Politicians winning the battle on bank regulation

According to Steve Weston, banks are arguing that, rather than being necessary, the regulation is merely the result of “politicians looking for votes that are capitalising on society’s poor perception of the financial services industry”. 

Mr Weston, who also spent a number of years in the UK as CEO of mortgages at Barclays, said the current regulatory and political changes taking place in Australia are eerily similar to what has happened in the UK banking sector, albeit three to five years behind. 

He added that the community’s expectations of banks have moved “so far and so fast that the banks themselves can’t keep up”. 

Those expectations are interpreted in the first instance by politicians, who then introduce new rules for banks, Mr Weston told brokers at the Vow Financial commercial conference in Hobart last week. 

Speaking to Mortgage Business, Mr Weston added: “Have a look at how much new regulation is being directly driven by the government. In November 2016, the Standing Committee on Economics chaired by David Coleman made several recommendations following its inquiry into the performance and conduct of Australia’s major banks. Almost all of those recommendations are now being implemented; that’s unusual.” 

Mr Weston said that if the May Budget announcements are considered, "a big chunk of the UK’s regulatory regime was ‘cut and paste’ into Australia’s ­– including a bank levy, reviews into open data and mortgage pricing, initiatives to make it easier for new banks to get licences, and the like. 

“The politicians have stopped talking and are now acting. And potentially the biggest game changer is the introduction of the Banking Executive Accountability Regime, which will hold the most senior bankers responsible for major issues.” 

Earlier this month, Treasury released a 20-page consultation paper on its Banking Executive Accountability Regime (BEAR), giving the industry exactly three weeks to respond.

The new regime, first announced in the May 2017 federal budget, will require bank directors and senior executives to be registered with APRA prior to their appointment.

Executive accountability was first introduced in the UK via the Approved Persons Regime and, from March 2016, by the Senior Managers Regime.

These regimes led to senior managers no longer just needing to be informed about what was happening in their areas of responsibility, but rather becoming individually accountable for it, Mr Weston said.

This move created an "inflection point" in the UK, whereby practices that were once condoned were no longer tolerated.  

“Customers genuinely began being treated as the bank’s primary stakeholder, not in second place behind shareholders,” he said.

Speaking in Hobart last week, Mr Weston noted that the Coalition's major bank levy is similar to the UK levy that was imposed on the big banks (and trebled in size with nine subsequent increases).

While the UK levy will be eased over the next few years (although not removed completely), it is being replaced by an 8 per cent tax surcharge on bank profits. 

“So, while the major Australian banks are feeling the heat from the regulators and politicians, they still have some way to go to being as affected as their UK counterparts,” Mr Weston concluded. 

The big banks have become a popular political target for both sides of government. 

This week, Shadow Treasurer Chris Bowen MP renewed calls for a Royal Commission into the financial sector and said an investigation should also look into the “evolving architecture” of financial and prudential regulation.

[Related: Australia headed down UK path, says Weston]