On 9 May 2017, the Federal Treasurer – the Honourable Scott Morrison MP, handed down the 2017-18 Federal Budget. In doing so, the Australian banking sector has been presented with new financial, regulatory and dispute resolution measures.
What you need to know:
Improving dispute resolution
Australian Financial Complaints Authority
- A new Australian Financial Complaints Authority (AFCA) will be created in an effort to ensure access by consumers to free, fast and binding dispute resolution services;
- The one-stop shop will deal with all financial disputes including superannuation and will replace the Financial Ombudsman Service, the Credits and Investments Ombudsman and the Superannuation Complaints Tribunal; and
- ACFA will commence operations from 1 July 2018 with the existing dispute resolution bodies continuing to operate after this time to work through their existing complaints.
Enhanced ASIC oversight
- ASIC will have a general directions power to ensure AFCA complies with legislative and regulatory requirements.
Internal dispute resolution
- The Government will also legislate to require financial firms to report to ASIC on internal dispute resolution outcomes.
Banking executive accountability regime
Registration of senior executives
- Senior executives and directors of all authorised deposit-taking institutions (ADIs) will be required to be registered with APRA (including notification to APRA before senior appointments are made);
- APRA will have greater scrutiny at the time of such appointments and oversight of problems that emerge under a person’s management through accountability maps provided to APRA by the ADI; and
- Where senior executives have been found not to have met expectations they will no longer be able to be registered or employed in senior roles.
Enhanced powers to remove and disqualify
- APRA will have the power to remove and to disqualify senior executives and directors of all APRA regulated institutions (with an appeals process available through the Administrative Appeals Tribunal for review of such decisions).
Increased expectations and penalties
- The new regime will establish expectations on how ADIs and their executives and directors conduct their business covering matters such as conducting business with integrity, due skill, care and diligence and acting in a prudent manner;
- A new civil penalty regime will apply where ADI’s fail to meet these new expectations – with a maximum penalty of $200 million for larger ADIs and $50 million for smaller ADIs; and
- APRA will also be able to impose penalties on ADIs that do not appropriately monitor the suitability of their executives to hold senior positions.
Remuneration
- To prevent bonuses being paid for decisions which may take a long time to materialise and to encourage a focus on long term outcomes, it will be mandated that a minimum of 40 per cent of an ADI executive’s variable remuneration – and 60 per cent for certain executives such as the CEO – be deferred for a minimum period of four years; and
- APRA will also be given stronger powers to require ADIs to review and adjust their remuneration policies when APRA believes such policies are not appropriate.
A new levy on the major banks
- The Government will introduce a levy on major banks with liabilities greater than $100 billion; and
- Ordinary bank deposits and other deposits protected by the Financial Claims Scheme – including those held by everyday Australians – will be excluded from the levy base and it will not be levied on mortgages.
Competition in banking
Open data
- An ‘open banking regime’ will be introduced giving customers access to and control over their banking data increasing consumer choice and improving competition in banking; and
- The Government will commission an independent review to recommend the best approach to implement the open banking regime to report by the end of 2017.
FinTech
Reducing barriers for new banks
- Significant obstacles for new entrants to the banking sector will be addressed including the limitation on closely-held ownership in the Financial Sector (Shareholdings) Act 1998, the prohibition on the use of the word ‘bank’ by certain ADIs and bank licensing;
- The Government has stated that it is supportive of a phased approach to licensing banks and welcomes APRA’s review of prudential licensing arrangements and consideration of such approaches; and
- An enhanced regulatory sandbox will be legislated in order to promote innovation for a wider range of new financial products and services without a licence, including in the areas of financial advice, consumer credit, term deposits or payment products and operating a crowd sourced equity funding intermediary.
Our team
HWL Ebsworth has a national team of financial services and regulatory specialists, who regularly advise businesses on their compliance requirements. If you would like further information on the new measures proposed in the 2017-18 Federal Budget and the potential impacts for your business, please feel free to contact a member of our team.