be run by banks. But ASIC does not have any power to find out how banks are actually running their internal dispute resolution schemes. So nobody is really clear on what the banks are doing in this important area. What we do know is that these schemes are far from perfect, given the number of matters that are not resolved by internal processes, and end up in the courts or other bodies. In the committee's view it is clear that ASIC should be given the power to require the banks to report to it on what they are doing in their internal dispute resolution schemes. This increased scrutiny should mean more rigorous internal processes at banks, and better outcomes for consumers.

Our ninth and 10th recommendations relate to wealth management. One of the notable features of the inquiry was the high proportion of customer issues within the banks that relate to wealth management. All of the banks have poorly treated substantial numbers of customers in wealth management. This is completely unacceptable. To help address this issue, the committee recommends that ASIC publish an annual public report on the wealth management industry, which details misconduct and names the companies and individuals involved. The report should also contain details of the consequences for those companies and individuals. At present, these matters are not made public, and public scrutiny is likely to lead to better behaviour by banks.

The committee's 10th and final recommendation is that whenever a financial advisor has breached their legal obligations, their employer is required to inform that advisor's clients. This often does not occur at present. In the committee's view it is clear that clients should have a right to know when their advisor has been guilty of misconduct.

The recommendations contained in this report will substantially improve the banking sector if implemented. Banks must be much more accountable to consumers than they are today, and these recommendations will achieve that goal.

This first report will be added to in the future. The committee has an ongoing mandate to review the banking sector, and will continue to work on the issues in this report and other matters. To that end, the committee expects to hold further public hearings with the major bank chief executives in the first quarter of next year, soon after its next public hearing with the Reserve Bank on 24 February.

I would like to thank the committee, and the committee secretariat led by Stephen Boyd, for all of their work on this report.

The recommendations contained in this report will substantially benefit bank customers if implemented. The committee looks forward to the government's response to these recommendations.

I commend the report to the House.

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