(Image: Mitchell Squire/Private Media)

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.

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