A review of de-banking in Australia led by the Council of Financial Regulators has conceded that it has no real solution to the problem.
The CFR, which worked with AUSTRAC, the ACCC and the Attorney-General’s Department, has released its report, saying a lack of data and no models to follow from other jurisdictions means it has no concrete proposals to offer.
De-banking occurs when a bank declines to provide banking services, typically a transaction account, or withdraws banking services from an existing customer.
The report, Potential Policy Responses to De-banking in Australia, says that over the past decade Australian banks have been de-banking remittance providers, digital currency exchanges and some types of fintechs.
But the report has no data to show the extent of de-banking.
The previous government commissioned the review because it was concerned that de-banking could stifle the development of innovative tech and financial services businesses.
The report says: “Developing policy options to address de-banking is challenging, with no widely acknowledged solutions that respect the principle that banks are commercial enterprises and must manage their own risks and resources.
“But banks also have corporate social responsibilities and they must ensure that core banking services are reasonably accessible across the community.”
For their part, the banks have recommended that crypto industry participants, remitters and other high-risk businesses be brought under licensing regimes to alleviate some of the risk.
The report recommends that the big four banks collect data on their de-banking activity, as an initial step in addressing “the lack of systematic data on the extent and nature of de-banking practices”.
It acknowledges the shortcomings of this approach, which will not capture businesses that are deterred from applying for banking services.
It also recommends that banks take steps to improve the transparency and fairness of their processes, including: documenting reasons for de-banking a customer and giving the customer those reasons; giving a de-banked individual or small business customer access to internal dispute resolution; and giving adequate notice before de-banking.
It said there is no power to mandate these measures and the government may want to look at law reform.
And it recommends that the major banks publish guidance on their risk tolerance and compliance requirements for banking high-risk businesses.