‘Devastating impact’: Government ponders ‘de-banking’ policy

In a joint statement issued by Treasurer The Honourable Jim Chalmers MP and Assistant Treasurer and Minister for Financial Services The Honourable Stephen Jones MP, the paper — which outlined potential policy responses to address the problem of de‑banking in Australia — was welcomed by the government.

In essence, de‑banking is where a bank declines to offer or withdraws banking services to a customer, which can have a “devastating impact on businesses and individuals”, the ministers explained.

It can also “put a handbrake on competition and innovation” in emerging sectors of the economy, they added.

In March 2022, the previous government issued terms of reference requesting that the Council of Financial Regulators work with AUSTRAC, the ACCC and the Department of Home Affairs to provide advice on potential policy responses to address de-banking in selected industries in Australia.

The paper was commissioned in response to the final report of the Senate select committee on Australia as a technology and financial centre.

Who would be impacted and why?

“De‑banking can increase the risks for affected businesses by forcing them to conduct transactions exclusively in cash,” the ministers outlined.

“It is often experienced by commercial customers perceived to be in high‑risk industries, such as the financial technology, digital currency exchange and remittance sectors.

“The Government is committed to promoting innovation and competition in the financial services sector and will continue to work with affected customers.

“We would like to thank the Council of Financial Regulators, ACCC, AUSTRAC, the Department of Home Affairs and Attorney‑General’s Department for the work they have done on this issue so far.

“A Government response to the recommendations in the paper will be released in due course.”

Pinpointing what a de-banking strategy targets

Participating agencies provided the following policy proposals for the government’s consideration:

1. Collect de-banking data — To provide additional information on the extent and nature of the de-banking problem and inform any future policies.
2. Introduce transparency and fairness measures — Five mutually reinforcing measures are recommended to address stakeholder concerns about banks’ processes in relation to the provision of core banking services. Those concerns include that the banks’ processes are not transparent and there is little opportunity for businesses and individuals to seek review of the banks’ decisions.
3. Advise the major banks of the government’s expectation that they provide guidance on their risk tolerance and requirements to the affected sectors — This guidance is intended to help customers and potential customers understand the major banks’ requirements to access banking services. This recommendation is consistent with the participating agencies’ view that banks should not engage in blanket de-banking of specific industries or sectors.
4. Consider funding capability uplift within the affected sectors — Targeted guidance, outreach and education by AUSTRAC and other agencies on regulatory compliance should help uplift the compliance processes of businesses in the affected sectors, particularly small enterprises.

De-banking is a global challenge — but why?

In addition, the participating agencies explained they were hopeful that: “…as treasury and financial regulators continue their work to reform Australia’s payments, crypto assets, and other financial regulatory regimes, banks will become increasingly comfortable with providing core banking services to legitimate businesses in those sectors.”

“De-banking is a global challenge, and any responses necessarily balance support for businesses with the need to appropriately manage financial crime and other risks,” they outlined.

“The agencies expect that the proposed package of policy measures — while not providing a complete solution to de-banking challenges — will have a positive effect and address some of the main frustrations experienced by the affected businesses.

“Some of the measures will also provide the government with more information on de-banking practices and a foundation for any future policy measures.”

[Related: Financial watchdogs to investigate debanking]