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Chapter 17 - Community service obligations
Public expectations of financial services providers
One of the main challenges confronting financial service providers is
satisfying the public expectations placed on them to meet the needs of the
community they serve. Numerous commentators have drawn a distinction between
normal commercial enterprises and those
providing banking or financial services. They regard financial institutions as
having a privileged place in society which carries added responsibilities.
This perception of financial service providers as occupying a special
position of responsibility and trust in the community goes to the heart of the
debate about the role of financial service providers, their obligations to
shareholders and to customers, and to the community more broadly. A number of
community representatives adhere strongly to the view that institutions such as
banks are duty bound to ensure that they provide adequate services to all. For
example in 2000, the then President of the Local Government Association of New
South Wales acknowledged that banking like the rest of society had moved on and
that old-fashioned practices must remain in the past. He went on to assert,
however, that this development does not justify the abandonment of any sense of
community obligation by the banks. He submitted:
Banks are not just like any other business. They are essential
utilities. People cannot function in modern society without adequate access to
the banking system. They are an integral component of society’s institutional
infrastructure. This has traditionally given banks a certain degree of status
and privilege, and this has survived deregulation to a large extent. This
conveys an obligation to the community.
The City of Ballarat expressed a view typical of those in many
submissions. It maintained that banks, like any profit-seeking enterprise, are
required to deliver a reasonable and sustainable profit for shareholders but
they also have a responsibility to the communities they serve.
To the same effect, the Municipal Association of Victoria argued that banking
institutions have been ‘afforded a privileged status’ in the Australian
community and should be required ‘to provide a reasonable coverage of community
The banks’ awareness of community expectations
The banking industry is aware of such community expectations. Dr David
Morgan CEO, Westpac Corporation, said in a speech in August 2000:
Businesses that handle people’s money and with it their well
being are not like businesses that sell running shoes or soft drinks. When
people entrust their money to someone else, they expect to be recognised and
Mr Frank Cicutto, CEO of the National, acknowledged that public
irritation with banks stems from the banks’ inability to balance their need to
modernise against community expectations of minimum service levels. He noted
that banking is a fundamentally important service, and pricing and access must
meet the needs of every member of the community. According to Mr Cicutto, the
banks are not able to satisfy all people and some believe that they are not
receiving the service to which they are entitled. He explained:
The dilemma we face is this...do we restrict modernisation to
ensure uniformity of service standards for all...or do we provide different
levels of service based on a capacity to pay and utilise?
Facing the same quandary, the ANZ maintained that the issue for them is
how to reconcile the economic imperative of making an adequate return on
capital in the current context with the obligations it believes it has to the
communities in which it operates as well as to the broader community.
Financial institutions and community obligations
Although the banks accept that they have a social responsibility and
claim that they have taken measures to fulfil this obligation, there is a
widely-held view that they have deserted the rural and remote areas of Australia
primarily because of the desire to maximise profits. At the moment they do not
enjoy the confidence and support of Australian consumers.
The Uniting Church Synod of South Australia submitted that the ‘policies
of successive governments have given the financial sector scope to avoid social
responsibility’. In its opinion, this has resulted in ‘the erosion of the
position of banks in the Australian community and increased burden on those
sectors of the community that are least equipped to bear the social costs’. It
believes that the policies of consecutive governments in relation to the
financial sector have precipitated market failure which calls for government
Taking a similar view, Mr Anthony Beck from the Financial Services Sector Union
...going back over the last ten years, the major banks have been
allowed to acquire and aggregate all the regional and state banks and create a
market in their own image and, in oligopolistic fashion, set the price,
dominate the market and decide where they will or will not provide a service.
Mr Peter Emery, Central Local Government Region of South Australia Inc,
raised an interesting aspect of the privatisation of banks. He noted:
In this state we used to have two government owned banks. That
used to be one way in which we as a community could influence what happened in
banking. The State Bank used to help cooperatives and all sorts of things. We
do not have that particular lever anymore. We have decided that we do not want
the government to be involved in even minor ways in these sorts of entities. We
have cut ourselves off from one major source of influence, which I personally
think is unfortunate—but that is perhaps an old-fashioned view.
Clearly a number of witnesses felt that firstly banks are not listening
to their concerns and secondly that the customer has lost a say in how these
major institutions conduct themselves in their communities. Further, that
governments in stepping away from direct involvement in the banking industry
have left consumers to look after their own interests. The witnesses believe
that banks do have a responsibility to the community but are not being made to
meet that obligation.
Minimum standards expected of financial
The Committee heard a range of opinions on the extent to which banks
have a responsibility to the community. Many submissions held the view that
banking services should be considered essential—a necessity of everyday life.
The following section attempts to define what should be regarded as an
essential service and to determine what submissions mean when they refer to
While a number of submissions and commentators wrote in general terms
about the social obligations on banks to provide adequate banking services,
others were prepared to quantify their understanding of minimum standards. The
Holroyd City Council maintained that because the provision of financial and
banking services is an essential service, banks must provide affordable
face-to-face banking services.
Mr Beck asserted that ‘A transactional capacity is a fundamental human right,
in our view, or a civilian right. It is like access to power or water’.
Along similar lines, Mr Chris Connolly and Mr Khaldoun Hajaj maintained that
the bank account is the most basic and the most important financial service for
most Australians. They argue that ‘the provision of a bank account is essential
for receiving pay and benefits and making and receiving payments’. In summary,
Having a bank account is no longer a mere convenience—it is a
prerequisite for engaging in the economic process.
The notion of equity also figured prominently in the argument for
improved services to country Australia. The Local Government Association of
Tasmania stated simply:
The provision of alternative banking and financial services
solutions for bank branch closures fails the concept of equity of services for
all Australians. The alternative arrangements are simply not adequate to meet
the needs of the community on an everyday basis.
Similarly the Swan Hill Rural City Council noted that ‘a key social
consideration is equity of access to banking services, particularly for people
living in regional Australia’.
The Yallaroi Shire Council and the East Gippsland Shire Council also referred
to the issue of social equity and the entitlement of rural communities to the
same banking and financial services as metropolitan and larger regional areas.
The Committee believes that banking and financial service providers
should strive to deliver the same level and quality of service to country Australia
as they provide to metropolitan areas. It accepts that in some cases this
objective cannot be achieved on a commercially viable basis. Nonetheless, the
Committee believes that access to a basic banking service is an essential
service—that all Australians should have affordable and ready access to a
deposit account that receives funds and can be used to make payments.
In communities where it is commercially unsustainable for banks to
provide face-to-face banking services, the Committee believes that the banking
industry has an obligation to take all reasonable measures to ensure that
consumers can access their accounts through alternative service channels. In
the Committee’s view this obligation extends to:
- working with and providing assistance to communities to find
satisfactory solutions to their banking problems;
- ensuring that the facilities substituting for the traditional
branch service are appropriate and affordable for the residents of the
community and provide a safe, secure and reliable service;
- providing the education and training necessary for consumers to
use the alternative means of accessing their accounts effectively and
- ensuring that bank practices such as charges and fees and
interest rates on loans do not discriminate against people in regional, rural
and remote Australia.
Community Service Obligation
Having identified the minimum standards required of the banking
industry, the question arises about how they can be achieved. A number of
participants to the inquiry wrote in general terms about imposing a social
charter or community service obligations on financial institutions.
The submission from the Council of the City of Ballarat was among a number
arguing that banks ‘must embrace an ethical approach to their dealings with
customers’. It stated that ‘this is not only an appreciation of the customer’s
rights, but an acceptance of a duty to the customer’.
It supported the idea of a social contract and maintained:
By recognising that ethical business is also good business, the
financial services sector will strengthen its relationship to the customer, not
weaken it to the point where there is no understanding of the value of a
non-nationalised financial services sector.
Imposing a community service obligation
While a number of witnesses suggested that banks should observe minimum
standards, others were more certain in their approach to the adoption and
implementation of a social charter by banks and advocated enforceable community
service obligations. They wanted firm and direct action taken to compel
financial institutions to be responsible. The Holroyd City Council believed
that because the provision of accessible and affordable financial and banking
services is crucial to the viability of all local communities it should be a
community service obligation imposed on the banking and finance industry.
The Manilla Shire Council agreed with this view. It maintained that the
banks were not meeting the unique and specific needs of the people living in
its district and must be forced to meet their obligations to the communities
It stated that ‘once again it is obvious that more regulation regarding the
banking sector from the Federal Government is necessary—especially regarding
the banking and financial services that are offered (or not offered) in the
rural area of the Manilla Shire Council’.
The Council of the City of Ballarat, the Narrandera Shire Council and
the Lockhart Shire Council supported the idea of imposing a social charter on
banks. They wanted some way to require the banks to accept a greater degree of
A number of community representatives proposed that the licensing system
be used as the mechanism to enforce social obligations. Councillor Peter Woods
was of the opinion that the responsibility to ensure that banks fulfil their
obligation to the community really belongs to the Federal Government which
could easily achieve the required level of community service obligation by
embedding it as a banking licence requirement.
The Finance Sector Union of Australia adopted a similar approach. It
suggested that Australia’s banks will not behave in a socially responsible way
unless forced to by legislation and therefore recommended that the Government
introduce legislation to impose social obligations on Australia’s banks.
Mr Anthony Beck asserted:
...having a banking licence...is a very particular authority and
privilege to have in the Australian economy. With that comes certain
responsibilities. The industry is regulated in a way that demonstrates that it
has a particular place in the smooth functioning of the Australian economy. It
has a whole range of privileges and, we say, comes with very high returns for
shareholders, executives and directors. But there must also be some
responsibility attached to it and we simply cannot see, through the Banking Act
or the Trade Practices Act, any meaningful, effective capability for rural
communities and the people that I represent to actually make the banks
accountable in any way.
The Holroyd City Council, the Macedon Ranges Shire Council, the Cabonne
Council, and the Tamworth City Council also advocated imposing community
service obligations on banks as a licensing condition or through legislation to
ensure that they honour their social obligation to small rural communities.
Some wanted even stronger action.
Stronger government intervention
The Uniting Church believed that it would be appropriate for government
to regulate the financial sector to ensure it delivers services that meet an
appropriate level of social responsibility. It proposed that the Government
pursue a range of measures such as: the establishment of a publicly owned bank
similar to the original Commonwealth Bank; cease guarantees for deposits to
profit-oriented banks; and issue a compulsory code of conduct for banks.
It suggested that the code include ‘the expectation that banks would negotiate
amongst themselves to leave a branch operating in rural townships according to
a framework of criteria which would take account of population size and
geographical isolation from other services’.
The Shire of Kellerberrin pointed to the unprecedented profit being made
by banks and asked why they should not be required to have a certain proportion
of their branches located in rural and regional areas in Australia.
Another submission recommended that all institutions that conduct ‘banking’
business be required to contribute to a pool that would be used to establish,
service and maintain ATM facilities in all towns with a permanent population in
excess of 100. Such ATMs would accept cards from all participating banks.
As stated earlier, the Committee holds the view that there should be no
impediment to an Australian holding a transaction account and being able to
deposit and withdraw from that account with ease of access and without undue
expense. The Committee has put forward a number of recommendations in this
report to ensure that customers have access to adequate banking services; are
well informed about alternative ways of banking and have the level of education
and training necessary to use banking and financial services effectively and
confidently. Furthermore, it has made recommendations about ensuring that
people, including older Australians and those with a disability, have easier
and safer access to equipment.
In making these recommendations, the Committee has not considered it
necessary that the changes proposed should be enforceable under legislation.
While it is mindful of the weaknesses in industry self-regulation, the
Committee would first like to see the standards clearly articulated in the
industry’s code of practice and adopted by the financial sector industry. In
some cases, for example with EFTPOS, ATMs, telephone banking and internet
banking, industry standards have been formulated.
Second, the Committee would like to see the vigilant monitoring of the
practices of financial institutions and their observance of the various
undertakings detailed in the Committee’s recommendations. It would prefer an
independent oversight body to monitor and report on the behaviour of banks to
ensure they are meeting their obligations. But rather than involve ASIC or ACCC
in the process at this stage, the Committee believes that as a start this task
could be undertaken by the Australian Bankers’ Association keeping in mind the
option to transfer this responsibility to an independent agency should the ABA
fall short of expectations. The Committee notes here the establishment of the
Financial Consumer Agency of Canada (see paragraphs 17.59–17.61).
No mention was made during the course of the inquiry on the part taken
by the Banking and Financial Services Ombudsman in ensuring that people living
in regional, rural and remote Australia have access to adequate banking
services. The role of the Ombudsman is ‘to provide an accessible, independent
dispute resolution service to individual and small business customers of
financial services providers’. The main emphasis appears to be on settling
claims involving a financial loss of less than $150,000.
The Committee believes that the role of the Banking and Financial
Services Ombudsman should not be ignored in any consideration about which
agency should have the responsibility to monitor the conduct of banks in
meeting the banking and financial services needs of the community. It may well
be that the jurisdiction of the Ombudsman should be expanded or made more
explicit to incorporate a much broader range of consumer interest such as
ensuring affordable and ready access to financial services.
The Committee notes that the current banking code of practice requires
the ABA to establish, and for the signatories to the code to support a forum,
for the exchange of views on banking issues and the effectiveness of this code.
The forum is to include consumer, small business and banking industry
The Committee recommends that the forum established under the
banking code of practice, which comprises consumer, small business and banking
industry representatives, meet to consider and report publicly on the
jurisdiction of the Banking and Financial Services Ombudsman and whether it
should be broadened to examine complaints about the difficulties encountered by
consumers in accessing banking services.
Rather than suggest the development and imposition of community
service obligations, the Committee has recommended a number of amendments to
the current Banking Code of Practice which would in effect set down minimum
standards of behaviour expected of the banks. The Committee recommends that the
banking industry move quickly to incorporate them in its code of practice.
The Committee recommends that while the banking industry is
considering amendments to the Banking Code of Practice, the Australian
Government provide further impetus to this process by consulting with all
sectors of the banking industry on progress toward improving the industry’s
code of practice.
The Committee recommends that should progress falter on the
banking industry improving its code of practice, the Government take a stronger
stand by considering imposing community service obligations on ADIs with an
independent regulatory body to monitor and report breaches of the obligations.
Access to finance and financial advice
The report has focused mainly on the availability of basic banking
services. The provision of financial services is also an important matter but
one which has been overshadowed by the more immediate concerns with the
provision of basic transactional services. A number of submissions raised this
broader and important issue of the provision of financial services such as
financial advice and lending. The City of Ballarat noted:
Whilst people want to withdraw and deposit money, pay bills and
transfer funds, they also want advice. Traditionally the bank was not just a
place to do business, but a place that was involved in the welfare of the
community, not only as a local employer, but as an adviser to the community.
ACCORD urged the Committee to pay attention to the needs, level and
types of financial services being provided to business and community
enterprises in rural and remote areas, and focus its recommendations on
addressing these service needs.
The banks as invigorators and sustainers of social capital
The provision of financial services includes not only access to advice
but to finance. The report has found that individuals and businesses in areas
of regional, rural and remote Australia do not have the same opportunities as
those in metropolitan areas to obtain finance.
The problem of access to finance, particularly for local businesses, was
evident in Indigenous communities where a number of community representatives
made clear that there is a funding gap.
The following section looks more closely at the involvement of banks in
providing venture or seed capital to areas that have trouble attracting
On the matter of encouraging local business and enterprise capacity,
ACCORD submitted that, it is necessary that business, including social or
community enterprises, have access to finance. It referred to the difficulties
facing small business and social enterprises in accessing finance because of
‘lending and collateral requirements, lack of institutional understanding of
their businesses and decreasing financial services’.
In its opinion, limited access to venture capital is a particular
problem for regional businesses. It found that those regional businesses that
have grown are still disadvantaged in comparison with their metropolitan
counterparts, particularly in the areas of access to finance and business
Some local councils supported this view regarding the lack of access to
investment capital in regional, rural and remote areas (see chapter 3,
paragraphs 3.47–3.51 and chapter 16, paragraphs 16.61–16.70). The Council of
the City of Ballarat summarised their main argument when it submitted that ‘in
the pursuit of reduced costs, increased profits and dividends to shareholders,
and maximum return on investment, the financial services sector has lost sight
of its role as an invigorator and sustainer of social capital’.
17.37 ACCORD suggested that the Government should encourage improved access to
financial services for regional businesses and fund further development of
alternative equity markets.
It could promote greater understanding in financial markets of regional
opportunities and confidence in pursuing regional investment.
Before any steps can be taken to address the problem of access to
finance in rural and remote districts, there needs to be a comprehensive
understanding of the needs and potential of business in these areas and the
role that financial institutions have, or could have, in promoting economic
development. At the moment, there is simply insufficient information available
on the lending practices of individual banks in specific communities and the
contribution they make to the economic regeneration of underdeveloped areas.
17.39 In 1999, the Productivity Commission saw a greater role for governments
in helping to overcome information gaps about prospects for investment and
employment, facilitating self-help initiatives, removing impediments to
development and improving policy coordination.
17.40 Taking up this matter of the quality of information, ACCORD argued that
the capacity for accurate and relevant business and government planning is
limited by the absence of small area and regional data on the economic
characteristics (size, assets and employment) of businesses and enterprises. It
maintained that business and government planning would also be assisted by the
availability of information on loans and general services provided by banks and
other financial institutions to enterprises in regional areas or particular
As a consequence it recommended that:
greater government resources be devoted to collecting
information about businesses and financial information at the local and
regional level and from banks and other financial institutions regarding loans
and equity provided to small business and regional enterprises.
Similarly, the Australian Chamber of Commerce and Industry has
highlighted the serious deficiencies in the information available to assist
communities and businesses plan for their economic future. It stated:
In all of the information and analysis published on regional
development there has been little available data that look specifically at
regional business performance and at what influences regional business
Anecdotal evidence to the Committee suggests that the market has failed
to deliver to small business in country Australia with a few exceptions such as
the agribusiness sector. Further, that market-based solutions alone are
unlikely to address all such failures. However, the lack of data on bank
lending practices and the potential markets for small business in regional Australia
presents a major difficulty for the Committee to draw firm conclusions on:
- the current size and source of investment in regional, rural and
remote Australia and its effect on regional business activity;
- the role that the various financial institutions have in assisting
under-invested communities and their potential to improve their contribution to
the economic growth of such areas;
- the extent to which the competitive pressures at work in country
Australia are ensuring that small business is receiving fair and adequate
access to finance and financial advice; and
- whether government intervention is required to ensure that
under-invested communities do receive adequate access to financial services
and, if it is required, the form that intervention should take.
The Committee acknowledges the criticism that there is inadequate
information on the financing needs of small business in regional Australia and
the supply of finance available to them. It accepts that the want of data
frustrates any constructive analysis of the assistance provided by financial
institutions toward the commercial life of regional, rural and remote Australia
and whether it meets the needs of country Australia. It believes that as a
first step toward the development of an effective policy in this area there is
a need to establish a comprehensive data base of lending practices by financial
institutions in regional, rural and remote areas of Australia.
The Committee recommends that the Australian Government consider
ways to collect, analyse and publish data on the state of business activity in
rural, regional and remote Australia; the availability of venture capital or
seed funding to these areas; and the contribution that financial institutions
are making to the commercial development of country Australia.
In response to the dramatic changes taking place in the financial
services industry, a number of overseas countries have considered and put in
place measures to widen access to capital and other financial services for
those living in areas not well served by mainstream banking sources. Their main
objective is to stimulate sustainable local commercial activity. The Committee
looks at the experiences of three such countries—the United Kingdom, the United
States of America and Canada.
The three countries have initiated a range of measures to promote
community development finance programs to combat financial exclusion of
disadvantaged groups. They recognised that the lack of access to commercial
financial services, appropriate business advice, affordable loans and venture
capital retards economic growth for areas not well served by other capital
markets. Rather than undertake an overall appraisal of the regulatory regime in
the three countries, the Committee has focused on one particular aspect most relevant
to the inquiry—the availability of finance and financial advice to areas not
well served by financial institutions.
The Government of the United Kingdom strongly supports Community
Development Finance Institutions (CDFIs) which are recognised as an effective
means of providing capital to deprived areas and underserved markets unable to
obtain conventional mainstream finance.
CDFIs are independent financial organisations funded from a variety of
sources including ‘individuals, and charitable foundations as well as banks and
They are intended to be ‘pump primers’, seeking out and supporting individuals
or groups with promising business prospects, so they become part of the
mainstream financial world.
Their support makes it possible for new enterprises to grow, generate income
and employment. Although committed to marginal businesses, they are concerned
with financial as well as social return on their investment. The UK Investment
Task Force explained:
to be eligible as a CDFI, the institution’s mission must be
focused on community development, i.e. it must serve either low-and
moderate-income people and/or low- and moderate-income communities. The primary
activity of a CDFI is lending or investing in community revitalisation.
The Government has established a national Phoenix Fund designed to
encourage entrepreneurship in disadvantaged areas. Some of the funds are made
available to CDFIs to enable them to develop their core activities of providing
finance and advice to enterprises from disadvantaged communities.
The United Kingdom also has a well-established loan scheme for small
business to fill a recognised gap in the market for small firms to access
Called the Small Business Service Small Firms Loan Guarantee scheme, it is
administered by the Small Business Service (SBS) which guarantees loans from
the banks and other financial institutions for small firms that have a viable
business proposal but who have tried and failed to obtain a loan because of
lack of security. The SBS guarantees 75 per cent of the loan.
There is also growing interest in the role that disclosure of lending
policies could have as an incentive for banks to become more involved in
assisting areas to obtain finance. The UK Social Investment Task Force
recognised in its recommendations to the Chancellor of the Exchequer the need
for banks to provide ‘much more detailed, individual disclosure’ of their
lending activities in under-invested areas, and ‘to sponsor the creation of a
rating system to reward excellent performance’.
It further suggested that if voluntary disclosure is not made quickly, the
government should require disclosure in the manner of the USA Community
Following up on this recommendation, the UK Treasury put the case to the
banks for more transparent disclosure of individual lending activities to
business in disadvantaged areas. The British Bankers’ Association has published
information on bank lending in deprived areas and is seeking views on how the
exercise can be refined for subsequent years.
United States of America (USA)
The tenet underpinning USA legislation, and clearly articulated in
statute, is that regulated financial institutions serve the convenience and
needs of the communities in which they are chartered to do business including
the need for credit services as well as deposit services.
In the USA, the Community Reinvestment Act (CRA), passed in 1977, is
designed to assist disadvantaged communities obtain private capital. The
legislation requires banks to satisfy the service and credit needs of the
entire community, including those on low and moderate incomes. The legislation
is intended to put regulatory pressure on banks to make loans in low-income
communities and takes a three-pronged approach:
- Disclosure—the legislation requires each bank depository
institution to keep a record of the assistance it has provided to meet the
credit needs of its community.
- Assessment in the form of ratings—the records are examined
periodically by the regulators and banks are allocated points for their
performance in lending to low-income individuals and communities.
- Sanctions for poor performers—the grade or rating is taken into
account by the regulators when an institution applies for regulatory approval
to expand its deposit facilities including mergers and acquisitions.
Many regard the CRA as an important tool to help underserved communities
gain access to mainstream financial services providers.
The US also has a long history of Community Development Finance
Institutions (CDFIs) which began taking shape in the early 1970s.
At that stage, CDFIs received their capitalisation from government or
philanthropic sources rather than mainstream institutions.
According to one study, CDFIs served as connecting points between the
mainstream finance world and low-income communities. It found that:
Many CDFIs engage in loan packaging, loan brokering or sale of
loan participations to mainstream institutions and investors that lack the
capacity to find and underwrite community investments themselves.
CDFIs in the US received significant support when Congress approved the
establishment of a Community Development Finance Institution fund in 1994 which
provided assistance to certified CDFIs in a variety of forms, including ‘equity
investments, deposits, loans, grants and technology assistance’.
At first CDFIs concentrated on affordable housing but have expanded their
activities to include small business and community service loans.
Canada has also in recent years reviewed its legislation governing the
financial services sector. A report by the Canadian National Council of Welfare
titled Banking and Poor People: Talk is Cheap released in 1998 deals
with the issues of closures of bank branches in poorer areas and the lack of
service by banks to welfare recipients.
The report argued that many of the problems of the financial services
sector cannot be overcome through the rigours of the market, and that
competition and disclosure will not ensure good service at low prices for
people in disadvantaged areas. The report argued that government intervention
is required from time to time to ensure that financial institutions fulfil
their obligations to the entire community, which includes providing reasonable
service to people in all parts of the country.
Canada has adopted a new framework covering a wide range of aspects of
financial services. Of relevance to this inquiry are the measures to provide
better protection for consumers. The Canadian government was of the view that a
regime similar to that established under the CRA was not warranted in Canada
but that other mechanisms could be used to promote accountability. In June
2001, Bill C-8—the Financial Consumer Agency of Canada Act was passed by
the Canadian Parliament. While this legislation introduced a range of consumer
protection measures, including the establishment of the Financial Consumer
Agency of Canada (the Agency), it stopped short of introducing comprehensive
requirements such as those in the US.
Subsection 3(2) of the Act sets out the objects of the Agency, which
include inter alia:
- monitor the implementation of
voluntary codes of conduct that are designed to protect the interests of
customers of financial institutions, that have been adopted by financial
institutions and that are publicly available and to monitor any public
commitments made by financial institutions that are designed to protect the
interests of their customers;
- promote consumer awareness about
the obligations of financial institutions under consumer provisions applicable
to them; and
in co-operation with any department, agency or agent corporation of the
Government of Canada or of a province, financial institutions and consumer and
other organizations, an understanding of financial services and issues relating
to financial services.
Other measures of interest to this inquiry are:
- The requirement for banks with equity in excess of $1 billion to
publish annual Public Accountability Statements. They are to include ‘information
relevant to the public, including the number of employees, small business
financing initiatives, charitable contributions, efforts to improve access to
banking services and the location of branch openings and closings’.
- The requirement for Statistics Canada to collect and publish data
on the supply of debt and equity financing to SMEs.
Lessons for Australia
Evidence presented to this Committee strongly indicates that there is a
need for business banking services which is not being met by the current banking
system, particularly in remote and very remote Indigenous communities. In some
cases the issue is not so much the withdrawal of banking services but the lack
of any services in the first place.
Other jurisdictions, including the UK, the USA and Canada are facing
similar problems as those in Australia, in terms of access to banking
facilities, closure of branches and loss of services in rural, regional and
remote areas. Because of its size and population distribution, as well as the
nature of its banking system, Canada is probably the most broadly comparable
country to Australia.
The crux of the problem seems to be whether difficulties associated with
access to adequate banking and financial services should be ‘solved’ by
allowing market forces to reign, or by having the government intervene in some
way. If intervention is thought necessary, the question then becomes one of
what type of intervention is going to be most effective.
The CRA imposes a type of community service obligation on banks via regulation,
requiring a financial institution to serve the entire community in which it
operates. As the Centre for Aboriginal Economic Policy Research (CAEPR)
recognised, the imposition of community service obligations on banks is not an
easy thing. The alternative to regulatory restriction is relying on moral
suasion to convince banks that in the longer term it would be good for business
to look after disadvantaged communities.
With reference to the CRA model, CAEPR’s view was that there seemed to
be a ‘great deal of opposition to that sort of heavy-handed approach in the
CAEPR indicated that, in regard to Indigenous communities, governmental
intervention will be needed to assist these communities to become financially
viable, partly because the communities are at such a disadvantage compared to
the rest of Australia.
It is clear that in comparison to the USA, UK and Canada, Australia does
not have a clearly articulated policy on the provision of financial assistance
and advice to areas not well-served by the financial markets. The work being
undertaken by Westpac in the Cape York area is an example of a financial
institution providing resources to encourage local enterprises and to stimulate
the local economy. While commendable, this project, however, is an isolated
example of what the Committee believes should be an established practice
expected of all the major financial institutions undertaken in conjunction with
government initiatives to assist communities with their banking and financial
The Committee acknowledges and fully supports the recent proposal put
forward by the ABA for it to lead a tri-partite Round Table (‘Remote Services
Round Table’). In brief, the initiative is to involve relevant government
agencies, in partnership with Reconciliation Australia, to draw up action plans
to improve access to banking services in remote regions.
This proposal is in keeping with a number of the Committee’s recommendations.
For example, the Committee sees an important role not only for institutions
such as the Traditional Credit Union but the major banks in encouraging and
assisting Indigenous Australians to pursue a career in the financial services
sector (see recommendation 25). Recommendations 26 and 27 are also particularly
While the Committee endorses the ABA’s proposal and strongly encourages
other possible participants to support the roundtable process, the Committee,
nonetheless, would like to see concrete evidence of financial institutions
taking a more hands-on approach to providing financial services to remote
As noted above, the USA under the CRA places a disclosure obligation on
banks. The British Bankers’ Association has also acted on the Social Investment
Task Force recommendation that banks disclose their lending activities in
under-invested areas. Canada, while rejecting the CRA model, has taken steps to
ensure that a comprehensive program of information collection and analysis is
undertaken on the supply of debt and equity financing to SMEs.
Clearly, the three countries perceive advantages in requiring financial
institutions to disclosure information on their activities, including lending
practices, in disadvantaged areas. The Committee considers that such a
requirement would certainly improve the transparency of the lending practices
of ADIs to disadvantaged areas in Australia and encourage them to take a more
active role in providing such communities with financial assistance, advice and
in stimulating local economic activity.
Westpac publishes a social impact report each year and has been doing so
for two years. Mr Leon Davis, Chairman of Westpac, accepted that it exposes the
institution to criticism but indicated that neither he nor the board were ‘too
The Committee believes the banking industry should promote public
understanding of its work in disadvantaged areas of Australia. The Committee
notes the work being done by Westpac in this area and the value that a social
impact report could have in encouraging financial institutions to take a more
active part in assisting disadvantaged areas with their financial needs.
Further, it notes the approach taken by the USA, and the interest taken by the UK,
in having a rating system as an incentive for banks to pay greater attention to
the needs of disadvantaged areas.
The Committee recommends that the banking industry look closely at
the disclosure requirements on financial institutions in the UK, USA and Canada
regarding their involvement in providing finance to disadvantaged districts
with a view to developing a disclosure regime for Australian banks. The
intention of the regime would be twofold. Firstly to provide an accurate
picture of the lending practices of banks to disadvantaged areas and secondly
as an incentive for banks to assume a more active and constructive role in
assisting residents and local businesses in disadvantaged areas, especially in
country Australia, with their financial needs and to help invigorate their
The Committee recommends that the Department of the Treasury also
look closely at the disclosure requirements on financial institutions in the UK,
USA and Canada in regard to their involvement in providing finance and other
assistance to disadvantaged districts. Further that the department:
- monitor and determine whether the disclosure practices adopted
by the banking industry in Australia ensure that adequate information is
available about the contribution that individual financial institutions are
making to assist rural, regional and remote Australia and whether the
disclosure regime is encouraging banks to become involved in the economic
development of such areas;
- determine whether the introduction of a rating system as
specified in the CRA and outlined in the UK Task Force recommendation to the
Chancellor of the Exchequer would have merit; and
- consider whether financial institutions should be under a
legislative requirement to report on their activities in rural, regional and
Before concluding this report, the Committee briefly mentions the role
of local councils.
Local government bodies are taking an active role and have been
successful in enticing financial institutions into their locality. In February
2000, Councillor Peter Woods, then President of the Local Government
Association of NSW, asserted that the availability of banking and financial
services is fundamental to community viability. He maintained that local
government is about ‘building and maintaining prosperous and sustainable
communities’. He argued that local government can and is responding in two key
- Taking on a facilitative role to retain services and to attract
alternative service providers. For example, councils have been instrumental in
having banking services restored by credit unions and community banks in many
- Taking a hands-on role involving the investment of Local
Government resources and playing an active role in working out solutions. At a
local level this has involved councils establishing agencies of banks and
delivering banking services alongside council services.
The Shire of Victoria Plains and the Nanango Shire Council are examples
of councils that have stepped in to provide their residents with banking
services. In both cases the establishment of the banking agency was at a cost
to Council and recognised as a community service.
Throughout the report there are similar examples of local councils taking on
responsibilities for providing banking and financial services including the
role of educating and training local residents to use alternative ways of
Mr Christopher Francis, City of Ballarat, noted the growing pressure on
local councils to deliver a range of services from which other levels of
government have chosen to withdraw or reduce funding. The same is happening
with the withdrawal of private sector services. Mr Francis told the Committee
that ‘there is the expectation that we will pick up those in some form, maybe
through the provision of banking services with council offices, electronic
funds transfer or other services.
He made the point, however, that the role of local government is not to provide
financial advice to people.
Councillor Smith added the same cautionary note. He told the Committee
that local government has to be careful about what it is about:
I do not think it is just peculiar to us in Queensland, but more
and more services are being devolved down to local government from state
government. I just wonder where local government’s role really is...we have
government services already now associated with local government—what was
termed the Queensland Government Agent Program—such as transport licensing
forms, through our QGAP office. We have got Rural Transaction Centres. These
sorts of services are the things that local government is doing, over and above
what is the norm of local government. As each day goes by, we find we are
getting into different areas.
Mr Barber, Latrobe City, stated that it was important for local
government to interact very closely with the banks and other commercial
organisations, credit unions and suchlike, to ensure that they try to help
ratepayers, ‘if there is a potential calamity we see coming’.
The Committee believes that ensuring the provision of adequate banking
and financial services to regional, rural and remote Australia is the joint
responsibility of the financial services sector and government with the active
involvement of the community. It believes that ADIs do have a social
responsibility to ensure that the communities they serve are provided with
adequate services. It believes that there should be measures in place to guide,
assist, even compel Australian ADIs to behave appropriately. The industry code
of practice provides a major incentive for banks to observe minimum standards.
The Committee has made recommendations to strengthen the protocol governing
branch closures by, inter alia, requiring banks when considering branch
closures to consult with the community and to release a community impact
statement. It has also made recommendations to broaden the banking code of
practice by including an undertaking that banks will take all reasonable
measures to educate customers in the use and benefits of accessing banking
services through new technologies. Further, that the code will offer practical
guidance on some of the measures that banks could take to ensure that they are
effective in meeting this commitment.
In turning to compliance, the Committee has recommended that the ABA
take an active role in monitoring and reporting on the banks progress in
improving its code of practice and in implementing the recently formulated
industry standards. Furthermore, the Committee has recommended that the banks
work together to minimize the costs associated with using a foreign ATM in
country areas and to introduce a safety net basic account that provides
benefits over and above those offered in the recent proposal developed by the ABA.
Governments also have an important role in ensuring that all Australians
have reasonable access to banking and financial services. Their central
function is to create a marketplace in which consumers are well-informed, their
interests are protected and competition flourishes. The Committee believes that
the Government has an obligation to intervene should the market fail to look
after the needs of consumers especially in the area of access to banking and
To this end the Committee has made a number of recommendations that
include improving the quality of data on, and analysis of, the availability of
banking and financial services. It has recommended the continued funding of the
RTC program, ongoing support for programs such as the Family Income Management
Plan, and the introduction of an incentive scheme providing opportunities for
Indigenous people to work in the financial services sector. The Committee has
also recommended that the Government take a far more active role in monitoring
and encouraging financial institutions to observe minimum industry standards and
to express its readiness to implement stronger regulatory requirements should
the industry fall short in meeting these standards. The Committee can see the
advantages to be gained in placing requirements on banks to report on their
work in disadvantaged communities and has asked the Department of the Treasury
to consider the merits of a rating scheme.
In turning to the regulatory bodies, the Committee has recommended
that—the ACCC examine the competition issues involved in switching bank
accounts; ASIC investigate practices associated with book up in an effort to
curb unscrupulous conduct; and ASIC and APRA examine and report on the
compliance costs for smaller ADIs under the current regulatory regime in
providing services to regional, rural and remote areas and whether they can be
minimised without compromising consumer interests or prudential standards.
Overall, the recommendations are intended to improve competition in the
retail banking industry, strengthen consumer protection and to encourage the financial
services sector to assume a far more active and responsible part in promoting
the economic welfare of people and their communities in regional, rural and
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