Banks launch campaign in plea for ‘proportionate regulation’

The Customer Owned Banking Association (COBA) has officially launched its #MoreThan4 campaign at Parliament House in Canberra on Wednesday (22 August).

In his address at the campaign launch, COBA CEO Mike Lawrence noted that the initiative is designed to ensure that “regulation of retail banking is proportionate and tightly targeted at regulatory objectives, and does not harm competition”.

“We need a proportionate regulatory regime that recognises there are #MoreThan4 banking providers in the market,” Mr Lawrence said.

The COBA CEO noted that with the release of the financial services royal commission’s interim report due in September, the industry association’s members are “concerned about  future regulatory policy proposals that punish smaller banking institutions for the misconduct of the major banks”.

“A proportionate regulatory regime will boost competition in retail banking, promote innovation and deliver more choice for consumers,” Mr Lawrence said.

“Proportionate regulation will deliver important regulatory objectives, such as consumer protection and banking system stability, but in a more cost-effective, pro-competitive way.”

The campaign’s launch follows the release of a Grant Thornton report commissioned by COBA which made the case that extra regulation in the financial services sector must consider the diversity of the banking sector.

In his address, Mr Lawrence claimed that proportionate regulation would be designed to reflect the “risk, size and complexity of the regulated entity” and would be “tightly targeted at the regulatory objectives”.

The COBA CEO said that he believes that “Australia’s banking market is not as competitive as it could be”, and partly attributed reduced competition to “high regulatory costs on smaller banking institutions”.

“While banking must be strongly regulated, excessive regulatory costs harm competition and consumers ultimately pay the price. Smaller banking institutions are subject to relatively higher regulatory costs due to the high fixed costs of regulatory compliance.”

Mr Lawrence continued: “Keeping a tighter rein on regulatory costs will allow challenger banks, such as customer-owned banking institutions, to grow more rapidly. An expanding customer-owned banking sector is good for consumers because of its unmatched consumer focus and prudent risk culture.

“A more competitive customer-owned banking sector will make major banks think twice about how aggressively they put shareholders ahead of customers.”

Mr Lawrence added that smaller lenders are “not after a free kick”, but he claimed that they are “disproportionately impacted” by a “one-size-fits-all” regulatory approach.

The COBA CEO also made reference to the Productivity Commission’s report, in which it raised concerns over the “little shift in regulatory culture”.

Mr Lawrence went on to propose “regulatory principles”, calling for policymakers to:

• recognise that regulatory costs can affect competition and are ultimately borne by customers
• avoid a one-size-fits-all approach to regulation
• ensure regulation is tightly targeted at a clearly defined problem or regulatory objective and seek to minimise regulatory costs
• recognise the impact of the cumulative regulatory cost burden, particularly on smaller banking institutions, i.e. those with total assets up to $20 billion
• positively consider banking institutions’ size, risk profile and complexity when designing and implementing new regulation
• allow smaller banking institutions at least 12 months extra time to comply with significant new measures
• recognise that for the same regulatory proposal, economies of scale could potentially result in costs outweighing benefits for smaller banks, but the benefits outweighing costs for larger banks
• accommodate different models, such as the customer-owned model, particularly where the model itself can mitigate risks that are otherwise addressed by regulation

Also attending the launch was Heritage Bank CEO Peter Lock, who expressed support for a targeted regulatory regime.

“At Heritage, we strongly believe a proportionate regulatory regime would allow us to grow and deliver even more for customers in our community,” Mr Lock said.

Mr Lock added: “It’s just not fair that on one hand the big banks benefit from their size in a number of ways, such as access to cheaper funds, yet smaller institutions don’t benefit from having a proportionately smaller regulatory burden.

“We encourage our community to support the #MoreThan4 campaign so we can create a regulatory regime that leads to more competition, choice and better outcomes for consumers.

“Proportionate regulation is good policy, and the need for a new approach to regulation is urgent.”

Last week, following the release of MyState’s full-year 2018 financial results, CEO Melos Sulicich also lamented the nature of competition in the banking sector, claiming that larger banks retain an “unfair advantage” from their “too-big-to-fail status”.

Mr Sulicich was satisfied with the bank’s performance over FY18, but said that it was constrained by regulatory conditions, making particular reference to the Australian Prudential Regulation Authority’s macro-prudential measures, which he claimed “undermined” competition.

[Related: Non-majors warn against further blanket regulation]