Finance Finance News ‘Cannot be trusted’: Choice takes aim at banking self-regulation

‘Cannot be trusted’: Choice takes aim at banking self-regulation

Four silhouettes of bankers behind a court house desk.
Banks shouldn't be allowed to set their own rules, according to Choice. Photo: The New Daily
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Banks can’t be trusted to set their own codes of conduct and should be under the watch of the nation’s top regulator, consumer group Choice believes.

In a submission to Treasury, Choice said banks and financial lobby groups have consistently created “weak, unenforceable and ineffective” codes of conduct for themselves in the past, and responsibility for writing the rules should instead be handed to regulator Australian Securities and Investments Commission (ASIC).

“It’s clear the industry cannot be trusted to write their own codes. We need to kill off useless codes and give ASIC real power to hold the finance industry to account,” Choice policy adviser Patrick Veyret said.

“Industry has little interest in addressing problems they’re currently profiting from … We need to take the rule development part of codes out of industry hands.”

In its submission, Choice made eight recommendations intended to strengthen oversight of banks and financial services institutions.

At odds with Hayne report

The Australian Banking Association (ABA), however, hit back at Choice’s recommendations – specifically that ASIC be given power to set the rules – and noted that banking royal commissioner Kenneth Hayne had also advised against giving the regulator that power.

“Commissioner Hayne specifically looked at whether ASIC should write and enforce industry codes and explicitly rejected the idea,” an ABA  spokesperson told The New Daily.

The commissioner endorsed industry-led writing of codes, stating ‘harnessing the views and collective will of relevant industry participants is essential to the creation of an industry code’.”

The spokesperson said that the creation of the rules “is best left with the industry”, with the corporate regulator supervising from the sidelines (but still responsible for approving the final product).

That was the process used in the development of the ABA’s new banking code of conductcreated last year in response to a slew of scandals that rocked the industry.

The new code, which comes into effect on July 1, will be overseen by an external party, and enforced by the Australian Financial Complaints Authority, and the ABA said it will be the “strongest ever” industry-led code of conduct.

Despite these assurances, Choice maintained that banks’ previous code-setting efforts have been lacklustre and a change is needed.

“Hayne’s report made clear that self-regulation isn’t working. The best way to address this is rule-making powers for ASIC,” Mr Veyret said.

“It is problematic that an industry that has systematically taken advantage of countless Australians, especially vulnerable Australians, should be afforded the power to define the rules of what effectively will be turned into law. Industry can not – and should not – be trusted to write and enforce their own rules.”

Weakness in other ethics programs

In February, The New Daily revealed that the Banking and Finance Oath – a voluntary set of ethical guidelines that bankers can publicly agree to – has not resulted in anyone being penalised despite numerous investigations.

The number of bankers who have agreed to the unenforceable oath has been relatively small, and even its creator, business ethicist Dr Simon Longstaff, has said the oath has proven ineffectual.

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