Australia’s banking system must be strong and stable. Equally, it should ensure that the households and businesses who use the banking system are well served.
Australia’s banks are subject to multiple layers of governance, which are the systems and processes that banks use when pursuing their objectives and managing their risks. This website reflects the work of self-governance undertaken by the industry through the ABA.
Accountability through multiple layers of governance
The first layer of governance is directed by each bank’s Board of Directors.
Accountability at the bank level is achieved by the publication of annual reports, ASX announcements, formal reporting to the regulators and the government.
The best place to start to understand these structures for individual banks is on their websites, usually under the investor relations section.
Second, banks are subject to the governance processes of regulators.
The sector is governed under the ‘twin peaks’ model under two regulators – ASIC and APRA.
Additionally, the Reserve Bank of Australia is responsible for financial system stability and payments.
Third, the banking industry also self-governs. This is achieved through the ABA’s policies, guidelines, and the ABA’s Banking Code of Practice.
These tools build on the law and regulation to set the standards by which the industry operates.
Importantly, they are developed and driven by the industry in order to give transparency to the banking public about what they can expect from their banks under given situations.
The banking industry supports responsible lending laws with strong customer protections.
Ensuring the efficient flow of credit assists families and businesses across Australia at a time when they need it most. It will be fundamental to the nation’s economic recovery.
Access to credit opens up opportunities and fulfills aspirations It enables the purchase of a car to get to work, it enables the purchase of a home to secure a family’s future prosperity. It allows the creation or expansion of a business that employs people and drives economic growth. Getting it right requires the right balance between consumer protections and the flow of credit.
The Federal Government is currently looking at reforms to Australia’s Credit Laws
The notion of ‘responsible lending’ is entrenched in our system. It is in the interest of both customers and banks to ensure a loan can be repaid and many customer protections and regulatory requirements will continue to ensure this is the case.
These requirements are established in the existing regulatory framework and will remain for bank lenders if the Government’s reforms are successful in the parliament.
The combination of these laws and regulations will continue to ensure that appropriate assessments are made of a borrower’s capacity to service a loan.
APRA’s lending standards require lenders to undertake a credit assessment based on the level of risk involved. APRA requires banks to consider income, debts and expenses, and the purpose for which the consumer is seeking the loan.
APRA’s far-reaching supervisory and enforcement powers ensure banks comply with its standards.
These standards are to be further strengthened to include an update to make clear a bank should not issue a loan that would place the borrower in substantial hardship.
The duty to act as a diligent and prudent banker is set out in the enforceable Banking Code of Practice (the Banking Code).
ABA member banks are contractually bound by the obligations under the Code: that is, the clauses of the Code have been held by the Courts to form part of the customer’s contract.
Breaches of the Code can be considered breaches of contract.
Critically, customers have recourse through several avenues:
- The one-stop complaints authority, AFCA.
- Both ASIC and APRA can take court action if banks fail to meet obligations.
- Customers retain the right to apply to a court for the removal of an unfair contract term.
- Courts can reopen unjust transactions.
- Courts can enforce a clause of the Banking Code.
- The general conduct obligations of the NCCP Act (which are retained by the proposed reforms) which require banks to take all steps necessary to ensure that the credit activities authorised by the licence are engaged in “efficiently, honestly and fairly.”
- Specific provisions of the NCCP Act regarding credit cards and reverse mortgages which are to be retained by the proposed reforms.
- ASIC Act requirements which set out specific prohibitions and penalties for unfair contracts, unconscionable conduct, and misleading and deceptive conduct in financial services.
- ASIC’s powers to regulate provision of credit by banks through the general conduct obligations, strict licensing requirements and disclosure obligations.
- The design and distribution obligations on consumer credit products which require lenders and brokers to have a consumer-centric approach to the design and distribution of credit products and for lenders to review products to ensure their customers are receiving credit that is likely to be consistent with their objectives, financial situation and needs.
- The product intervention power which allows ASIC to intervene when a financial product or a credit product has resulted, will result or is likely to result in significant customer detriment. This includes the power to ban financial products and credit products.