Banking industry shares reforms report progress

Peter Terlato 4 May 2017

business review

Bank advocacy group elevating consumer protections.

The peak lobby group for Australia's banking industry released an annual report this week, providing progress updates on initiatives for its ongoing Banking Reform Program, examining the current consumer climate and outlining additional recommendations and desired outcomes.

The Australian Bankers' Association published these advisements in its latest report, How Australia’s banks are making a better banking industry. The analysis is broken down into segments, highlighting the progress of particular recommendations, many of which have already been implemented by banks.

The Banking Reform Program, launched in April 2016, has been working to realise a raft of industry developments and, over the past 12 months, has successfully introduced dedicated customer advocates, set up customer remediation and compensation programs and encouraged a "speak up" environment and culture, plus other measures to protect whistle-blowers.

Industry progress recommendations and updates

Sedgwick Review

In July 2016, the ABA appointed Stephen Sedgwick to conduct an independent review of remuneration processes in retail banking. The review examined the sales culture of Australia's largest banks and how bankers are incentivised to sell, in particular, mortgages, despite not necessarily being the best option.

The banks have supported the final report's recommendations and reforms should be in place by 2020.

Dedicated customer advocates

Twenty banks have already installed customer advocates, including the major banks. They're employed to give customers a voice when things go wrong and to help banks reach fairer outcomes, faster. They also have the power to escalate issues to the CEO if they think the bank is not resolving issues properly.

Ramsay Review

The ABA and banks agreed on a set of design principles to simplify and expand access to external dispute resolutions for individual and small business customers. These include a "one-stop-shop" for customers, allowing complaints and rewards up to the value of $1 million.

Further recommendations have been made to the Ramsay Review and Financial Ombudsman Service.

Whistle-blower protections

New guiding principles to improve protections for whistle-blowers were issued last year to ensure bank policies met the highest standards. Major banks have already implemented these and non-major institutions are in the process of reviewing their programs and will make necessary changes by July 2017.

Removing individuals for poor conduct practices

The report sought to establish an industry register to identify individuals who have breached codes of conduct or laws, aiding employers to make informed recruitment decisions. Financial advice banks have adopted Reference Checking & Information Sharing Protocols for financial advisers from March 2017.

Banks are also finalising new Conduct Background Check Protocols for employees. Some banks and other stakeholders, such as the Finance Sector Union, have raised concerns about these protocols in an effort to ensure employees who have not engaged in any wrongdoing are not unfairly impacted.

Khoury Review

An independent review into the Code of Banking Conduct concluded earlier this year, culminating in banks supporting the vast majority of recommendations and identifying a plan for the redraft of the code.

ASIC secures industry funding

A new ASIC Industry Funding Model has been recommended to generate resources needed to administer consumer law. A "user pays" model means costs of regulation are borne by those entities that have created the need for it. These new financial arrangements will begin from the second half of 2017.

Other recommendations

Banks have expand regulatory guidance on customer remediation programs, from personal advice to all financial advice and products, as part of their wealth management businesses.

The industry supports the establishment of a mandatory, prospective last resort compensation scheme for financial advice. A final report on the expanded terms of reference is due by the end of June 2017.

There are also new protections and improvements for small businesses and regional farmers, support for those experiencing financial hardship or debt, ways to make account switching easier, real-time banking, fee transparency, affordability in banking, fraud protection and bettering the quality of financial advice.

Australia's banks have experienced intense scrutiny in recent months. In February last year, the Australians Securities & Investments Commission (ASIC) expanded unfair contract term protections to include standard form small business contracts. However, despite being given a one-year transition period, some lenders continued to employ incompliant terms, neglecting their responsibilities.

The Small Business Loans Inquiry wrapped in December after extensive consultations with major banks. Representatives from the Commonwealth Bank of Australia (CBA), Westpac Banking Corporation, National Australia Bank (NAB) and ANZ were all questioned and scrutinised regarding their practices, with the goal of providing a set of recommendations pertaining to potential changes to the current system.

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