The Turnbull Government is taking action now to build an accountable, competitive and stable banking system, introducing legislation today to enact landmark financial services reform.
The banking sector plays an essential role in promoting economic growth and a critical role in the lives of everyday Australians who rely on it.
Australians expect a system which is fair, competitive, and unquestionably strong. That's why the Turnbull Government has boosted the powers of regulators so they can keep the system operating at the highest standards, serving the interests of Australians.
Banking Executive Accountability Regime (BEAR)
The Government is bringing greater accountability to our banks, introducing tough new rules for banks and their executives that will keep their behaviour and decision making in check. Under the BEAR, banks and their senior executives and directors will be expected to conduct their business with honesty and integrity, prudence, care and diligence; deal with APRA in an open, constructive and cooperative way; and prevent matters from arising that would adversely affect the bank's reputation or hurt its customers.
Where these expectations are not met there will be strict consequences.
APRA will be empowered to more easily remove or disqualify executives, dish out substantial fines to banks when they fail to crack down on bad practices, and claw back remuneration from individuals.
Banks will also be required to register individuals with APRA before appointing them as senior executives and directors. And APRA will have new powers to examine witnesses, including during potential investigations of breaches of the BEAR.
These mechanisms are intended to incentivise good behaviour and ensure that banks and individuals are held to account where they fail to meet the standards expected of them.
Section 66
Legislation is also being introduced to deliver more choice for customers by boosting competition in financial services.
We are lifting the prohibition on the use of the word 'bank', so all banking businesses with an ADI licence will be able to use this term. Currently only ADIs with more than $50 million in capital can call themselves a bank.
This forms a significant barrier for new players who wish to enter the market. New players need to identify themselves as a 'bank' so customers can properly understand their product offering. Critically, new players will still need to be licensed by APRA before being permitted to conduct banking business.
Credit cards
The Government's reforms to credit cards will lead to better outcomes for consumers, improving competition and protecting vulnerable Australians from predatory lending behaviour that compounds their financial hardship.
These reforms will reduce the incidence of consumers building up unsustainable debts and will put an end to the overly complex and unfair way in which interest is calculated on credit cards. The reforms include:
- requiring that affordability assessments be based on a consumer's ability to repay the credit limit within a reasonable period;
- banning unsolicited offers of credit limit increases;
- simplifying how credit card interest is calculated; and
- requiring credit card providers to have online options to cancel cards or to reduce credit limits.
Crisis Management
The legislation will also significantly enhance the stability of Australia's financial system by strengthening APRA's crisis management powers.
The Global Financial Crisis (GFC) demonstrated how costly and devastating such crises can be to a country's economy and the wellbeing of its people.
While Australia weathered the crisis – in large part due to the economic management and effective reforms of the Howard Government – the Financial System Inquiry identified that more should be done to allow our prudential regulator to prepare for and manage a financial crisis.
In line with this recommendation and building on the strong legacy of the Howard Government, the legislation introduced today by the Turnbull Government will strengthen APRA's crisis resolution powers.
APRA will be given clear powers that will enable it to set requirements on resolution planning and ensure banks and insurers are better prepared for a crisis.
APRA will also be provided an expanded set of crisis resolution powers to allow it to act decisively to facilitate the orderly resolution of a distressed bank or insurer.
The Turnbull Government is doing the heavy lifting now and giving APRA these powers while Australia's financial system is in robust health to ensure the future wellbeing of the system and the wider economy.
Macroprudential powers
The legislation will also strengthen financial stability by providing APRA a new reserve power over the lending activities of non-banks.
APRA will be able to make rules where it sees that the activities of non-bank lenders are materially contributing to risks of instability in the Australian financial system.
APRA will also be given the ability to collect data from the non-bank lender sector to determine if and when to use this new power.
While the Government is of the view that non-bank lenders are not materially contributing to risks at the moment, this APRA power is a new 'tool on the shelf' that APRA can use to manage risks should they emerge in future.
Modernising APRA's legislative framework
In addition to driving better outcomes in the financial system, the Government is also taking this opportunity to bring our banking law into the 21st century.
The legislation will insert an objects provision into the Banking Act 1959 to make clear APRA's roles and responsibilities under the Act, aligning it with other acts such as the Life Insurance Act 1995.
This will make clear that APRA can, and will, act to address varying economic circumstances and stresses as they arise across different parts of Australia.
Together, the legislation introduced today represents the most significant overhaul of APRA's powers since its creation by the Howard Government.
The Government looks forward to continuing to work with regulators, industry, and all stakeholders to ensure Australia's financial system is fairer, more accountable, competitive and stable.