Regulators hope payment reforms can solve debanking issue

Regulators remain optimistic payment reforms will see Australian banks grow comfortable offering services to fintech firms, digital exchanges and new remittance providers, preventing legitimate businesses from becoming debanked.

The Council of Financial Regulators in partnership with AUSTRAC, the ACCC, and the Department of Home Affairs, released a response [pdf]  to the final report of the Senate Select Committee on Australia as a Technology and Financial Centre.

Treasurer Jim Chalmers welcomed the council's recommendations on Monday, stating the government “is committed to promoting innovation and competition in the financial services sector and will continue to work with affected customers”.

Debanking occurs when banks refuse services to certain types of businesses, often those in cryptocurrency areas, due to perceived risks around servicing these entities.

It was hot issue during a parliamentary hearing where NAB and Westpac defended the choice to debank cryptocurrency businesses.

The Council of Financial Regulators' report is “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”.

It adds that debanking “is a global challenge” though one Australia has a part in addressing.

Data collection

The report proposes collecting data from the ‘Big Four’ banks - ANZ, Westpac, CBA and NAB - on “the extent and nature of the debanking problem”.

This could initially be on a voluntary basis before being followed by more regular and formal data collection under the Financial Sector (Collection of Data) Act.

The phased approach would enable data collection to be done “as quickly as possible” and offer useful sights on the wider issue to potentially inform policy.

Transparent reasoning

The council also recommends all banks apply five measures “designed to increase transparency, consistency, and fairness to individual and small business customers regarding all debanking decisions”.

Under the recommendations, banks should document reasons for debanking a customer, provide reasons and ensure debanked individual or small businesses have access to their internal dispute resolution procedures.

Banks should also provide a minimum of 30 days’ notice before closing a customer’s existing core banking services.

It adds “that banks self-certify adherence to measures”, noting should the measures be implemented, “Treasury and the relevant regulators will need to work with the banking industry to achieve the full and consistent implementation”.

Setting expectations

The council suggested the four major banks “be advised of the government’s expectations that they publish guidance applicable to the DCE (digital currency exchanges), fintech and remittance sectors concerning their risk tolerance and their requirements to bank these sectors.”

A capability uplift was endorsed by the council that would see funding targeting “education, outreach and guidance to the fintech, DCE and remittance sectors”.

Education “would have a positive impact by enhancing compliance outcomes and reducing compliance risk," it said.

“This would particularly benefit small businesses, such as individual remittance and DCE providers, from the affected sectors who require assistance in meeting their regulatory obligations,” the council states.