Financial sector reforms overview

The 2017 Commonwealth Budget was accompanied by a significant Government announcement on financial sector reforms.

The Government has responded to the External Dispute Resolution Review by establishing the Australian Financial Complaints Authority to replace FOS, CIO and the SCT. More here.

The Government also responded to the recommendations of the House of Representatives Standing Committee on Economics Review of the Four Major Banks.

Changes include:

  • the introduction of a Banking Executive Accountability Regime which will require registration of all ADI senior executives with APRA and give APRA power to impose severe penalties.
    More here.
  • The Government will commission an independent review to recommend the best approach to implement an open banking regime in Australia to report by the end of 2017.
  • For “new and innovative entrants” to the banking system the Government will relax the legislative 15 per cent ownership cap, whether through the existing ministerial discretion or legislative change.
  • The prohibition on the term ‘bank’ by ADIs with less than $50 million in capital will also be lifted by legislation to allow them and other ADIs to benefit from the reputational advantages of the term.
  • The Government has announced its support of a phased approach to licensing banks and welcomes APRA’s review of prudential licensing arrangements and consideration of such approaches.
  • The Government has requested the Productivity Commission (PC) to commence a review on 1 July 2017 of the state of competition in the financial system.

Credit reforms

The Government will legislate a mandatory comprehensive credit reporting regime if credit providers are not reporting at least 40 per cent of their data by the end of 2017.

In respect of credit cards, the Government will:

  • require that affordability assessments be based on a consumer’s ability to repay the credit limit within a reasonable period;
  • prohibit unsolicited offers of credit limit increases;
  • simplify how interest is calculated; and
  • require online options to cancel cards or to reduce credit limits.

The Government will also give APRA new powers over the provision of credit by lenders that are outside the traditional banking sector. The Government will also make it clear that APRA has the ability to use geographically-based restrictions on the provision of credit where APRA considers it appropriate. This will ensure that APRA can respond flexibly to financial and housing market developments that pose a risk to financial stability.

To improve the financial capability of Australians, the Government will fund ASIC to expand its financial literacy program and develop a new National Financial Literacy Strategy.

The Government has asked the Australian Competition and Consumer Commission (ACCC) to undertake a residential mortgage pricing inquiry until 30 June 2018.

The Government will establish the National Housing Finance and Investment Corporation to operate an affordable housing bond aggregator to encourage greater private and institutional investment and provide cheaper and longer-term finance to registered providers of affordable housing.

Major bank levy

From 1 July 2017, the Government will impose a major bank levy on Australia’s 5 largest banks.

The levy will apply to all ADIs with licensed entity liabilities of at least $100 billion. The $100 billion threshold will be indexed to grow in line with nominal Gross Domestic Product.

The levy will be calculated quarterly as 0.015 per cent of an ADI’s licensed entity liabilities, excluding Additional Tier 1 capital and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme.

Liabilities subject to the levy will include: corporate bonds; commercial paper; certificates of deposit; and Tier 2 capital instruments.

Other changes

The Government will change the ASIC regulatory sandbox to allow businesses to test for a period of 24 months a wide range of new financial products and services, allowing businesses to evaluate the commercial viability of new concepts without a licence but subject to meeting minimum consumer protection obligations.

The Government will extend the crowd-sourced equity funding (CSEF) framework to proprietary companies.

The Government is removing the double taxation of digital currency. From 1 July 2017 purchases of digital currency (such as Bitcoin) will no longer be subject to the GST.

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