Government Deposit Insurance: A Safeguard for Australian Consumers
The Australian government has implemented a comprehensive deposit insurance scheme, guaranteeing deposits up to A$250,000 held with Authorised Deposit-taking Institutions (ADIs). This protection covers all ADIs incorporated in Australia, including banks, building societies, and credit unions.
No Government Ownership Interest in Private Banks
Since the full privatization of the Commonwealth Bank of Australia between 1991 and 1996, the government has not held any ownership interest in private banks, excluding minor interests held by public sector superannuation schemes and the Future Fund.
Transactions between Affiliates: A Regulatory Framework
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Banks are subject to the same rules governing related-party transactions as publicly listed companies. These regulations require member approval for financial benefits provided to affiliates, unless an exception applies. The most common exceptions include:
- Transactions made on terms that would be reasonable if parties were dealing at arm’s length
- Where the benefit is given to an affiliate in their capacity as a company member
A related party of a company includes entities controlled by the company, directors, and their spouses, parents, and children.
Regulatory Challenges: Navigating the Banking Industry
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The banking industry faces several regulatory challenges, including:
- Consumer data rights and open banking: The increasing availability of customer data for decision-making poses significant challenges to banks’ current advantage in data analysis and credit risk assessment.
- Design and Distribution Obligations: New regulations require product issuers to determine their target market early at the product design stage, ensuring that products are not distributed inconsistently with the target market determination.
- Australian Payments System Review Report: The government has agreed to implement 14 of the report’s 15 recommendations, including mandating ASIC’s ePayments Code for all payment licensees and expanding the Reserve Bank of Australia’s designation power.
Consumer Protection: Safeguarding Australian Consumers
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Banks offering financial services must comply with various regulations to protect consumers. These include:
- ASIC’s ePayments Code: A voluntary code that provides additional protections to customers, including advance notice of changes to terms and conditions.
- Industry codes of practice: The Australian Banking Association’s Banking Code of Practice and the Customer Owned Banking Association’s Customer Owned Banking Code of Practice are examples of self-regulatory codes developed by industry associations.
Future Changes: Enhancing Consumer Protection
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In the coming years, it is anticipated that there will be greater legal and regulatory policies to safeguard consumers and prohibit financial services providers from engaging in misconduct. The adoption of the Banking Royal Commission recommendations will lead to more stringent legislative regulations on the banking industry.
ASIC and APRA may implement new legislative and regulatory changes in response to their Corporate Plans for 2021-25, which prioritize protecting deposit-holders, insurance policyholders, and superannuation members during the current pandemic era.