FactCheck: do bank profits ‘belong to everyday Australians’?

From The Conversation.

Following mounting pressure from Labor and some National Party MPs, the Turnbull government in December established a Royal Commission into misconduct in the banking, superannuation and financial services industry. Public hearings are now underway.

At the same time, the Australian Bankers’ Association (ABA) has been running a national advertising campaign in which bank branch staff talk about who benefits from bank profits.

The advertisements – broadcast on national television, published in newspapers, shared on social media and displayed on ATMs – state that “nearly 80% of all bank profits go straight back to shareholders and the majority of those shareholders are everyday Australians who own bank shares through their super funds”.

The ABA says bank profits “don’t belong to the banks, they belong to everyday Australians like you”.

Is that right?

Checking the source

The Conversation contacted the Australian Bankers’ Association requesting sources and comment, but did not receive a response.

On the “Australian Banks Belong To You” campaign website, the association cites these references:

The “nearly 80%” figure refers to the dividend payout ratio of the 8 key Australian retail banks averaged over 2016 and 2017. The data are sourced from bank annual reports. The dividend payout ratio is calculated as the sum of the dividends paid divided by the sum of cash earnings.

According to the ATO more than 14.8 million Australians have at least one superannuation fund account (around 40% have more than one). It’s safe to say that many super funds invest in Australian bank shares as part of their portfolio.

This means that millions of Australians own bank shares.

Verdict

The Australian Bankers’ Association claimed that “nearly 80% of all Australian bank profits go straight back to shareholders”. While we can’t say whether that’s correct for all Australian banks, the statement is broadly correct for Australia’s eight largest retail ABA member banks over the last five years.

The association’s claim that “the majority of those shareholders are everyday Australians who own bank shares through their super funds” is reasonable.

But if you read those statements together as meaning 80% of profits go to Australian shareholders, that would be incorrect. That’s because a proportion of dividend payouts go to non-resident shareholders.

For example, if a dividend was paid on 31 December 2017 by Australia’s ‘Big Four’ banks, non-resident investors would have received between 21.21% and 26.5% of any dividends declared – meaning Australian investors would have received closer to 60% of profits.


Do ‘nearly 80% of bank profits go straight back to shareholders’?

The Australian Bankers’ Association (ABA) is an advocacy group representing the interests of the Australian banking industry. The ABA has 24 member banks, but the claim about what percentage of profits are paid to shareholders doesn’t cover all of its 24 members.

On the “Australian Banks Belong To You” campaign website, the ABA said it based its “nearly 80%” claim on “the dividend payout ratio of the eight key Australian retail banks averaged over 2016 and 2017”, with the numbers sourced from bank annual reports.

Dividends are cash payments that listed companies make to their shareholders. The cash payments are often made regularly. The “dividend payout ratio” is the sum of the dividends paid to shareholders in a year, divided by the sum of the cash earnings the company made.

In other words, the dividend payout ratio is the portion of corporate profits that are paid directly back to shareholders. Companies retain the rest of profits, usually to finance future growth.

While the ABA didn’t name the banks it based its claim on, the eight largest retail banks in the ABA are the Commonwealth Bank, National Australia Bank, ANZ, Westpac, Bank of Queensland, Bendigo Bank, Suncorp and Macquarie Bank.

If we look at dividend payout ratios for those eight banks since 2013, we can see that the overall average payout has consistently hovered around 80% for the past five years.

The same is true of the average payout of the ‘Big Four’ Australian banks – Commonwealth Bank, Westpac, ANZ and National Australia Bank.

In 2012, an outlying dividend payout caused the average dividend payout to appear abnormally high. In the preceding five-year period from 2007 to 2011 payout ratios were lower, as you can see in the chart below.

Do profits ‘belong to everyday Australians’?

The ABA claimed that of those bank profit distributions, the “majority” go to Australians, including “millions of everyday Australians who own bank shares through their super funds”.

The ABA did not define what it meant by “everyday Australians”. In justifying its claim, the ABA correctly cited Australian Tax Office data that shows that as of June 30, 2016, more than 14.8 million Australians had at least one superannuation fund account.

On its website, the ABA stated it’s “safe to say that many super funds invest in Australian bank shares as part of their portfolio”.

Superannuation funds do typically hold a balanced portfolio that represents the major members of the Australian Stock Exchange (ASX). A typical superannuation portfolio might invest in bonds, and in a portfolio of the largest 200 stocks on the ASX, which would include the major banks. This can be subject to individuals’ investment preferences.

For example, say the fund invests in the largest 200 companies on the ASX, and invests in proportion to the companies’ size (that is – the largest companies get the largest investment). Then, the big four banks would be four of the five largest investments.

Obviously, not all superannuation accounts invest in bank stocks, and portfolios can be structured in different ways. For example, some superannuation funds allow their members to invest only in bonds, and people with self managed superannuation funds choose their own investments.

Some wealthy shareholders, and overseas shareholders, also benefit from holding Australian bank shares. As with all companies, shareholders benefit in proportion to their shareholding. Listed banks have no say over whether wealthy Australians, or overseas buyers, purchase their shares.

But it is fair to say that “millions of everyday Australians who own bank shares through their super funds” benefit from dividend payouts. – Mark Humpherey-Jenner

Blind review

The Australian Banking Association claimed that nearly 80% of all Australian bank profits go back to shareholders, and that the majority of those shareholders are everyday Australians who own bank shares through their super funds.

Those claims are valid when read independently, as set out above. But they should not be read together as indicating that nearly 80% of profits go to Australian shareholders.

The proportion of dividends that go back to Australians, either directly or through their investment portfolios, would be less than 80% of bank profits.

Reviewing the investor profiles of ANZ, CBA, NAB and Westpac shows that on December 31, 2017, Australian investment ranged from 73.5% to 78.79% across the big four banks, and institutional investment, which includes superannuation funds and other financial institutions, represented slightly under half of investors.

The high representation of domestic institutional holdings demonstrates the significance of bank shares in most investment portfolios, including superannuation funds.

Foreign ownership of Australian banks. NAB presents the data in a different way to the other banks. Author provided based on reports from ANZ, CBA, NAB, Westpac

So if a dividend had been paid on 31 December 2017 for Australia’s ‘Big Four’ banks, non-resident investors would have received between 21.21% and 26.5% of that dividend declared, meaning Australian investors would have received closer to 60% of profits. – Helen Hodgson

Author: Mark Humphery-Jenner, Associate Professor of Finance, UNSW; Reviewer, Helen Hodgson, Associate Professor, Curtin Law School and Curtin Business School, Curtin University

 

Open Banking Report Paves The Way For Competitive, Customer Centric Services

Treasurer Morrison has release the report by King & Wood Mallesons partner Scott Farrell today in to open banking which aims to give consumers greater access to, and control over, their data. It mirrors recent UK developments, and is another nail in the competitive advantage the large players currently have.  Later the scheme could be widened to other industry sectors, such as energy or telecommunications.

This “open banking” regime mean that customers, including small businesses, can opt to instruct their bank to send data to a competitor, so it can be used to price or offer an alternative product or service.

The report recommends that the open banking regime should apply to all banks, though with the major banks to join it first. For non-banks and fintechs, the report wants a “graduated, risk-based accreditation standard”. Superannuation funds and insurers are not included for now.

In fact, all authorised deposit-taking institutions (ADIs) will automatically be accredited to receive data.

There are exclusions. For example, value added data which is created by banks as a result of their analysis will not be included in the regime. Know your customer data though should be sharable. De-identified aggregate data would not be sharable.

Data provided under the regime will initially be “read only”, but the successful adoption of open banking “could also lead to ‘write access’ reforms” in the future. The following products are called out as in scope.

Transfer of data should be made free of charge, the report says.

Safeguards will be important, including under the Privacy Act, and a customer’s consent under Open Banking must be explicit, fully informed and able to be permitted or constrained according to the customer’s instructions. Joint accounts will need some special considerations in terms of authority, and advice.

An appropriate data standard will need to be agreed, and a clear and comprehensive framework for the allocation of liability between participants in Open Banking should be implemented. This framework should make it clear that participants in Open Banking are liable for their own conduct, but not the conduct of other participants. To the extent possible, the liability framework should be consistent with existing legal frameworks to ensure that there is no uncertainty about the rights of customers or liability of data holders.

In terms of implementation, data holders should be required to allow customers to share information with eligible parties via a dedicated application programming interface, not screen scraping.
The starting point for the Standards for the data transfer mechanism should be the UK Open Banking technical specification.

A period of approximately 12 months between the announcement of a final Government decision on Open Banking and the Commencement Date should be allowed for implementation. From theCommencement Date, the four major Australian banks should be obliged tocomply with a direction to share data under Open Banking. The remaining AuthorisedDeposit-taking Institutions should be obliged to share data from 12 months after the
Commencement Date, unless the ACCC determines that a later date is more appropriate.

The ACCC as lead regulator should coordinate the development and implementation of a timely consumer education programme for Open Banking. Participants, industry groups and consumer advocacy groups should lead and participate, as appropriate, in consumer awareness and education activities.

The ABA welcomed the report:

Banks are excited to enter the Open Banking age that will spark new innovations and deliver cutting edge products, with customers the big winner.

The Farrell Report into Open Banking released by the Treasurer today recognises both the opportunities and challenges that data sharing will bring. While the Australian Bankers’ Association has some concerns surrounding the implementation, the report lays out a broadly sensible path to Open Banking. Mr Farrell’s report should be commended for its focus on customers and its commitment to work with stakeholders to design a safe and secure data sharing framework.

Giving customers greater access to their own data will boost choice in banking and further simplify the application process for a financial product.

Australians have one of the most innovative and technologically advanced banking systems in the world. Examples of this is 24-hour banking, payWave and the soon to be launched PayID and New Payments Platform.

As the Productivity Commission affirmed this week, Australian banks are at the forefront of global innovation which has delivered a superior customer experience. Investments in how banks use data are already leading to new innovations that are improving the customer experience and this is set to continue under Open Banking.

A reform as large as Open Banking must be carefully considered and properly implemented.

Research shows that Australians trust their banks with personal information, more than online retailers, social media companies and even governments. It’s important that banks maintain this trust and ensure that the open data reforms don’t place personal information at risk.

Banks will continue to work with stakeholders like consumer groups, FinTech’s, regulators and government to get this right so it is a good model for all industries and customers are protected.

The ABA looks forward to carefully analysing Mr Farrell’s report and working with members and stakeholders to address any challenges to ensure its success. Banks would also like to thank Mr Farrell for his thorough and thoughtful inquiry

There’s no evidence behind the strategies banks are using to police behaviour and pay

From The Conversation.

APRA’s investigation into the Commonwealth Bank’s culture is starting to look at how it compensates employees, and whether that incentivises bad behaviour. In fact, my research has shown that cash bonuses are at least partly responsible for the scandals plaguing the financial services industry.

But there isn’t good evidence either to support the banks’ alternative – balanced scorecards. This is a system organisations use to set and track their goals. Companies first set out a series of strategies to achieve their objectives, then create criteria (linked to individual team members) to track progress and give feedback.

If anything, research suggests that balanced scorecards don’t work. Many of the criteria are subjective and therefore can be gamed. And the few objective metrics that are included in the scorecard often face the same issues as cash bonuses – incentivising employees to increase short-term profits.

Financial institutions previously gave employees incentives by linking their bonuses to profits and sales. This created an unhealthy fixation on short-term profits and a lack of concern for the longer-term consequences.

Under these schemes, an employee is incentivised to increase short-term profits, even if this may mean selling products that are unsuitable for customers. In the short term this leads to higher profits (and bonuses), but eventually customers figure out they’ve been mistreated. The result is often a loss of reputation and customers, legal costs, customer remediation programs and fines.

To counter this problem, many financial institutions have introduced the balanced scorecard as a method for measuring staff performance and, ultimately, deciding who receives a bonus.

The idea is that by considering a range of performance criteria, not just profits and sales, employees will become less focused on these short-term financial measures. This will, in turn, reduce misconduct.

Implementing balanced scorecards was one of the key recommendations of last year’s Sedgwick Report. The Australian Bankers’ Association sponsored the report.

But even though the balanced scorecard is considered best practice by many in the industry, there is little research to support its adoption.

The research on balanced scorecards

A recent study by Danish researchers reviewed 117 empirical papers on the balanced scorecard that were published in leading academic journals. They found that much of the research has been done on small and medium-sized firms, and that there were design problems in many of the other papers. Therefore, there is too little evidence to conclude whether the balanced scorecards are successful or not.

When balanced scorecards are implemented in financial institutions, they typically include subjective criteria. For example, one criterion could be that an employee’s “behaviour is consistent with organisational values”. A manager would be required to apply a rating to this criterion.

But there is a lot of doubt as to how credible and consistent these ratings really are.

There’s also nothing to definitely discourage bad behaviour (especially in the short term) when criteria include subjective ratings. Due to the large amount of discretion in applying them, managers may give a high rating to staff who are top performers in sales/profits despite poor behaviour.

When scorecards include both subjective and objective measures (which often include sales and profits), staff will tend to focus on the objective criteria. In other words, the balance in the balanced scorecard goes out the window.

The last thing to consider is that behaviour is influenced not just by bonuses, but also the possibility of promotion. If staff see that those who produce high profits are promoted, regardless of the short-term incentive structure applied, they will draw their own conclusions about how best to climb the corporate ladder.

That is why the promotion of Matt Comyn to CEO of the Commonwealth Bank sends a dangerous message.

Author: Elizabeth Sheedy, Associate Professor – Financial Risk Management, Macquarie University

Which Banks Are Changing Broker Commissions Fastest?

From Mortgage Professional Australia.

The latest update on bank reform has revealed the slow and varying progress made by banks in changing broker commissions.

Ian McPhee’s report, commissioned by, but independent of the Australian Bankers Association, asked banks how far they had implemented the Sedgwick Review’s recommendations. Stephen Sedgwick called for an end to volume-based incentives and for banks to ensure remuneration was not directly linked to loan size.

Macquarie Bank, My State Bank, and Bank Australia were amongst the furthest ahead banks, with ‘substantial alignment’ of their broker remuneration to Sedgwick’s recommendation. Only Qudos Bank was fully aligned with the recommendations.

Conversely, Commonwealth Bank’s broker remuneration and governance arrangements were ‘not aligned – planning and/or some implementation progressed’. Work on reforming remuneration had not started at Bank of Queensland, and work reforming governance had not begun at Bank of Sydney.

Of the other majors, ANZ, NAB, and Westpac reported partial implementation of Sedgwick’s reforms.

An imperfect scorecard

McPhee himself notes that “it is not appropriate to draw early conclusions on the status of individual banks’ implementation programs.”

For a start, banks self-reported their own progress with minimal oversight from McPhee. Furthermore, banks’ reporting cycles vary; a bank that reports at the end of the financial year may appear further advanced than a bank that reports at the end of the calendar year, for instance.

According to McPhee “the Sedgwick Review recommendations relating to banks’ arrangements with third parties are least progressed, with a number of banks reporting that they are still in the planning phases. This reflects the time taken to establish the Combined Industry Forum and agree industry-wide responses.”

The Combined Industry Forum set out its changes to remuneration in December.

Trust In Banks May Be Improving, But Its Still Below Average In Australia

The ABA released new research today – The Edelman Intelligence research conducted late last year which tracks community trust and confidence in banks. Whilst progress may being made, the research shows Australian banks are behind the global benchmark in terms of trust.

The ABA, of course accentuates the positive!

Based on the Annual Edelman Trust Barometer study released in January 2017, Australia remains 4 points behind the global average. Hence, while there is more work to be done to increase trust in the sector, Australians acknowledge that the banking industry is a well-regulated industry that is more stable than many of its international counterparts in Europe. Overall, the two percentage point year on year increase in trust from 2016 to 2017 in the Financial Services sector, and the increment in Australians’ trust from the June 2017 study, has demonstrated a positive shift from ‘distrusted’ to ‘neutral’.  This ‘neutral’ trust indicates that the industry sits above trust in business, media and Government, all of which are distrusted.

The ABA says this new report shows a significant improvement in the perceptions of banks since the first research report published six months ago.

Nearly 80 per cent of people believe that their bank is becoming more customer focused, up from 63 per cent, and 86 per cent believe that banks help customers to make decisions in their own interest, up from 74 per cent.

Customers’ level of trust in their own bank and their perception of the industry overall has also improved.

Australian Bankers’ Association Deputy Chief Executive Officer, Diane Tate, said the results were encouraging and showed that the significant efforts made by the banks to respond to customer expectations and rebuild trust with the community is making banking better.

“Although there’s still a long way to go to restore trust and confidence in the industry, it’s encouraging that the impact of these reforms is being recognised by customers and making an impact on the ground,” Ms Tate said.

“The banks recognised that they needed to change and began undertaking the largest program of reforms in decades.

“This new research is a sign that more customers are experiencing the benefits of change in the way banks conduct their business.

“Through the Banking Reform Program – Better Banking, banks have been changing their practices to be more transparent and make it easier for individuals and small business to do their banking,” she said.

The research shows that awareness of each of the reforms has increased, in particular initiatives to improve how banks manage complaints and compensate customers when mistakes are made.

Strengthening the Code of Banking Practice has again been identified as one of the most important initiatives to drive trust. The new Code was lodged late last year with ASIC and currently awaits approval.

Other factors identified by the research as important factors in change were confidence and transparency in banking, while supporting customers experiencing financial difficulty and removing individuals for poor conduct has increased in importance for customers. Other key findings in the research include:

• 55 per cent of people believe their bank is more interested in what’s good for customers, up from 44 per cent.

• The level of importance that Australians place on the reforms remains strong, with half the initiatives scoring 70 per cent or higher.

Edelman surveyed 1,000 Australians in November 2017 following the first round of research conducted in May 2017, which set benchmarks for the industry to assess the impact of its Banking Reform Program.

ABA Says Small Business Saves Billions With Lowest Rates in Decades … But

The ABA says there is some great news for Australian small businesses who are now paying $9 billion less in interest on current loans than compared to the same time in 2011, with the average interest paid the lowest in 20 years.

According to RBA data, the past six years have seen significant falls in interest rates for small business, with average rates paid on their loans now at the lowest levels since RBA data commenced in 1993.

We assume this is the chart the ABA is referring to – larger business are getting better rates by far!

But it is not that simple, as this chart also from the RBA shows. Advertised rates from both term residential security and overdraft are rising (despite no change to the cash rate).  So the ABA is choosing the chart to fit their narrative.

Australian Bankers’ Association Chief Economist Tony Pearson said small businesses are a significant driver of the Australian economy, so anything that assists them is good news.

“Less interest paid by small business on their loans will help drive economic growth, create new jobs and tackle unemployment,” Mr Pearson said.

“The average interest rate paid on all current loans held by small businesses has fallen in the past six years from 8.40 per cent in 2011 to 5.30 per cent now. Based on a loan of $100,000 that equates to an interest saving of around $3,000 per year.

“When you look at the bigger picture the story is even more positive. As of September, there were a total of $282 billion in outstanding loans to small businesses in Australia, and based on the lower rates, they’re now paying almost $9 billion less a year in interest compared with the same time in 2011.

“With two million small businesses in Australia, employing nearly five million people, we need to ensure this sector continues to flourish,” Mr Pearson said.

Kevin Taylor runs ProActive Chartered Accountants and says for himself, and his 200 plus small business clients, low interest rates are good for the bottom line.

“Every dollar saved means extra profits or a chance to help the business grow by reinvesting in new equipment or hiring more staff,” Mr Taylor said.

“Additional cash flow, through low interest rates, means you can pay down the loan sooner, or put it away for a rainy day. Whatever you choose to do it’s a positive for the business and the economy.

“While business interest rates are at record lows, electricity prices are at the other end of the scale. Higher electricity prices are a double negative for businesses, as they have to pay the bills and their clients have less money to spend on other things,” Mr Taylor said.

For larger businesses, the average interest rate has fallen from 7.10 per cent to 3.40 per cent over the past six years. As of September, there were a total of $747 billion in outstanding loans to large businesses. The amount of interest being saved annually, when compared with six years ago, is a staggering $27.6 billion.

“That’s a lot of extra money that can be invested into growing a business and creating jobs,” Mr Pearson said.

The New Banking Code Is Simply The Minimum Customers Expect

Let’s be clear, the floating of the new banking code is not bad, but is really is still setting a low bar and contains elements which most customers would already expect to see. This is not some radical new plan to improve customer experience, rather more recognition of the gap between bank behaviour and customer expectation. And it does not HAVE to be implemented by the banks anyway.

There is much more work to do. For example, how about proactive suggestions to switch to lower rate loans and better rates on deposits?  What about the preservation of branch and ATM access? What about the full disclosure of all fees relating to potential loans?  And SME’s continue to get a raw deal thanks to lending policy and bank practice (despite the hype).

Then the biggie is mortgage lending policy, where banks current underwriting standards are set to protect the bank from potential loss, rather than customers from over-committing.

That said, this piece from the New Daily discusses the code and calls out some of the changes.

The year 2017 saw the big banks introduce a slew of measures, from scrapped ATM fees to new ethical codes, all intended to boost their battered reputation and fend off a royal commission.

In the end these measures were not enough, and in late November Prime Minister Malcolm Turnbull folded to political pressure and called a royal commission.

Nevertheless many of the banks’ voluntary measures will significantly improve consumer experience.

In particular, the new Banking Code of Practice, a list of consumer-centric reforms written by the banks themselves, will make a number of changes that consumers can use to their advantage.

Currently before the Australian Securities and Investment Commission for approval, the new Code is likely to include recommendations by the Australian Banking Association (ABA) that will significantly benefit individual consumers, as well as small businesses and guarantors.

The ABA said that included in the Code are key changes aimed at making banking more accessible and increase availability to consumers, alongside higher transparency and increased standards.

We’ve picked out some of the key changes that could benefit the average Aussie punter.

1. Online cancellation of credit cards

Currently credit cards can only be cancelled by a phone call or written request, but only after the balances has been paid or transferred. Direct debits that are not cancelled may reactivate a cancelled credit card. So knowing in advance what direct debits are applicable will prevent this happening.

Consolidating all credit cards into a debt consolidation loan will be simpler if the borrower can provide evidence of credit card cancellation, facilitated by online cancellation.

2. Notification of when payment defaults are reported to credit reporting bodies

With Comprehensive Credit Report becoming compulsory for the big four banks from 1 July 2018 there will be the obligation not only to share credit data with other credit providers, but also report positive credit behaviour.

Keeping track of defaults and exhibiting future positive credit behaviour will be advantageous to borrowers when applying for future loans, by increasing their credit worthiness.

3. Notification of introductory credit card interest free period expiry

Transferring the balance of a credit card to a low interest rate credit card can be a smart way to pay down credit card debt but only if this can be done within the interest free period. After the period expires the credit card interest rate can revert to a much higher rate, leaving the borrower in a similar position prior to transferring to a low interest rate card.

4. Proactively identifying customers who may be experiencing financial difficulty

Financial hardship assistance programs offered by banks will be improved as well as a new commitment for banks to proactively work with their customers in financial difficulty to help prevent a situation worsening.

5. Consumers can request a list of direct debits and recurring payments made on credit card and bank accounts

As mentioned previously a cancelled credit card can be reactivated by direct debits that have not been cancelled. As more and more payments are made by direct debits, customers are becoming further entrenched with their bank, and closing an account or transferring to another bank can become unfeasible if there is not an easier way of knowing direct debits and other payments.

6. Improved fee disclosure and waiving or refunding of some fees

The removal of fees to bank statements for customers who do not have access to electronic statements, and improved disclosure of fees will save consumers money and improve their ability to manage their finances.

Businesses will also benefit with more notice of changes to loans, and simplified loan contracts that are more easily understood.

Small Business and Family Enterprise Ombudsman Kate Carnell said she was concerned the code cannot be properly enforced.

“The committee will not be fully independent and banks won’t be obliged to accept its recommendations,” she said.

“The code stipulates only that banks will comply with ‘reasonable’ requests of the committee. This means effectively that banks will only act on recommendations if they feel like it. If they don’t think the committee is reasonable they have an escape clause.

“It’s like the umpire is appointed by the home team and they don’t have to accept the umpire’s decision.”

At the same time Ms Carnell welcomed the code’s “simplified language” and specific focus on small businesses.

ABA Floats New Banking Code

The ABA says that after hundreds of hours of development and more than 50 meetings with banks and key stakeholders over the past nine months, the new Banking Code of Practice has been sent to ASIC for approval.

The Australian Bankers’ Association CEO, Anna Bligh, said this is a huge step for the industry which has voluntarily introduced a new simplified, customer focused code.

“Banks are committed to change and the new Code is stronger, broader and written in simple to understand language. It has been completely rewritten to better meet community expectations and service the needs of customers,” she said.

“The industry has achieved the ambitious task of developing a new Code only nine months after receiving the final report from independent reviewer Mr Phil Khoury.

“The new Code has been broken into ten key parts, with four brand new sections including one dedicated to small businesses and another related to making banking more available for customers and easier to access.

“The remaining six sections represent a complete restructure of important parts of the current Code,” Ms Bligh said.

Some of the changes that Australians can expect in the new Code are more transparency around products and services, and a more prominent commitment to ethical behaviour.

This includes a new deferred sales model for consumer credit insurance on credit cards, small business contracts written in plain English, and the right to close a credit card account online. In addition, customers will be notified before their introductory credit card interest free period expires, the banks will introduce ways to proactively identify customers who may be experiencing financial difficulty and implement better safety nets for guarantors.

“The new code means we are making banking easier, by making changes to processes, providing customers with more info and introducing higher standards for how banks serve their customers.

“This new set of rules and behaviours will go a long way in addressing the expectations that Australians have of their banks.

“Banks most certainly do not underestimate the challenge ahead of them and will continue to make the necessary changes and improvements that their customers expect.

The fact that the industry has accepted 96 of the 99 recommendations in some form is proof that banks are serious about change, and are currently undergoing the greatest level of reform seen in the sector in more than 20 years.

“Banks value their customers and the new Code is one more step towards providing better banking for all Australians,” Ms Bligh said.

The Code is the first industry code to be sent to ASIC for approval and was part of major industry initiatives announced in April 2016 to raise banking standards.

WHAT’S IN THE NEW CODE FOR YOU?

For individuals

  • Customers will be informed when a bank reports any payment default on a loan to a credit reporting body, making it easier for customers to manage their finances.
  • On request, customers will be provided with a list of direct debits and recurring payments made on accounts. This can go back as far as 13 months and can assist customers with managing their accounts, avoiding dishonour fees and with switching.
  • Improved transparency around fee disclosure by telling customers, where practical, about transaction service fees immediately before they incur the fee, helping customers better manage their costs.
  • Waiving or refunding statement fees for customers who do not have access to electronic statements.

For small businesses

  • Small business customers will be provided with a longer notice period about changes to loan conditions or a bank’s decision on whether it will continue to provide the loan facility, which will help businesses with future planning.
  • Simplified loan contracts that are written in plain English and are easier to understand.
  • Improved communication and greater transparency by banks in the use of external property valuers, investigative accountants and insolvency practitioners.

For guarantors

  • Ensuring that guarantors are making an informed decision after taking time to consider the guarantee documents. Guarantors, who have not received legal advice, will be required to wait three days before signing, which may help customers avoid financial abuse.
  • Guarantors will be notified of changes to the borrower’s circumstances, including if they are experiencing financial difficulty.

Open Banking a Big Win for Consumers – ABA

From ABA.

A recent survey has found that Australians believe that banks are better at keeping their personal data secure than government agencies, online retailers or social media platforms.

And while men and women were fairly even, the Galaxy research found that those in regional centres trust their bank to protect their data even more than their metro counterparts (70 per cent regional vs 61 per cent for metro areas).

Those with the highest level of trust are aged between 40 and 49 years old.

Australian Bankers’ Association CEO, Anna Bligh said banks take data security and privacy very seriously, spending millions to ensure their systems are safe.

“With the introduction of Open Data across the Australian economy next year, consumer privacy and security is front of mind.

“Open banking will enable customers to get more value out of their data by opening it up to be easily shared with other banks and finance providers. In the future, a customer will be able to open their mobile phone app and with the touch of a button, direct their bank to transfer their data to another finance provider.

“Giving customers the ability to share their data more easily will help them to shop around for deals and get the best product for their needs.

“This represents a significant change from the current system and puts the power squarely in the hands of the customer, allowing them to decide how and when, or if, their information is shared,” she said.

Open data will also make comparing bank products and services easier as financial institutions standardise such things as terms and conditions and pricing.

Small businesses can also benefit from being able to share their transaction data with their accounting software packages. Bank transaction data could be tied to their invoices and receipts so businesses can readily track their finances.

The ABA will host its second Open Data Symposium today, aimed at continuing the discussion around the benefits to consumers and what the industry needs to do to prepare for the change.

The Galaxy research surveyed 1000 Australians online earlier this month for the Australians’ Attitudes to Digital Innovation & Data Security poll.

ABA Declares Progress On Bank Reforms

The Australian Bankers’ Association has welcomed the latest progress report from former auditor-general Mr Ian McPhee AO PSM, which has found that banks are on track regarding the six reform initiatives.

Mr McPhee stated that since the previous report, a number of initiatives are now being implemented, which is good news for customers and the industry.

Banks have already introduced three initiatives – the appointment of customer advocates who help customers resolve issues and proactively improve customer outcomes, the adoption of new whistleblower protections, and the conduct background check protocol when hiring staff.

The remaining three initiatives are showing good progress.

ABA Chief Executive Anna Bligh said it’s encouraging that the industry’s reform program is starting to gain traction and deliver real benefits to customers.

“Banks across the board are serious about change and rebuilding trust and confidence within the community. Introducing these initiatives will better protect customer interests and increase transparency and accountability,” she said.

“The banking industry is currently undergoing the greatest program of reforms seen in decades. It’s vital that the momentum continues, so banks can meet the needs and expectations of the community.

“The ABA appointed the former Public Service Commissioner Stephen Sedgwick AO to review how bank tellers and other customer-facing bank employees, their managers, and third parties are paid by banks. The industry adopted all the recommendations and are now in the implementation phase,” Ms Bligh said.

“The industry understands that through the combination of leadership, performance management, remuneration structures, behavioural standards and culture, a real difference is being achieved.”

Progress since the last quarter McPhee review includes:

* Adoption of best practice whistleblowing policies by 19 banks (last bank to finalise by end of year).

* The Code of Banking Practice is now with key stakeholders for feedback. The new Code is on track to be finalised by December 2017.

* Four banks have published their overarching principles on remuneration and incentives ahead of the December deadline.

“The determined effort that has delivered the reforms to date is set to continue in coming months as banks finalise their implementation of the industry’s Better Banking program,” Ms Bligh said.

A copy of Mr McPhee’s latest report is available at betterbanking.net.au.