The Government announced in the 2017-18 Budget that it will act to reduce regulatory barriers to entry for new and innovative entrants to the banking system.
On 17 July 2017, following this announcement the Federal Government released a consultation paper seeking comments on draft legislation which seeks to lift the prohibition on the use of the word 'bank' by authorised deposit-taking institutions (ADIs) with less than AU$50 million in capital.
Consistent with the Budget announcement, the draft Bill would amend the Banking Act 1959 to:
- Replace the AU$50 million threshold that APRA currently applies to allow any ADI to use the word ‘bank’ in relation to the ADI’s financial business (except in limited circumstances); and
- remove the opportunity to appeal an APRA decision regarding the use of ‘bank’ to the Administrative Appeals Tribunal.
Responses are due by Monday 14 August 2017.
Also announced in the Budget was the Government’s commitment to requiring banks to share proprietary data about customers, with customer consent.
Data sharing can help to reduce the barriers to entry for new and innovative entrants to the banking system because it enables them to access large data sets that major banks hold on individual customers. Recent technological advancements mean that these new entrants have the tools to readily assess and price risk which can conceivably be achieved at nil marginal cost.
It remains unknown how the Government will go about encouraging the banks to share proprietary data. It has been speculated that the Government may need to treat the bank’s data as if it is a property right that is protected by the Constitution, in which case the Government may have to acquire those rights on just terms.
On the other hand the Government may establish a legislative framework that allows a bank to charge its customers a fee for making data available to a customer’s nominated incoming financier. This has been the approach which the legislator has taken in Hong Kong. The Hong Kong experience demonstrates that the debate then centres on what constitutes a reasonable fee and whether a bank is able to charge for any costs beyond the costs associated with the labour costs and out-of-pocket expenses incurred in locating, retrieving, reproducing and sending the requested data (for example costs associated with system maintenance and archiving).
The Government has committed to releasing an independent report by the end of 2017. As well as Hong Kong the report is likely to look at the changes that have occurred in the UK.