De-banking in Australia: Government releases response to Council of Financial Regulators’ advice

By John Bassilios 

The Australian Government has released its response (28 June 2023) on the Council of Financial Regulators’ (CFRs’) advice on potential policy responses to de-banking (August 2022). The CFRs’ advice examined key trends in de-banking and policy options specifically relating to financial technology firms, digital currency exchanges and remittance providers.

The advice provided four recommendations for the Government’s consideration:

1. collect de-banking data;
2. introduce transparency and fairness measures;
3. advise the major banks of the Government’s expectation that they provide guidance on their risk tolerance and requirements to the effective sectors; and
4. consider funding capability uplift within the affected sectors.

The Government’s response to each recommendation has been set out below.

Recommendation 1: data collection

The CFR recommended that the four major banks collect data in order to give consideration to a formal phase of data collection.

The Government agreed to this recommendation, stating that it believes data collection to be pivotal to de-banking. Treasury will work with APRA and the four major banks to ensure a useful voluntary data collection program is designed and the method is iterative.

Recommendation 2: transparency and fairness measures

The CFR recommended that all banks implement measures to improve transparency and fairness including ensuring the de-banked customers are provided with at least 30 days’ notice, documented reasons for de-banking and ensuring they have access to their Internal Dispute Resolution procedures.

The Government supports this proposal in principle, stating that this recommendation would address some of the key frustrations experienced by affected businesses. Treasury will work with AUSTRAC and banks to ensure these recommendations are implemented as much as possible.

Recommendation 3: guidance by specified banks

The CFR recommended that the four major banks be advised of the Government’s expectation that they provide guidance on their risk tolerance and requirements to relevant sectors.

The Government supports this proposal in principle. It expects banks to clearly and proactively communicate their requirements to customers before refusing or withdrawing banking services. The Government also expects major banks to publish information on their requirements and risk tolerance of financial technology firms, digital currency exchanges and remittance sectors.

Recommendation 4: targeted education and capability uplift

The CFR recommended that consideration to be given by Government to funding targeted education, outreach and guidance to the fintech, digital currency exchange and remittance sectors with consideration of capability uplift.

The Government notes this proposal and supports the objectives, as well as acknowledging the potential that capability uplift may have.

The Government further noted that for the past few years, AUSTRAC has offered various education and guidance activities within the relevant sectors, including induction webinars and workshops, publishing guidance on products, and conducting education campaigns. It also has improved its registration process for these sectors and ensured the provision of ongoing compliance campaigns to support regulated entities’ understanding of AML/CTF obligations.

The Government also referred to its plans to modernise Australia’s financial system by licensing payment providers and digital currency exchanges, which would also uplift the capability of these sectors.