Apart from the well-publicised levy on liabilities, the Government announced a broad package of measures described as "A more accountable and competitive banking system" in the Federal Budget last night, covering a revised disputes resolution process, heightened executive accountability and remuneration restrictions, increased standards and penalties, open data, ongoing competition inquiries, and another review.
A free, fast and binding "one stop shop" dispute resolution service will be established, to be known as the Australian Financial Complaints Authority (AFCA) for consumers, small businesses and retail investors to resolve all financial disputes, including superannuation, with the banks and other financial institutions.
AFCA will be industry-funded and replace the existing Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. It will hear individual consumer/investor and small business disputes of higher values than are currently permitted under the existing three schemes. AFCA will commence operation from 1 July 2018, although the current services will continue to operate after that date to complete their existing complaints.
ASIC will be provided with stronger powers to oversee AFCA, including a directions power.
Financial institutions will also be required to report to ASIC on internal dispute resolution outcomes.
Banking executive accountability and remuneration regime
All senior executives and directors of ADIs will be required to be registered with APRA. ADIs will have to give APRA accountability maps of senior executives' roles and responsibilities. APRA will be given stronger powers to remove and disqualify senior executives and directors.
A new regime will be introduced to establish expectations on how ADIs and their executives and directors conduct their business, covering matters such integrity, due skill and care, diligence and acting in a prudential manner. If in breach, executives can be deregistered and disqualified from holding executive positions, and be stripped of their bonuses. Civil penalties of up to $200 million will apply for larger ADIs and $50 million for smaller ADIs. It appears this regime will be regulated by APRA.
A proportion of bank executives' variable remuneration will be required to be deferred for a minimum of four years. It will generally be 40%, other than for certain executives, such as CEOs, where it will be 60%.
These changes appear likely to imitate aspects of the senior managers, certification and conduct rules regime and the rules for the remuneration of banking staff introduced by the UK Financial Conduct Authority and UK Prudential Regulation Authority over the past several years.
The Government will implement an open data regime which will give customers access to, and control over, their banking data. It will commission an independent review to recommend the best approach to its implementation, to report by the end of 2017.
The ACCC will be funded to establish a dedicated unit to undertake regular inquiries into specific financial system competition issues.
Productivity Commission review into the financial system's competitiveness
The Productivity Commission will commence a 12 month review on 1 July 2017 of the state of competition in the financial system. The review will be conducted with a view to improving:
- consumer outcomes;
- the productivity and international competitiveness of the financial system and the economy more broadly; and
- supporting ongoing financial system innovation while balancing financial stability objectives.
APRA regulation of non-bank lenders
The Government will provide funding to APRA to allow APRA to exercise new powers in respect of the provision of credit by lenders that are not ADIs. Non-bank lenders include entities such as finance companies.
The broad strokes of the new policies are clear; as usual, the devil will be in the detail. The sector should be getting ready to engage with Government further in relation to these matters.