New measures seek to improve banking competition

The federal government has unveiled a range of measures that aim to make the banking industry more competitive, including allowing ADIs with less than $50 million in capital to call themselves banks, and a range of reviews into banking competition.

On Tuesday, the Hon. Scott Morrison MP, Treasurer of the Commonwealth of Australia, released the federal budget for 2017/18, which highlighted that government wants to “open the door to new banking entrants and new financial products and services”.

According to the Treasurer, by enabling other banks (outside of the major banks) to enter the market, it could “mean more choice and cheaper and better options for consumers”.

As such, the government has revealed that it will undertake a range of measures to “introduce an open banking regime”.

The federal government will now provide $1.2 million in 2017/18 to the Treasury to undertake an “independent review to recommend the best approach to implement the open banking regime in Australia to report by the end of 2017”.

He explained that, if the consumer consents, the regime would “increase access to banking product and consumer data by consumers and third parties”.

Mr Morrison commented: “This will empower consumers to seek out banking products better suited to their needs and create further opportunities for innovative business models in banking that enhance competition.”

More ADIs could call themselves banks

As part of the open banking moves, regulatory “barriers” will be reduced for new entrants to the banking system.

Mr Morrison stated that these “new and innovative” entrants will benefit from a “relaxed” ownership cap (down from 15 per cent), whether through the existing ministerial discretion or legislative change.

The prohibition on the term ‘bank’ by ADIs with less than $50 million in capital will also be lifted by legislation to allow them and other ADIs to “benefit from the reputational advantages of the term”.

The Treasurer said that the federal government was also “supportive” of a phased approach to licensing banks.

Fintech sandbox extension

In a bid to position Australia as a “global fintech centre”, the budget also revealed that government will “legislate to establish an enhanced regulatory sandbox to facilitate more innovation, promote greater competition and increase choice for Australian consumers”.

This will extend the current period businesses are allowed to test new financial products and services without a licence (but subject to meeting minimum consumer protection obligations) from 12 months to 24 months.

Further, the government will remove GST for purchases of digital currency (like Bitcoin) from 1 July and legislate a mandatory comprehensive credit reporting regime (CCR) if credit providers are not reporting at least 40 per cent of their data by the end of 2017.

Mr Morrison said that credit markets would “operate more efficiently and effectively if credit providers have access to sufficient and reliable data about borrowers to inform decisions about who to lend to and on what terms”.

Major bank levy

The major banks are also being asked to pay a new levy in a bid to improve competition. A new six-basis point levy on the five largest banks (with assessed liability of $100 billion or more) will be subject to the levy from 1 July 2017.

Mr Morrison commented: “This represents an additional and fair contribution from our major banks, is similar to measures imposed in other advanced countries, and will even up the playing field for smaller banks.”

He added that “customer deposits of less than $250,000 and additional capital requirements imposed on the banks by regulatory authorities are excluded from their assessed liabilities”.

Further, he noted that, unlike the previous bank deposit tax, the new tax is “specifically not a levy on pensioners’ and others’ ordinary deposit accounts, nor is it on home loans.”

However, the CEOs of several of the big four banks have warned that customers will likely be affected by increasing costs.

This measure aims to bring in $6.2 billion over the budget.

Reviews and inquiries into competition

As well as this, the Productivity Commission (PC) has been tasked to commence a review from 1 July 2017 on the state of competition in the financial system, and it was announced in the budget on Tuesday evening (9 May) that the Australian Competition and Consumer Commission (ACCC) will receive $13.2 million over four years to establish a dedicated unit to undertake regular in-depth inquiries into specific financial system competition issues.

The ACCC will also undertake a residential mortgage pricing inquiry until 30 June 2018. As part of this inquiry, the ACCC will be able to require relevant ADIs to explain changes or proposed changes to residential mortgage pricing, including changes to fees, charges, or interest rates by those ADIs.

Lastly, banks will be held up to greater accountability, with the establishment of a ‘one-stop shop’ for disputes, to be known as the Australian Financial Complaints Authority.

A new Banking Executive Accountability Regime will also be introduced, requiring all senior executives to be registered with APRA. If in breach, they can be deregistered and disqualified from holding executive positions, and be stripped of their significant bonuses.

Banks will also be held to account if they try and hide misconduct by executives with new mandatory reporting requirements.

If banks breach misconduct rules, they will also face bigger fines starting at $50 million for small banks and $200 million for large banks.

Mr Morrison commented: “We want customers and taxpayers to get a fairer deal from our banks.

“For the system to be fairer, there needs to be greater competition and accountability – now.”

He continued: “The introduction of an open banking regime in 2018 will give customers greater access to their own data, empowering them to seek out better and cheaper services.”

[Related: Housing affordability measures announced in budget]

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Annie Kane

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