Extra ASIC funding is helpful, but there’s still a risk
A "banker pays" policy could backfire for customers.
So yesterday the Australian Securities and Investments Commission (ASIC) was given an extra $127.2 million in funding, with almost half of it designated to "enable increased surveillance and enforcement on an ongoing basis in the areas of financial advice, responsible lending, life insurance and breach reporting". In other words, the regulator will have a lot more capacity to investigate and crack down on dodgy behaviour by banks and other financial institutions.
It's easy to be cynical about this development. After all, the extra funding was announced by the same Coalition government which slashed ASIC's budget by a similar amount in the infamous 2014 Federal budget, so in one sense it's just restoring the status quo. As well, there's mounting pressure for a royal commission into banks and the finance sector, and the extra ASIC money looks like an attempt to stave off those requests.
The most noteworthy aspect of the announcement isn't the money itself. It's the planned eventual shift to an "industry funding" model, where the money needed to run ASIC will be sourced from a levy charged to all financial institutions. In other words, the banks have to help fund their own regulator.
While that's a logical approach, and one which ASIC itself has long championed, it does lead to an obvious dilemma: what if the banks decide to try and cover those costs by raising fees for customers or increasing interest rates?
Treasurer Scott Morrison has said that he has made it clear to the banks that this cost could easily be absorbed and shouldn't be passed on, and both NAB and Westpac have said they have no plans to raise rates or fees as a result of the announcement. But there's a big difference between saying that banks shouldn't do something, and introducing legislation which bans them from doing that same thing. In practical terms, if a bank decides to increase its charges, the options for stopping it are likely to be limited.
For consumers, the only recourse if a bank starts charging excessive fees will be to take their business elsewhere. And while there are plenty of choices out there, if every major bank decides to increase its charges, those choices won't necessarily help. It's going to be an interesting one to watch when industry funding kicks in during the 2017-2018 financial year.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.