ASIC reveals five million customers waited years for almost $500m

THE big four banks take six years on average to start compensating customers who have been ripped off or short-changed, a startling review has revealed.

THE big four banks take six years on average to start compensating customers who have been ripped off or short-changed, a startling review has revealed.

The Australian Securities and Investments Commission says there is an “urgent need” to change the way financial institutions identify and process breaches of law, which left five million customers almost $500 million out of pocket in a three-year period.

Culprits are routinely failing to notify ASIC about breaches within the time frame legally required, while incidents that result in large payouts to customers take far longer to be identified by lenders than ones involving smaller amounts of compensation.

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The latest dire assessment of governance in the banking sector comes after ASIC did a deep-dive analysis of how 12 financial institutions handled significant breaches of law.

It also comes as ASIC pushes for penalties to be expanded and increased for not reporting breaches, as well as changes to how lenders are able to assess what constitutes an incident in need of investigation.

ASIC boss James Shipton said the findings were ‘a sad indictment on the financial services industry’. Picture: Kym Smith

ASIC’s report revealed that it took an average of 5.5 years from a problem being identified to the first payment making its way to a customer. For the Commonwealth Bank, Westpac, ANZ and National Australia banks, the delay was six years.

ASIC chair James Shipton on Tuesday said the findings were “a sad indictment on the financial services industry”.

“This must not stand,” he said. “There is an urgent need for investment by financial services institutions in systems and processes as well as commitment and oversight from boards and senior executives to address these significant failings.”

The review covered 715 “significant breaches” reported to ASIC from 2014 to 2017.

Other institutions included AMP, Bank of Queensland, Bendigo and Adelaide Bank, Credit Union Australia, Greater Bank, Heritage Bank, Macquarie and Suncorp.

The review identified $500 million in losses owed to customers and millions of dollars of remediation yet to be paid. Superannuation accounted for 40 per cent of breaches.

Breaches that took four or more years to be identified involved losses to consumers who were almost double those from breaches that were picked up within four years, the report stated.

“The consumer impact is noticeably greater in instances where the breach went undetected by AFS (Australian Financial Services) licensees for four or more years,” it stated.

The major banks took, on average, 4.5 years to identify an incident as a possible breach of law from the time it was first raised.

Australian Banking Association chief Anna Bligh. Picture: David Geraghty

Incidents can be raised by bank staff or by customers. About half of the incidents reviewed were identified by staff.

It then took a month for an internal bank investigation to begin and another 7.5 months — 226 days — from the end of an investigation until the first payment was made to a customer.

Institutions are legally required to report significant breaches to ASIC within 10 business days of becoming aware of them. The big banks have been taking 150 days.

Bank lobby group the Australian Banking Association said the report showed banks needed to identify, report and fix issues more quickly to regain customer trust and ensure they complied with the law.

“Customers expect these problems to be identified and fixed as soon as possible. Clearly this report shows there’s a lot of work to be done,” ABA chief Anna Bligh said.

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