ANZ breaks rank on banking reform

The standing committee on economics released its second report on Friday as part of its ongoing review into the ANZ, CBA, NAB and Westpac.

The new report comes after a round of public hearings in early March saw the CEOs of the major banks appear in Canberra to discuss 10 recommendations made in the committee’s first report, published in November last year.

Committee chair Mr David Coleman MP said that the second round of hearings had provided a useful forum in which to scrutinise the banks on the November recommendations.

“Each of these recommendations should be implemented,” Mr Coleman said.

“The committee is open to some modest variations to the first report recommendations but affirms the substance of each of them. In particular, it is important that the committee’s recommendations on executive accountability, creating a new focus on competition, and opening up of consumer data are acted upon.”

Mr Coleman said that ANZ had been notably more constructive than the other banks during the hearings.

“Other than ANZ, the banks all argued against the committee’s recommendations to put in place a new executive accountability regime and increase the focus on competition in the banking sector,” Mr Coleman said.

“The reasoning of the banks on these matters was not in any way persuasive and their views should be rejected by the government.”

The committee’s second recommendation states that by 1 July 2017, ASIC requires Australian Financial Services License (AFSL) holders to publicly report on any significant breaches of their licence obligations within five business days of reporting the incident to ASIC, or within five business days of ASIC or another regulatory body identifying the breach.

The committee believes this recommendation is essential to achieving a change in bank culture, and that senior bank executives must take responsibility for failures in their divisions.

“This does not occur now,” the report states. “NAB, CBA and Westpac, under scrutiny, would not agree to this recommendation.”

During the hearings, CBA stated that “we believe it could be a breach of natural justice to ‘name and shame’ individuals before taking adequate time to properly investigate the alleged breaches.”

As an alternative to reporting of specific breaches, Westpac noted that “we report the outcomes for our group executives at the end of the year in a fairly fulsome disclosure in our annual report every year.”

NAB stated that “public reporting may also act as a disincentive to report breaches unless strictly required, or may require a ‘legalistic’ view on what is reported.”

The committee commented: “This argument reflects poorly on NAB as it appears to suggest that the bank believes that its staff may not follow legally binding rules.

“In contrast, the ANZ noted that it largely supported the recommendation and stated: AFSL holders could feasibly issue a public report that includes a description of the breach and how it occurred, the steps taken to ensure it does not reoccur and the senior executive responsible for the relevant business.”

In addition to CEO Shayne Elliott, ANZ was represented at the hearing by Ms Alexis George, group executive for wealth Australia. Ms George was asked specifically how she would react to the possibility of being named in a breach report.

“We have obviously discussed this recommendation, and I am sure it is not something my children would be proud of to have me named and shamed, but I think it is appropriate that this be at the executive level, and I understand why the committee is asking for this,” she replied. “At the management level of shame, we all understand that we need to rebuild trust in the community, and, as a result, as a senior executive responsible for wealth, I am happy to take that.”

Recommendation 3 requires a new focus on banking competition, with the committee requesting that the ACCC, or the proposed Australian Council for Competition Policy, establish a small team to make recommendations to the Treasurer every six months to improve competition in the banking sector.

“NAB, CBA and Westpac all noted that they support measures that encourage competition. However, they stopped short of supporting this recommendation because Recommendation 30 of the Financial Services Inquiry (FSI) proposed that competition in the financial sector be reviewed every three years,” the report noted.

“It is essential that the ACCC establish a small team dedicated to continual monitoring of competition in the banking sector and reporting to the Treasurer every six months.”

ANZ agreed with Recommendation 3, noting that “analysis from a government agency would help demonstrate the nature and level of competition.”

The committee said that it is “highly regrettable” that the other banks do not support this recommendation, given that they argue that competition in the sector is “essentially perfect” at present.

“The intention of the recommendations is to ensure competitive issues in the industry are thoroughly scrutinised and this should be welcomed by the banks,” the committee said.

[Related: ANZ backs public breach reporting]