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Senate committee pushes for accountability in debanking

The government has been told to develop a complaints process for businesses that have been dumped by their banks, following accusations of anticompetitive behaviour against fintechs.

The Senate select committee on Australia as financial and technology centre has tabled its third and final report, following on from two interim reports published in September 2020 and April this year.

In its final paper, the committee has made 12 recommendations that are mostly centred around cryptocurrency and digital assets, but there is one suggestion pertaining to debanking, when a bank cuts off its services to a customer.

As stated in recommendation 10: “The committee recommends that in order to increase certainty and transparency around debanking, the Australian government develop a clear process for businesses that have been debanked.

“This should be anchored around the Australian Financial Complaints Authority which services licensed entities.”

Committee chair and Liberal senator Andrew Bragg explained that the suggestion is a market solution, targeting the problem with consumer protection laws and the financial complaints ombudsman.

As recorded in the report, industry body FinTech Australia told the committee that debanking “is a considerable issue across the entire fintech market” and that its members had suggested they could be off-boarded often for a “commercially convenient outcome for the bank”.

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A lender had told FinTech Australia that debanking by larger financial institutions was driven by anticompetitive motives.

But when it is experienced by fintechs, debanking tends to be sudden and generally done without explanation. The report stated it is “clear that banks are often debanking clients in these sector without adequate consideration and without clear reasons”.

“More must be done to ensure that the guidelines around debanking are clear and there are avenues of recourse for those who have been treated unfairly,” the paper read.

One of the FinTech Australia’s members was said to have been debanked four times from 2018-20, while 23 members in total had experienced being dumped.

Revolut Australia, which is in the process of seeking a banking licence, indicated it experienced “risk aversion related to FX and remittance activity” from the banks, according to the committee report.

Meanwhile, peer-to-peer bitcoin exchange Bitcoin Babe had told the committee it had encountered debanking and denied access to banking products from 90 banks.

Commenting on the committee’s findings, Mr Bragg called debanking “debilitating”.

“It destroys the ability of Australia’s small business to disrupt and deliver new ideas,” Mr Bragg said.

The ACCC has also previously expressed concerns around debanking and the prospects of anticompetitive conduct against international money transfer suppliers.

The big four have explained to the committee why they might decide to debank businesses, with reasons including risks related to financial crime, commercial considerations, fraud or other convictions; or businesses becoming deregistered.

In July, Westpac confessed to debanking around eight fintechs in the year to May, reasoning that they had operated in higher-risk areas or had higher-risk aspects.

Reflecting on his career as a former NAB, Citi and ANZ executive, Judo chief Joseph Healy told the committee in September that the Australian incumbents have a motive to block competition in the market – to protect their dominance.

“The reality is we have a system that is heavily concentrated and dominated by powerful players who have an ability, if not to stop, to slow down innovation and that’s not good,” he said.

The committee had also considered the policy landscape for neobanks and new banking entrants, reporting APRA’s new process for authorised deposit-taking institution (ADI) licensing is expected to lead to positive outcomes.

[Related: Major bank joins CDR-accredited data recipients]

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