The Upshot of the Review of the Four Major Banks (the Coleman Report)
“A review into the four major banks in Australia (CBA, ANZ, NAB and Westpac) was requested by the treasurer on 13 September 2016. The House of Representatives Standing Committee on Economics (the Committee), chaired by David Coleman MP, issued its First Report on 24 November 2016. This report contained 10 recommendations and these were affirmed in the committee’s Second Report tabled on 21 April 2017.
The reports issued by the Committee are commonly referred to as ‘the Coleman Report’.
The government responded to the recommendations 9 May 2017, agreeing with all but one recommendation.
Central Issues of the Coleman Report
At the heart of this Inquiry was the focus on improving the banking sector for the benefit and protection of consumers. David Coleman in his foreward openly says “Australian’s should be able to trust their bank will act in their best interests when they turn to them for help. It is clear that in some cases this has not happened’. He goes on to say ‘The culture of Australia’s financial sector also needs to be reformed… not enough has been done to force banks’ senior leaders to change their behaviour. When consumers are continually let down, senior executives should go’.
The four major banks are overwhelmingly dominant in Australia’s financial system. According to the Monthly Banking Statistics for September 2016 issued by APRA, as of September 2016 these banks collectively held:
$2.8 trillion in Australian resident assets;
$1.2 trillion in mortgages; and
$570 billion in business loans.
This helps put in to context the extraordinary market power held by these banks – indeed I find it mind boggling to get my head round these figures.
The Inquiry into the four major banks focused on:
External Dispute Resolution (EDR) that exists in the financial sector and why it is not working effectively;
Accountability of senior executives and whether the regulatory system does enough to hold them to account;
Competition in Australia’s banking sector, including barriers to competition;
Internal Dispute Resolution (IDR) and the flaws therein which contribute to poor consumer outcomes; and
Systemic problems that exist in Australia’s wealth management framework.
A summary of the recommendations set out in the Coleman Report are as follows:
The government establish a Banking and Financial Sector Tribunal, which would replace the existing Financial Services Ombudsman (FOS), Credit and Investment Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT).
ASIC require Australian Financial Services Licence (AFSL) holders to publicly report on any significant breaches of their licence obligations within five business days of reporting the incident to ASIC.
ACCC make recommendations to the treasurer every six months to improve competition.
Deposit Product Providers be forced to provide open access to customer and small business data. ASIC to develop a framework to facilitate the sharing of this data. Entities to be required to publish terms and conditions for each of their products in a standardised format.
The government consider whether additional account switching tools are required to improve competition in the banking sector.
The government review the 15 per cent threshold for substantial shareholders in Authorised Deposit-taking Institutions (ADIs) to determine if it poses an undue barrier to entry; APRA to improve transparency of its processes in assessing and granting a banking licence;
The major banks engage an independent third party to undertake a full review of their risk management framework, and to make recommendations to improve how the banks identify and respond to misconduct;
ASIC be given increased power to enable it to collect data to identify institutions that may not be complying with IDR scheme requirements, and to take action where appropriate; and to enable ASIC to determine whether changes are required to its existing IDR scheme requirements; ASIC be required to respond to all allegations of breaches of IDR scheme requirements.
ASIC establish an annual public reporting regime for the wealth management industry, with such reporting to include misconduct, quality of the financial advice industry; and
In instances where financial advisors breach their legal obligations, the AFSL holder must notify all clients of the financial advisor’s breach.
The governments agreed with all the recommendations except recommendation 7.
What does this mean for the banking sector and for consumers?
It is too early to tell.
The government have introduced the Banking Executive Accountability Regime (BEAR), which I touched on in my blog ‘What is Happening in our Banking Sector’ posted on 5 August. BEAR does go some way to implementing some of the agreed recommendations. BEAR is still in the early stages and it will be interesting to see whether all the initiatives outlined will be adopted, and if they are, the impact they will have.
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Tracey Mylecharane - Solicitor
Tracey Mylecharane has more than 12 years experience in legal practice and has been involved in numerous matters with clients who have experienced hardship and difficulty with their banks - this has ranged from simple advice and guidance, to assistance lodging complaints through the ombudsman system, to representing clients in court against banks.