Recently, supervision of the Banking Code of Practice moved from the Australian Prudential Regulation Authority (APRA) to the Australian Securities and Investments Commission (ASIC), who have initiated a thorough review of the code. This first draft of the new code has many shortcomings, and I asked about these. From their answers, it is clear that ASIC are across the shortcomings in the code and I felt they are serious about making the new code a better document that provides stronger protections for customers. A lot of protests have quite rightly occurred around the closure of bank branches.
The truth is that banks are allowed to do that because the banking code contains no provision requiring the banks to provide face to face banking. Also missing from the new code is a guarantee of access to cash and a guarantee of banking services. Currently banks are de-banking competitors like bullion dealers and crypto exchanges. They are also closing bank branches and ATMs to reduce access to cash which they can’t easily monitor or control.
I was encouraged by the answers from Deputy Chair, Sarah Court of ASIC and I look forward to the next draft of the 2024 Banking Code of Practice. Bank customers deserve better protections than APRA have provided in recent years.
Transcript
Senator ROBERTS: Can I start by confirming our meeting will occur on 19 March on the subject of the security of companies offering bullion storage and sales services in Australia.
Ms Court : That’s right.
Senator ROBERTS: I look forward to that. Total compensation for the ‘fee for no service’ scandal was $4.7 billion. Since those compensation payments, do you believe financial institutions have fixed their systems and this practice is no longer happening?
Mr Longo : I’ll ask Deputy Chair Court to comment on that. I think it’s a truism that systems and processes of the banks are always in need of improvement and enhancement, so one can never be certain that those systems will be fixed forever. We certainly think a lot of progress has been made coming out of the royal commission. I know Deputy Chair Court has done some work in this area as well.
Ms Court : I don’t think I’d ever presume to say that the issues of fees for no service or the compliance and legacy systems of large financial institutions have been completely fixed. I think there’s been progress made. As you say, there have been billions of dollars of remediation. There have also been multimillion-dollar penalties applied by courts in relation to that conduct. We continue to have cases where fees for no service are being alleged, and we are continuing to investigate them and take court action where it’s appropriate.
Senator ROBERTS: That’s pleasing. Do you think the amount of compensation, $4.7 billion, met or exceeded the revenue that was illegally obtained by financial institutions for the ‘fee for no service’ scam?
Ms Court : I think you’d have to ask that question of those institutions. The remediation figure is eye watering.
Senator ROBERTS: I will turn now to the new mandatory Banking Code of Practice that ASIC will consider recommending to the minister. The Australian Banking Association, led by former Labor premier Anna Bligh, has extended coverage to include buy-now pay-later providers by including them in the phrase, ‘Each bank will exercise the care and skill of a diligent and prudent banker.’ Does that phrase provide a quantifiable legal protection to customers, or is it utterly meaningless?
Ms O’Rourke : I’m happy to assist in relation to the banking code. I might just clarify. In your introduction, you referred to it as a mandatory code, and you also referred to it being taken to the minister. Industry codes aren’t mandatory. You’re right that the banking industry has developed one. The approval process is also one that, if chosen by the industry association, comes to ASIC. It’s an ASIC approval process, not a ministerial one.
If I come to your particular question about the terms of the code, the code that exists now commenced in 2018. I think, as you’re alluding to, the Australian Banking Association, who wrote the code, and its members, who signed up to it, have been going through a process of updating the code and have proposed to bring it to ASIC for additional approval—for approval under the statutory scheme. One of the issues that are live in that process is the question of the inclusion of the phrase ‘prudent and diligent banker’, which you’ve called out. In the existing code, the one that exists now that was approved in 2018—and there have been some revisions approved since—that phrase is included. In the proposed code, the draft code that’s been prepared, there’s a question about whether it can come out on the basis that it’s duplicative of the responsible lending obligations that already apply to bankers. So that’s the issue.
As to its progress, I’ll give you some further information. The ABA had done a consultation process to develop the draft code. We now, at ASIC, are doing a consultation process associated with our consideration of approving it because of the importance of these codes to all banking consumers—all Australians. These codes really matter, and making sure that they are suitable in their content and meet the statutory requirements is something we take very seriously. We are undertaking a consultation process. That particular question is one of the ones we’re seeking submissions on and very carefully considering.
Senator ROBERTS: I think I’ll be coming back to that, Ms O’Rourke. I’ll move quickly because the chair’s needing to hurry.
CHAIR: I’m staring at you, Senator Roberts, but thank you for proceeding quickly.
Senator ROBERTS: I raised the fee for no service earlier for a reason. The clause in the proposed Australian Banking Association code, chapter 12, No. 31, used to read that the bank ‘will make sure we have your agreement’ on charging a fee for a new service. That clause has been removed from the new code, meaning the bank does not need to get a customer’s permission before charging them a fee for a new service. If a bank doesn’t get my permission, under the new code can they simply start charging me for services that I did not agree to or may not know I’m being charged for? Are they unwinding your good work on the fee for no service?
Ms O’Rourke : I’m not particularly aware of that proposed deletion. I think I might take on notice any background relevant to that. The general answer is that there are provisions widely in the code that would be relevant to whether fees for no service can be charged, and indeed I think my colleagues have spoken to the important work ASIC has taken to ensure that that sort of activity does not occur.
Senator ROBERTS: Can you show me in the draft code where it provides a guarantee of face-to-face banking services that means access to a bank branch?
Ms O’Rourke : I think that in both the existing code and proposed code the question around branch closures, which is what I think you’re alluding to, is covered by reference to a protocol that exists about the provisions that a bank will consider on decisions as to whether or not it provides banking services in particular communities. It’s not framed, as far as I’m aware, in the way that you’ve framed it: as a right. I can’t point to that, if that’s what you’re seeking.
Senator ROBERTS: Debanking is proving to be a real problem across businesses that are alternatives to the bank system. Banks are debanking bullion dealers, crypto brokers and third-party cash transit companies. Is there anything in this code of practice that guarantees banking services for customers who use cash, bullion or cryptocurrency?
Ms O’Rourke : I’m going to have to take that on notice.
Senator ROBERTS: Is there anything in this draft that guarantees access to the King’s currency—cash?
Ms O’Rourke : Not that I’m aware of, but I’m happy to take it on notice.
Senator ROBERTS: Can you show me where it says something like, ‘We undertake to not terminate your banking services for your political views unless a criminal conviction has resulted,’ or similar? As written, the code gives no protection for a customer who exhibits wrongthink on social media, for instance. This is a problem.
Ms O’Rourke : I think that’s a statement.
CHAIR: Last question, thank you, Senator Roberts.
Senator ROBERTS: Why is the sentence, ‘We will engage with you in a fair, reasonable and ethical manner,’ being replaced with ‘efficient, honest and fair’? Is there no room for ethics in modern banking, and is the term ‘efficiency’ used so that the bank can say it’s not efficient for them?
Ms O’Rourke : I think you’re right to point out that that’s one of the important distinctions between the existing code and the proposed one, and therefore it’s one of the areas that we are consulting on to understand stakeholders’ views on that proposed change. I’m agreeing with you that it’s an important issue for us to explore to understand the basis for the proposed change and what the consequences would be.
Senator ROBERTS: Are you aware that the Consumer Action Law Centre describes the new code as offering no overall improvements in consumer protection? Do you, ASIC, agree with this characterisation, and will ASIC add extra protections yourself before forwarding the code?
Ms O’Rourke : As I referred to, we’re right in the middle of a consultation process which includes listening to stakeholders about their perspectives on the new code. We’re taking careful consideration of all the issues that are raised before we move to the decision point that I described earlier.
Senator ROBERTS: Thank you. I must say that I appreciate the direct and immediate answers.
