Sydney, 21 April 2016: Australia’s banks will today begin to implement comprehensive new measures to protect consumer interests, increase transparency and accountability and build trust and confidence in banks.
“This package aims to address consumer concerns about remuneration, the protection of whistleblowers, the handling of customer complaints and dealing with poor conduct,” Australian Bankers’ Association Chief Executive Steven Münchenberg said.
“Customers expect banks to keep working hard to make sure they have the right culture, the right practices and the right behaviours in place.
“That’s why the banks will immediately establish an independent review of product sales commissions and product based payments, with a view to removing or changing them where they could result in poor customer outcomes,” he said.
“Banks will also improve their protections for whistleblowers to ensure there is more support for employees who speak out against poor conduct.
“This plan delivers immediate action to make it easier for customers to do business with banks, including when things go wrong. For example, improved complaints handling and better access to external dispute resolution, as well as providing compensation to customers when needed,” he said.
The plan, parts of which are subject to regulatory approval or legislative reform, will be overseen by an independent expert.
“We recognise the importance of having an impartial third party to oversee this process,” Mr Münchenberg said.
“The industry has appointed Gina Cass-Gottlieb, Gilbert + Tobin Lawyers, to lead the work on establishing the governance arrangements around the implementation of the plan, the review process, public reporting, and the selection of an independent expert to oversee implementation of this initiative.
“The banks also support the Federal Government’s review of the Financial Ombudsman Service, who is the independent umpire for customer complaints, to ensure it has the power and scope required to deal with a variety of issues that currently fall outside its thresholds,” he said.
“Trust is at the centre of banking and is critical for the stability of our financial system. The strength of our banking sector got us through the global financial crisis. Since then banks have done a lot of work in improving customer satisfaction, strengthening their balance sheets, and making it easier for customers to do their banking wherever and whenever they want.
“The plan also responds to a range of expert reports and public inquiries that have identified key areas of reform, including the Financial System Inquiry.
“Banks recognise the importance of the community discussion about the delivery of banking and financial services, and are pleased to put forward this plan,” Mr Münchenberg said.
Australia's banks understand that trust is critical to a strong and stable banking and financial services sector. We acknowledge that we have a privileged role in the economy. Our customers, shareholders, employees and our communities rightly expect the behaviour of banks to meet high ethical standards as we look after their financial needs.
For some years now banks have been responding to community feedback to improve customer service and our industry’s contribution to the community more broadly. This has been largely successful. While all banks have customer satisfaction ratings above 80%, we acknowledge there is more to do. We continue to implement wide ranging reforms that have already been agreed through the inquiries, reviews and consultations undertaken over recent years.
Subject to regulatory approval, we are committing to a further six actions to make it easier for customers to do business with us and to give people confidence that when things go wrong, we will do the right thing.
We understand the importance of independence and transparency. To ensure this, the industry has appointed Gina Cass-Gottlieb, Gilbert + Tobin Lawyers, to lead the work on establishing the governance arrangements around the implementation of the plan, the review process, public reporting, and the selection of an independent expert to oversee implementation of this initiative. This initial stage will take a month. We will publish public quarterly reports on our progress, with the first report within three months of this announcement.
We believe these actions will further lift standards and transparency across the banking and financial services sector and bolster the existing strength of the regulatory framework.
1. Reviewing product sales commissions
- Building on the ‘Future of Financial Advice’ reforms, we will immediately establish an independent review of product sales commissions and product based payments with a view to removing or changing them where they could lead to poor customer outcomes. We intend to strengthen the alignment of remuneration and incentives and customer outcomes. We will work with regulators to implement changes and, where necessary, seek regulatory approval and legislative reform.
- Each bank commits to ensure it has overarching principles on remuneration and incentives to support good customer outcomes and sound banking practices.
2. Making it easier for customers when things go wrong
- We will enhance the existing complaints handling processes by establishing an independent customer advocate in each bank to ensure retail and small business customers have a voice and customer complaints directly relating to the bank, and the third parties appointed by the bank, are appropriately escalated and responded to within specified timeframes.
- We support a broadening of external dispute resolution schemes. We support the Government’s announcement to conduct a review into external dispute resolution, including the Financial Ombudsman Service conducting a review of its terms of reference with a view to increasing eligibility thresholds for retail and small business customers.
- We will work with ASIC to expand its current review of customer remediation programs from personal advice to all financial advice and products.
- We will evaluate the establishment of an industry wide, mandatory last resort compensation scheme covering financial advisers. We support a prospective scheme being introduced where consumers of financial products who receive a FOS determination in their favour would have access to capped compensation where an adviser’s professional indemnity insurance is insufficient to meet claims.
3. Reaffirming our support for employees who ‘blow the whistle’ on inappropriate conduct
- We will ensure the highest standards of whistleblower protections by ensuring there is a robust and trusted framework for escalating concerns. We will standardise the protection of whistleblowers across banks, including independent support, and protection against financial disadvantage. As part of this, we will work with ASIC and other stakeholders.
4. Removing individuals from the industry for poor conduct
- We will implement an industry register which would extend existing identification of rogue advisers to any bank employees, including customer facing and non-customer facing roles. This will help prevent the recruitment of individuals who have breached the law or codes of conduct.
5. Strengthening our commitment to customers in the Code of Banking Practice
- We will bring forward the review of the Code of Banking Practice. The Code of Banking Practice is the banking industry’s customer charter on best practice banking standards, disclosure and principles of conduct. The review will be undertaken in consultation with consumer organisations and other stakeholders, and will be completed by the end of the year.
6. Supporting ASIC as a strong regulator
- We support the Government’s announcement to implement an industry funding model. We will work with the Government and ASIC to implement a ‘user pays’ industry funding model to enhance the ability for ASIC to investigate matters brought to its attention.
- We will also work with ASIC to enhance the current breach reporting framework.