The Unpleasant Truth About Australian Banking

Clause 5 of the Code sets out the commitment by subscribing banks to appoint an independent expert to review of the Code every three years.

Clause 5.1 states:

The subscribing banks will require the Australia Bankers Association to commission an independent and transparent review of the code every three years, or sooner if appropriate, with the review being conducted in consultation with:

Banks adopting the Code;

Consumer organisations;

Other interesting industry associations;

Relevant regulatory bodies; and

Other interested stakeholders.

Clause 5.2 states:

The subscribing banks will participate in any such review and co-operate with the person conducting it.

Clause 5.3 states:

The banks will require the Australia Bankers Association to establish a forum (including consumer, small business and banking industry representatives) for the exchange of views on:

Banking services; and

The effectiveness of the Code

The banks will require the Australia Bankers Association to ensure that these views are taken into account in the next review of this Code.

Clause 5.4 states:

The banks will require the Australia Bankers Association to publish on its website:

the recommendations and report arising from the review of the Code and to make them available to the public in hard copy on request;

reasons why any such recommendation has not been accepted; and

quarterly progress reports on the implementation of those recommendations that have been accepted, until the implementation process is complete.

 (a) FEMAG Group Review in 2005

The first independent and transparent review was carried out in by a leading group of academics comprising members of the FEMAG group in 2005.

As early as 2005, community groups were noting the growing predicament facing self-regulated banking.  The FEMAG group suggested the bank CEOs association might not be as independent and effective as banks reported and advertised. The FEMAG group however, merely identified this as a potential problem.

The Code Compliance Monitors lack of independence was mere speculation and apparently not properly understood until early 2008 when the Committee members acted as whistle blowers. Having made a public statement regarding the subscribing banks self-serving behaviour, the monitors resigned in late in 2008.

This meant the FEMAG group had presented an optimistic and mistaken view that the directors of subscribing banks would consider its report and findings and address the structural failings. The reviewers were mistaken. Whilst the message was clear, the banks did no such thing, failing to accept they had duties under the APRA Act and exercise ‘good-old’ common sense.

Instead, the banks directors continued taking advantage of the ambiguity and dual contracting while the Australia Bankers Association, the jointly funded and operated PR machine, made repeated promises saying the banks were improving practices and services.

In fact, the banks behaviour was in stark contrast to statements being published by the Australian Bankers Association. Its Chief Executive, David Bell, was on record as stating banks approval ratings were at a record high:

Despite customer satisfaction reaching record levels, I know the banks will continue to strive to improve their products and services and aim for an even better result in the next survey.

Full details regarding the 2005 FEMAG review appear later in this paper.

(b) Jan McClelland Review in 2008

On 29 November 2007, Jan McClelland was appointed by the Australia Bankers Association to carry out the second independent and transparent review of the new Code. Ms McClelland had a long list of impressive credentials having worked in government agencies and privately owned companies.

An experienced senior executive, McClelland Chaired NSW Businesslink Pty Ltd and was a former Director General, NSW Department of Education and Training. She had also been Managing Director of NSW TAFE Commission, a fellow of the Australian Institute of Management, the Australian Council of Educational Leaders and Member of the Australian Institute of Company Directors.

It appeared that Ms McClelland was highly qualified and capable of independently reviewing the effectiveness of the Code. As a professional, McClelland would make enquiries into the origins of the Code and its efficacy and application. She would also have a sound knowledge of the history of the Code and previous reviews prior to commencing her assignment.

The McClelland review was supported by a large number of submissions referred by interested parties including the Financial Sector Union, CARE, COSBOA and the ABA. From the many submissions and her own research Ms McClelland’s task was to distil the relevant issues that needed being reviewed and researched. These included submissions referred to her by the Code Compliance Monitors when the issues paper was being considered and later when her report was underway.

The Code Compliance Monitoring Committee members elevated concerns that were particularly relevant. They expressed:

poor communication between banks and customers;

inadequate use of dispute resolution procedures, and

the importance of strengthening their independence.

All relevant and later swept aside.

As an independent reviewer, Ms McClelland would have studied the previous report by FEMAG. Lack of independence was a hot-issue for Code Compliance Monitoring Committee members in 2008 and Ms McClelland had a duty to target all hot-issues such as the Code Compliance Monitors lack of independence, dual contracting and the bank CEOs constitution, all part of opt-out provisions allowing banks to sidestep complying with the Code.

Code Compliance Monitoring Committee questions independence

In fact, Ms McClelland went part way by identifying independence of the Code Compliance Monitors as being a hot-issue. She provided a statement regarding it without recommending subscribing banks to publish the CEOs constitution and incorporate it in the Code.

The reviewer explained how the constitution hinders the Compliance Monitoring Committee’s ability to monitor code compliance and constrain its monitoring and sanctioning powers. Ms McClelland exercised her judgment as an expert and took the opt-out provisions no further.  When making recommendations, the reviewer placed little or no emphasis on the problems facing customers, suggesting an independent unit within the FOS and being accountable to the FOS Board (who were party to the dual contracting arrangement) might remedy the problem.

Despite controversial findings, or perhaps because of them, Ms McClelland’s Final Report added little weight to the dual contracting and code/ constitution irregularities that were necessary for concealing complaints and code breaches. It cast doubts on Ms McClelland’s authoritativeness, as there was a noticeable lack of potency and emphasis on the deceptive, unpublished constitution. The reviewers December 2008 report allowed subscribing banks to continue restricting the authority and powers of Code Compliance Monitoring Committee members.

The following lists of submissions were referred to Ms Jan McClelland in 2008.

Submissions received for the McClelland Issues Paper

Name of Organisation/ Rated

Great Value

Some Value

Limited Value

1 Financial and Consumer Rights Council Inc – Donna Letchford 18/02/08


2 NSW Office of Fair Trading  – Lyn Baker 01/03/08


3 Code Compliance Monitoring Committee – Kirsten Trott 11/03/08


4 Financial Counsellors Association of Queensland Inc – David Lawson 06/04/08


5 Australian Competition ad Consumer Commission  – Nigel Ridgway 09/04/08


6 Financial Sector Union of Australia – Leon Carter 22/04/08


7 Australian Bankers’ Association –

Ian Gilbert



Final set of McClelland submissions received

Name of Organisation/ Rated

Great Value

Some Value

Limited Value

1 CARE Financial Counselling Service – Carmel Franklin 24/06/08


2 Australian Payments Clearing Association 01/07/08


3 Credit Ombudsman Service –

Paul O’Shea





4 NSW Office of Fair Trading –

Lyn Baker



5 Financial Counsellors’ Association of Queensland – David Lawson 05/07/08


6 Northern Community Legal Service Inc – M. Aberdeen 28/07/08


7 Code Compliance Monitors – Tony Blunn AO 29/07/08


8 Australian Financial Counselling and Credit Reform Association –

Jan Pentland



9 Department of Business Law and Taxation, Monash  Uni –  Rhett Martin 30/07/08


10 CHOICE and Consumer Action Law Centre 31/07/08


11 Joint Submission on behalf of Consumer Advocates – Nicola Howell 31/07/08


12 Australian Government Office of the Privacy Commissioner 01/08/08


13 Financial Sector Union of Australia – Leon Carter 01/08/08


14 Financial Ombudsman Service – Philip Field 04/08/08


15 Australian Bankers’ Association –

Ian Gilbert



16 Legal Aid Commission of NSW – 07/08/08


17 ANZ Banking Group 08/08/08


18 Westpac Banking Corporation – 14/08/08


19 VEDA Advantage 01/09/08


20 Code Compliance Monitoring Committee – Memo 09/10/08


21 Director of Consumer Affairs, Victorian Department of Justice  –

Dr Claire Noone



22 CARE Financial Counselling Service – Carmel Franklin 19/01/10


23 DEACONS – Alison Deatz Undated


24 Greater Southern Area Health Service – June Price Undated


Ms McClelland’s Issues Paper and December 2008 Final Report seemed to deal only with matters the reviewer considered relevant or that the banks might consider important. It is noted that strong statements presented to Ms McClelland by Mr Tony Blunn, Code Compliance Monitoring Committee Chairman in the 11 March 2008 submissions were not even included in the earlier Issues Paper list.

This highlights the importance of the banks appointing totally objective reviewers and having a completely independent Code Compliance Monitoring Committee. The Final Report in 2008 was intended to reflect objective views referred to a reviewer based on her research and judgment. The reviewer’s task was to rekindle the efficacy and high-principles in the Code and to benchmark the Code Compliance Monitors performance alongside the aspirations of legislators, regulators, industry bodies and the public.

The banks maintain they will implement changes the reviewer recommends in order to improve the efficacy and utility of the Code. In this instance, it seems the reviewer underscored the basic principles of honesty and justice, and that independence and transparency were underscored and little emphasis was placed on KPIs raised in the FEMAG 2005 review.

It might be argued that Ms McClelland’s Issues Paper and Final Report were illogical and incoherent and the recommendations suited banks but not customers.

(c) Richard Viney 2nd Code Review – December 2008

Richard Viney was fully conversant with the origins of the 1996 Code, which evolved from the Martin Committee’s 1991 Report to Parliament. Mr Viney had previously performed a pivotal role assisting banks and the Australia Bankers Association draft Code (2003). In 2008, he was commissioned by the Code Compliance Monitors to carry out a review of events during the past five years.

Richard Viney could objectively look at the efficacy and application of the Code and the professionalism of the Code Compliance Monitors carrying out their functions in clause 34. Initially this seemed a progressive step because he had experience being familiar with the history of the Code and the Martin Committee’s aspirations and philosophies.

However, by 2008 the culture had changed. This occurred in two steps, the first in 2003 when the banks introduced ambiguous wording and a few months later in 2004 when they introduced the bank CEOs constitution. Both undermined the Code and Mr Viney would have found these alterations upset his recommendations presented to the subscribing banks when he carried out the 2001-2002 review.

In his second review, Mr Viney also had an added advantage of being able to consider the submissions referred to reviewer Jan McClelland earlier in the year. Therefore, he could refer to the issues Ms McClelland considered important and views presented to her by Code Compliance Monitoring Committee in their 11 March 2008 and 29 July 2008 submissions.

However, Mr Viney changed direction. He either supported or did not disagree with   Ms McClelland’s observations concluding the Code Compliance Monitor’s lack of power and authority apparently did not raise intractable problems.

Senate Committee Report webpage (Sub No. 90): Click Here…

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