David Coleman (Banks, Liberal Party) Share this | Link to 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 (second report),together with the minutes of proceedings. I ask leave of the House to make a short statement in connection with the report.

Leave granted.

The second report into Australia's four major banks follows the publication of the committee's first report on 24 November last year. It draws on the March 2017 public hearings held by the committee with the chief executives of the four major banks. The March public hearings provided the committee with an opportunity to scrutinise the banks over their response to the initial 10 recommendations of the committee's November report. The committee also scrutinised the banks on the Carnell report's recommendation on the use of non-monetary default clauses in small business loans.

The committee's second round of hearings has confirmed its view that the recommendations of the first report should be implemented in order to improve the Australian banking sector for the benefit of customers. While the committee is open to some modest variations to the recommendations, it affirms the substance of each of them. I would now like to turn to a number of the recommendations.

Recommendation 1 of the first report proposed the establishment of a one-stop shop where consumers can access redress when they are wronged by a bank. The committee retains its view that one dispute-resolution body should be established to provide straightforward redress for consumers. It is highly preferable to have one body dealing with these matters rather than two or more, as is the case at the moment. The committee believes that the Ramsay review should determine the precise administrative structure of this body—the key point is that it should be a one-stop shop.

Recommendation 2 of the first report calls for a new public-reporting regime to be put in place to hold senior executives much more accountable. Executive accountability is a critical issue and the reality is that banking executives have not been held sufficiently accountable to date. The fact that no senior executive has been terminated for any of the breaches of customer faith that we have seen in recent years is an indictment of the sector. This must be rectified through the establishment of a rigorous executive accountability regime.

Recommendation 3 of the first report proposed that a regulatory team be established to make recommendations on improving competition in the banking sector to the Treasurer every six months. The ANZ agreed with recommendation 3 and noted that 'analysis from a government agency would help demonstrate the nature and level of competition.' The other banks opposed this recommendation, for reasons the committee does not find persuasive. At the moment, there is a significant gap, in that no regulator is charged with the systemic investigation of competition in the banking sector on a day-to-day basis. That should change, and our recommendation would do that. We do need a permanent team focused on systemic competition issues in banking, and we recommend that to the government.

Recommendations 4 and 5 of the first report were all about empowering consumers. Recommendation 4, in particular, proposes that financial services institutions be required to open up access to consumer data by July of next year. What that means is that transaction and other data which is currently held by the banks could with the consent of the customer be provided to competitors of those banks. That is a good thing because it means that competitors of the big four banks will have the opportunity to better understand the nature of that particular customer and make them better offers, increasing competition in the sector. The key point is that that means that an asset which is currently proprietary to the banks—namely, that data—would become non-proprietary, not owned by the banks, in the future. What that means is that the banks are conflicted. When the banks say that they support the opening of that data, that is interesting in theory, but what must occur is that the process of opening up data and the rules around it must be independent of the banks. It should not be what is sometimes described as an industry led model. It should be led by an independent body. This has the potential to be a very substantial economic reform for Australia, because it is taking, in a sense, a latent asset that is sitting within the banks at the moment—namely, a large volume of financial services data—and with the consent of customers putting that into the marketplace so that other offers and deals can be offered. That is very important. The UK is going down this path. We should too.

Another important recommendation relates to barriers to setting up a bank. One of the most striking pieces of information to come out of this inquiry, for me, was the number of new banking licences that had been issued in Australia in the last 10 years for new start-up entities—not credit unions converting into banks but actual new entities. In the last 10 years, the total number of new licences issued is one. There has been one new licence for a bank in Australia in the last 10 years for a local start-up entity. That is reflective of what is, in the community's view, a lack of competition. There are certain rules around the establishment of banks at the moment. One of them is that no person can own more than 15 per cent of an entity that has a banking licence. Another is that a new entity has to have $50 million in the bank before it can loan even one dollar. There are a range of other restrictive rules. We would like to see changes to those rules, to stimulate the formation of new banks in the banking sector. We still have a situation where the big four have about 85 or 90 per cent of the banking market. That is highly concentrated and, given that there is about $450 billion of enterprise value in just those four entities, it seems to the committee that there should be a much greater flourishing of competition. Where regulation stops competition, as it currently does in relation to getting a banking licence, it should be changed, not to in any way risk the important prudential rules in relation to holding a banking license but to get rid of, frankly, unnecessary rules which just have the impact of suppressing competition. That should be changed. The UK has also gone down this path. There have been significant numbers of new banking licences in recent years in the UK and we should adopt something similar here.

Another issue that the committee focused on in the second round of hearings was the Carnell inquiry's recommendation in relation to what is known as non-monetary default. Non-monetary default is basically where you as the borrower have made all your payments to the bank on time—you have done the right thing and paid in full—but, nonetheless, the bank defaults your loan for reasons that are usually beyond your control. You have made all of your payments on time and in full, but, nonetheless, the bank finds you to be in default. For small businesses, this is obviously a very unacceptable and galling situation when they have done the right thing but are still found to be in default. Kate Carnell in her inquiry recommended that this process be stopped for loans of less than $5 million, which would cover about 98 per cent of all small-business loans. The committee, in reviewing this issue and in pressing the bank executives on it, did not find their arguments about why these non-default clauses were necessary persuasive, and the committee recommends that non-monetary default clauses be abolished for loans to small business. If the banks do not do that of their own accord by 1 July this year, our view is that the government should act in that area.

The committee's first report made several important recommendations. The second round of hearings has affirmed the broad thrust of those recommendations. We believe these recommendations should be implemented and we look forward to the government's response.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Link to this | Hansard source

by leave—This is the Standing Committee on Economics' second report of the inquiry into the big four banks. After the first hearing, the Labor members concluded that it was clearer now more than ever that the need for a broader inquiry, beyond the economics committee, remains. The only way to achieve any form of justice for victims of banks and the only way to truly demonstrate what is occurring behind the glossy bank branches and the practices that drive the unethical behaviour in the banking industry is to hold a royal commission. The second hearing involving the bank CEOs allowed each member of the committee, again, just 20 minutes to ask questions, and this is grossly inadequate.

Despite the relatively short time frame between the two House Economics Committee hearings, the banking scandals keep on coming. A collection of the headlines associated with the many scandals that have been occurring in this industry are listed in the Labor members' dissenting report, and they make for sobering reading—from 'NAB accidentally sends 60,000 overseas customers' banking details to wrong email', to 'CBA and NAB admit impropriety in foreign exchange trading'. How about 'Former Westpac banker David St Pierre jailed over $4 million fraud'? The list grows and grows. The structure and culture of the big four banks still promote poor customer outcomes, and this looks unlikely to change without a royal commission exposing many of these issues.

The Sedgwick review's terms of reference, which were set by the banks, focused on pay arrangements for the lower three tiers of retail banking jobs and meant that the Australian Bankers' Association review into retail banking remuneration was prevented from properly scrutinising middle and senior executive pay and bonuses. When the banks were questioned about making their submissions to the Sedgwick review they were very cagey. They initially tried to claim confidentiality in respect of those submissions. Eventually there was some agreement from the banks to provide those submissions but only on an in-confidence basis, and they were with information redacted. However, while some such information has been provided to the committee for review, it was not possible to review all such information prior to the tabling of this report in the parliament. As such, information was provided on a confidential basis, to be reviewed in person only after the parliament last adjourned. The parliament adjourned and then this information was supplied by the banks. It was supplied on the basis that it could not be emailed to committee members and it could not be sent to committee members. Committee members had to come to Canberra to view that confidential information to ensure that it was not taken out of the parliament.

Naturally, none of the committee members on the Labor side wasted taxpayers' dollars in simply flying to Canberra to spend a couple of hours reading documents. The actions of the government members of the committee, in requiring the tabling of this report before the resumption of parliament in May, means that such information may not be reviewed or reported on until late 2017 at the earliest, and is completely antithetical to the purpose of this inquiry, thereby further demonstrating the government's lack of resolve for any proper scrutiny of the banks.

It is notable that the government members of the committee continue to hold to the recommendation for the creation of a banking tribunal. We understand, based on leaks around the budget, that this is going to be confirmed tonight. Some members of the government have many misgivings about this. We will wait and see the details, but if it is simply going to replace FOS and the other tribunals with what will become a legalistic tribunal that locks applicants and customers out of it, then it will not get Labor's support.

As the Labor members recommended after the first hearings, we again urge the government to take responsibility. Stop defending the banks, stop running interference for the banks and stop protecting the banks and doing all you can to avoid a royal commission and the proper scrutiny into this industry that a transparent investigation in the form of a royal commission would achieve. A royal commission into the financial services industry should examine how widespread are the instances of illegal and unethical behaviour within financial services institutions; how Australia's financial services institutions treat their duty of care to their customers; how the culture, ethical standards and business structures of these financial institutions affect their behaviour and their approach to their customers; and whether Australia's regulators are really equipped to identify and prevent illegal and unethical behaviour—one would have to question that, given the number of scandals that have occurred in this industry over the last decade. It should look also at international experiences and how other jurisdictions have dealt with some of the systemic problems in banking, particularly those in the wake of the global financial crisis. Unfortunately, the scandals, rip-offs and scenarios that have played out in the Australian banking industry over the course of the last decade are not peculiar to Australia. We have seen instances in the United Kingdom, with the collapse of banks, with customers being ripped off; the Wells Fargo fiasco in the United States; and, of course, instances in many other European nations.

The structure and culture of the big banks continue to promote poor customer outcomes and look unlikely to change without a royal commission exposing these issues. With the Turnbull government running protection, the true extent of the banks' shonky practices will never see the light of day. The only way to achieve any form of justice for victims of the banks, and the only way to truly shine a light on the practices that drive unethical behaviour in the banking industry, is to hold a royal commission into the banks.

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

I move:

That the House take note of the report.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The debate is adjourned. The resumption of the debate will be made an order of the day for the next sitting.