A review into the banking industry’s code of conduct has criticised the sector for systemically denying legal industries access to banking — including sex workers, gambling, and cryptocurrency traders — as it tried to position itself as the arbiter of moral behaviour.
The banking code of conduct applies to members of the Australian Banking Association (ABA) and is completely self-regulated. The ABA commissioned Mike Callaghan — a former Treasury official and ex-chief of staff to Peter Costello — to undertake the review. His final report, published recently, did not hold back, calling out the fact that all the consumer protections mentioned in the code were essentially optional.
Importantly, he rebuked the banks for what he called “blanket” denial of services seemingly based on the customer’s occupation. He said this was “without understanding the nature of the industry in which the customer operates”.
Callaghan acknowledged that banks can decide who they want as customers on grounds of legitimate concerns, but he recognised submissions asserting that in many cases a bank provides no reason for denying or withdrawing services and does not respond to requests from customers for an explanation.
He cited a submission from Sex Work Law Reform Victoria which said banks deny financial services to sex workers and sex industry businesses on the basis of supposed heightened risk of money laundering and human trafficking, despite little evidence to support this from either Australian Federal Police statistics or Australian Institute of Criminology reports.
Regarding the risk of money laundering, Callaghan noted that AUSTRAC — the government agency responsible for preventing, detecting and responding to criminal abuse of the financial system — specifically discourages the indiscriminate and widespread closure of accounts across entire financial services sectors. He concluded:
Banks should not have a ‘blanket’ denial of banking services on the basis that they are concerned the anti-money laundering provisions may come into play.
A recent statement by AUSTRAC conceded “de-banking” was a complex global problem, but said businesses which might be vulnerable to exploitation by criminals should not automatically have their accounts closed simply to avoid managing risk.
AUSTRAC said the loss or limitation of access to banking services “can have a devastating impact on individuals and their businesses”. The statement said de-banking of entire legitimate and lawful industry sectors leads to businesses being less open with banks and other authorities, which in turn can increase, rather than reduce, the danger of money laundering.
It declared it expected banks and all regulated businesses to adopt a case-by-case approach to managing money laundering risk.
Echoing this, Callaghan recommended:
The code should include a provision that a customer will not be denied banking services, or have an account closed, without the bank first raising it with the customer and giving the customer an opportunity to respond.
Which shouldn’t even need to be stated in today’s customer-centric business environment. He added:
If the banking service is denied, the bank should provide an explanation, where appropriate. Such decisions should be on a case-by-case basis.
He proposed that the independent banking code compliance committee should launch a formal inquiry into the banks’ approach to denying or withdrawing services to assess whether decisions are based on an informed assessment of the customer’s circumstances.
To top it off, the final report’s 116 specific recommendations across a wide range of topics include one nicely nuanced little zinger:
The banking code compliance committee should have the power to require a bank to publish on the bank’s website that it had breached the code, and include the correction action the bank is taking.
We look forward to seeing that eventuate.
Callaghan expressed doubt about whether all the banks had a real commitment to change.
During the conversations with each of the ABA member banks, some saw little need for further changes to the code, particularly if it would require adjustments to their systems.
Needless to say, most of the shocking revelations at the banking royal commission in 2018-2019 were blamed on “systems”.
Callaghan added that some banks gave the impression they were “broadly satisfied” with their compliance with the code, and believed improving their reputation in the community during the pandemic meant “the imperative of continuing to rebuild trust had diminished”.
Given that ASIC has just announced multiple legal actions against Westpac — including “fees for no service” — seemingly only a big bank could think the industry’s current level of public trust is just about good enough.
Recommendations from the code review are, of course, not binding on the banks. Time will tell whether they really intend to mend their wicked ways.
Do you trust the banks? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name if you would like to be considered for publication in Crikey’s Your Say column. We reserve the right to edit for length and clarity.
The question posed in the last three Italicized lines below this article asks (rhetorically, no doubt),
“Do you trust the banks?”
Perhaps that was some sort of attempt at humor? I mean it has been a long year with some people’s tempers fraying at stages along the way because of lockdowns and the threat of illness, etc. Being the end-of-the year we try to lighten up a bit.
To give a serious answer to that rather frivolous question, I would say that banking is far too important an industry to be left in the hands of the robber barons in the private sector. This industry should be nationalized as then Australian Labor Party leader, Ben Chifley wanted to do in 1949. (Back then Labor at least presented itself as an ‘opposition’ in stark contrast to the situation today.) The fact that Chifley lost the election that year, most likely because of that issue, does not detract in the slightest from the legitimacy of that goal. Trying to ‘reform’ the private banking industry is akin to trying to reform the Mafia.
This is a theme that runs across a whole lot of industries, such as social media – the question of regulation and definition of such services as “networks” or “intermediaries” that sits above commercial decisions.
While I’m sceptical of nationalisation (mainly from risk of China style misallocation of resources), some sort of “right to banking” could be formally legislated.
Thanks for your reply Bizzy.
My experience as a private bank officer in my youth, some 50 or so years ago tells me that properly managed government owned banks are a very viable proposition. The argument that government owned enterprises are ‘inefficient’ and not productive, etc. is self-serving propaganda spread by people and organizations that want to produce profits for the rich rather than provide services for the community.
While I agree with some of what you have said, Banking has changed a lot from what you experienced back in the day both in terms of the market itself, technology change and the level of competition. Today’s Banking environment is vastly different. Back then Products and Services were far more limited than today and Home Loan customers subsidised virtually all other non-business services in Retail Banks.
There is an argument for a Government Postal Savings Bank however most, if not all, banks have introduced free Transaction Accounts to cater for day to day needs and they can easily transact at either Australia Post or ATM’s. Transactions are nothing but an expense and are a cost of doing business. As we move away from cash to fully electronic and online banking and payments, the need for physical points of retail representation reduces every year.
From a Technology perspective, Government run anything is far more costly and inefficient than the Private Sector IME.
Do I trust the Banks to Self-Regulate? No. But then I don’t trust any industry to regulate itself.
Not sure what you mean by “misallocation of resources”? The majority of Banks in China are Private not Government owned.
Surely ‘crisis management’ is a euphemism for commercial flak?
Obfuscation-R-Us.
No, crisis management is not a euphemism for commercial flak. And responsible crisis management is certainly not about obfuscation. It is about legitimately protecting an organisation’s assets and reputation. Interestingly the critics are often among the first to complain when crises are not well managed. Look no further than the COVID pandemic, or Rio Tinto’s Juukan cave crisis. Why didnt the government manage it better? Why didnt Rio have a response plan in place? It’s so easy to idly depict public relations/crisis management as self-serving spin. But its not so easy to suggest a better way for organisations to manage impact and communicate in a meaningful way with stakeholders.
Thanks for confirming my point – “…protecting an organisation’s assets and reputation.”
Never mind massaging/managing adverse public response, how about NOT DOING EVIL in the first instance?
If might even be more profitable coz the mopping up exercises would be unnecessary.
An honest Banker ?. I’d like to see that
Codes and regulations are a joke. Banking is a government-protected scam*. But what’s the alternative?
*one of many.