Tougher penalties for badly behaved bankers

The government has pledged to give financial regulators more teeth for an era of greater scrutiny of the banking sector.

Treasurer Scott Morrison delivering the budget. Picture: Kym Smith

The government has pledged to give financial regulators more teeth for an era of harsher levels of scrutiny over the banking sector, seeking to end lockstep movement in mortgage rate pricing and a lack of executive accountability for ­financial scandals.

A new pricing watchdog in the Australian Competition & Consumer Commission will ensure banks do not pass on the costs of a new $6.2 billion levy to customers, Scott Morrison said.

“Well, they can’t go and lie to customers,” the Treasurer said. “The ACCC will be watching this closely ... they have been funded to do this job.”

For the first time, the government will also broaden the policing of the prudential regulator to cover the non-bank sector, and allow it to deploy lending controls based on geographical region.

The financial sector will cover much of the cost of expanding the Australian Prudential Regulation Authority’s powers, which will see banking executives put on a register so the regulator can disqualify, penalise or withhold remuneration of badly behaved bankers.

Industry will also cover the $13.2 million cost of setting up a new banking competition taskforce within the ACCC, which is likely to greatly up-end the sector’s ability to reprice standard variable rates in their favour. The new body will also undertake regular inquiries into specific financial system competition issues.

The announcements come on top of the creation of a one-stop complaints shop for consumer disputes with financial institutions, to be known as the Australian Financial Complaints Authority.

“For the system to be fairer, there needs to be greater competition and accountability — now,” Mr Morrison said yesterday.

The new executive accountability regime will require “all senior executives to be registered with APRA,” he said.

“If in breach, they can be ­deregistered and disqualified from holding executive positions, and be stripped of significant bonuses.”

The sector is also facing a significant increase in fines for breaching misconduct rules, starting at $50m for small lenders and $200m for large banks. The range of budget proposals will cost the sector more than $60m in statutory levies and fees.

“Banks will also be held to account if they try to hide misconduct by executives with new mandatory reporting requirements,” Mr Morrison said.

The creation of a permanent team within the ACCC, tasked with investigating competition within the banking system, is a coup for the government’s review of the four major banks, which was launched after the big four failed to pass on the full Reserve Bank rate cut in August last year.

Liberal MP David Coleman, who led the review, faced considerable backlash from Commonwealth Bank, Westpac and National Australia Bank over the proposed monitoring body. Mr Coleman’s report said the major banks’ significant pricing power benefited shareholders at the expense of customers. In 18 of the 19 rate changes made out of cycle with the RBA since 2000, changes were detrimental to consumers, Mr Coleman found.

The Australian understands the ACCC will continually use its information gathering powers to assess banks’ costs of funds to monitor whether interest rate increases for home loan customers are justified. The move comes as the government launches a Productivity Commission review of the state of competition in the fin­ancial system, which was proposed by David Murray’s Financial System Inquiry.

As part of the introduction of a $6.2bn major bank levy, the ACCC will undertake a mortgage pricing inquiry until mid-2018. As part of this inquiry, the competition watchdog will require banks “to explain changes or proposed changes to residential mortgage pricing, including changes to fees, charges, or interest rates”.