Treasurer Jim Chalmers has flagged a government response to financial regulators’ warning that fintechs and digital currency exchanges are being “de-banked” suddenly and with little explanation.
After reviewing the issue, the Council of Financial Regulators told the government banks should not be engaging in “blanket de-banking of specific industries or sectors” and has proposed forcing banks to provide reasons, guidance and an internal dispute resolution system.
The regulator group said it wants banks to become increasingly comfortable with providing core banking services to “legitimate” emerging financial services providers like payments platforms and crypto.
De-banking is the growing issue of established banks declining to provide banking services or withdrawing banking services from an existing customer. Fintechs and other emerging financial service providers have complained it is occurring for unclear or unexplained reasons, and is impacting the businesses and the wider sector.
These concerns were raised by tech firms during inquiries by the last Parliament’s Senate Select Committee on Australia as a Technology and Financial Centre. Regulators also warned about it lessening competition stunting Australia’s technology and financial industries.
“De-banking continues to be a significant issue which undermines the entire fintech industry,” Fintech Australia general manager Rehan D’Almedia said on Tuesday.
“Some of Australia’s most innovative financial technology businesses have been de-banked suddenly and without reason or explanation over recent years. When major banks withdraw access to banking services, it limits Australia’s capacity to compete globally as a centre of financial technology innovation.”
The Council of Financial Regulators, comprising members from Treasury, APRA, ASIC and the Reserve Bank, began investigating de-banking in March, as part of a government response to the Senate Committee’s final report.
The council worked AUSTRAC, the ACCC and the Department of Home Affairs to develop Potential Policy Responses to De-Banking in Australia, handing the report to the government in August.
On Sunday, the government said it will provide a formal response in “due course” to four recommendations from the regulators that look to shine a light on the practice.
The recommendations include better data, more transparency on the decision to de-bank a customer, guidelines on banks’ risk tolerance, and funding for an awareness campaign.
“De‑banking can increase the risks for affected businesses by forcing them to conduct transactions exclusively in cash,” a joint statement from Mr Chalmers and Assistant Treasurer Stephen Jones said.
“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.”
The recommended policy options include new transparency and fairness measures aimed at shining a light on banks decisions to de-bank a customer.
If adopted, it would require banks to document the reasons for de-banking a customer and provide the customer with the reasons and provide 30 days notice before closing core banking services.
Banks would also need to give affected individual and business customer access to their internal dispute resolution procedures and self-certify adherence to the measures.
“The transparency and fairness measures are a positive step but must be implemented in a mandatory and enforceable way to be effective,” Mr D’Almedia said.
“These measures should also be coupled with an external dispute resolution scheme which holds banks accountable and provides an avenue for appeal.”
The Council of Financial Regulators did consider an external dispute resolution scheme in its potential de-banking policies but considered it would be too difficult for an external body to intervene in the commercial decisions of banks. It may also not be able to receive information related to a bank’s reports of money laundering and counter-terrorism financing.
Do you know more? Contact James Riley via Email.
I have been a victim of being De-banked in early 2021. Being an individual without given any right of reply. Since that time I have repeatedly challenged the banks decision to De-bank me. I have also submitted a formal complaint with AFCA, without success. The terms for AFCA to challenge the De-banking decision requires amending, as the current remit is limited.
Regards
Roy Phillips