CFR calls for ‘more transparency’ in de-banking

Find the CFR’s Policy Responses to De-banking in Australia Report here

The West Australian reports that the CFR is calling for ‘more transparency’ in de-banking.

West Aus: Australian banks would be required to collect data on customers they refuse to provide services to amid concern their processes around “de-banking” are not transparent enough.

De-banking — when commercial customers in industries deemed to be high-risk are refused services, or they are withdrawn — often affects players in cryptocurrency and financial technology and refers to transaction accounts rather than credit or complex banking products.

The Council of Financial Regulators has also recommended banks introduce consistent transparency and fairness measures to allow de-banked customers to know more of the decisions.

Releasing recommendations from the Council of Financial Regulators on the issue on Monday, Treasurer Jim Chalmers said de-banking could have a “devastating impact on businesses and individuals”.

“It can also put a handbrake on competition and innovation in emerging sectors of the economy,” Dr Chalmers said.

The council — the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Treasury department — noted few countries had adequately addressed the issue, which was global in nature and was driven by anti-money laundering and counter-terrorism financing crackdowns.

“The systematic de-banking of legitimate businesses across entire sectors can have significant impacts on affected businesses and increase their risk profile by forcing them to operate outside of the legal framework and conduct transactions exclusively in cash,” the recommendations stated.

Banks’ corporate and social responsibilities must not outweigh commercial considerations, and needed to use appropriate risk management procedures rather than increase the risk of some businesses operating outside the formal economy, it said.

The council said “persuasive” anecdotal evidence suggested de-banking was continuing but the lack of data from banks made it difficult to create policies to address the issue.

It wants the banks to collect that data and report to Treasury, as well as look to boost their transparency by documenting reasons for customers being de-banked, and they are provided to the customer. Banks would also have to give access to internal dispute resolution mechanisms and at least 30 days notice that they are to be de-banked.

The council has also called for greater resources for Treasury and Austrac, the agency in charge of preventing abuse of the financial system, to aid the work.

Banks had requested more guidance on anti-money laundering and counter-terrorism financing expectations in relation to high-risk customers, which is expected later this year.

Three of the big four banks have undertaken enforceable undertakings or fines with Austrac over their compliance under the laws, most recently National Australia Bank in May.

“The Government is committed to promoting innovation and competition in the financial services sector and will continue to work with affected customers,” Dr Chalmers said.

APRAASICCFRCouncil of Financial RegulatorsDe-bankingRBATreasury