The Unpleasant Truth About Australian Banking

Shortly after John McFarlane (ANZ) replaced David Murray (CBA), as Chair, and Gail Kelly (St George) replaced Ed O’Neal as Deputy Chair of the Bankers Association when it published the 2003 Code.

The guard had changed and the restructuring period was underway, despite it being evident self-regulation relied on totally independent monitoring for effective enforcement of Code practices.

The subscribing bank adopted the Code and an independent monitoring body was intended to supervise compliance. Its enforcement mechanisms were widely promoted by banks and the Bankers Association to create community perception the banks would honour their commitments in the Code. After the Compliance Monitors were appointed, ASIC limited its role enforcing self-regulated voluntary industry codes.

Whilst the government was motivated to modify policies and the oversight role of ASIC, its regulator there was widespread belief Compliance Monitors were capable of handling their role independently of banks and without the need for government interference. This had the effect of distancing ASIC from safeguards provided by the Code and left Compliance Monitors to act as sole guardians for consumer protection.

The evolution of the changed Codes, introduced in 2003 following the Viney report, and modified in 2004, made it clear to all the stakeholders the success of the Code and the Compliance Monitors rested on institutional integrity, honesty and independence, and the willingness of banks to cooperate and comply with their duties in the Code.


In October 2005, the Foundation for Effective Markets and Governance (FEMAG) was commissioned by the Bankers Association and Compliance Monitors to conduct the first initial review of the Compliance Monitors activities. The review was made in accordance with requirements of Clause 34(g) of the Code with FEMAG, as its members had considerable experience and expertise in public policy and administration, with backgrounds in good governance, expertise in consumer protection and competition policy and in regulation and accountability of systems.

The Code Compliance Monitors had a duty under this Clause 34(g) to ensure the independent review of its activities was lodged with ASIC.

The decision by the Compliance Monitors to commission FEMAG to carry out the first initial review seemed apt due to the extraordinary credentials and widespread expertise. Its officers included its patron Professor Allan Fels AO, and directors Allan Asher and John Braithwaite.

FEMAG consisted of highly competent and esteemed academics with expertise in public policy and administration, with aspirations to contribute to community welfare, ‘especially the least advantaged, by assisting in optimal application of the market mechanism and good governance’. Its members had proficiency and global experience in the design and implementation of consumer protection, competition policy, regulation and accountability of sustainable systems.

The 2005 FEMAG reviewers

Robin Brown BA, M Public Policy (ANU): Director, Secretary-General and Consultant in Consumer Affairs, Council Member, Australian Consumers’ Association, Member, International Network of Civil Society Organisations on Competition and code Authority of the Australian Direct Marketing Association; formerly Chair and CEO of the Australian Federation of Consumer Organisations, Member, Australian Life Insurance Industry Complaints Tribunal

Bill Dee BA (ANU) LLB (Adelaide University): President, Society of Consumer Affairs Professionals in Business (Australia), Member, Standards Australia International Committee on business governance standards and convenor of its working group on fraud and corruption control, internal whistleblowing systems, organisational codes of conduct and Corporate Social Responsibility; formerly Executive, ACCC and responsible for development of legal compliance programs, codes of conduct and self-regulation.

Howard Hollow: Executive Director and formerly Senior Officer, ACCC, Project Manager, Consumer Assistance Facilitation Project Philippines

John Wood: Council Member, Australian Consumers’ Association, Chair, Consumer Advisory Panel, ASIC; formerly Deputy National Ombudsman in Australia, Director, Australian Federal Bureau of Consumer Affairs, President, Society of Consumer Affairs Professionals in Business, Editorial Board of the International Journal of Consumer Policy.

The Compliance Monitors evidently commissioned the most highly qualified organisation to carry out their first review, at the end of only its first year of operation. The information FEMAG had to rely on, however, was limited and many of its recommendations may have been based on the Compliance Monitors aspirations rather than historical evidence of its effective performance.

The Compliance Monitors 2004-2005 Annual Report sets out results achieved from its inception on 1 April 2004 until 31 March 2005, at the end of its first year of operation.  The report is headed ‘The Code of Banking Practice’ and the cover notes state it ‘sets standards of good banking practice and requires banks to continuously work towards improving the standards of practice and service in the banking industry’.

The Annual Report is also aspirational and states the Compliance Monitors role is to:

Monitor subscribing banks compliance with the Code; and

Investigate complaints the Code has been breached; and fulfils its role by:

  • accepting, investigating and making determinations on any allegation by any person the Code has been breached; and
  • requiring banks to complete a comprehensive statement addressing all aspects of compliance annually; and
  • undertaking compliance monitoring exercises including compliance visits;
  • liaising with other schemes that have regard to the Code such as FOS; and
  • engaging in dialogue with banks on their obligations under the Code; and
  • encouraging stakeholders such as consumer advocates to keep the Compliance Monitors informed on systemic Code issues, and working with banks and others to understand the Code and address misunderstanding and uncertainty; and
  • require banks to work continuously towards improving standards of practice; and
  • promote better informed decision about their banking services; and
  • promote information about the rights and obligations that arise out of the banker/ customer relationship and contract; and
  • require banks to act fairly and reasonably in a consistent and ethical manner as set out in clause 2.2 of the code.

Aspirations of the Compliance Monitors, 2004

The aspirations of the Monitors during this period was set out in an internal memorandum sent to subscribing banks on 15 November 2004 by the Code Compliance Monitoring Committee’s Executive Director, Barbara Schade.

Ms Schade defined the meaning of ‘dispute‘ as a complaint not resolved by the banks complaints handling department. This is different to the FOSs definition of dispute due to the difference between the Code Monitors compliance role and the FOSs dispute-handling role.

When FEMAG was commissioned by the Compliance Monitors to carry out the review in 2005, it was on the understanding ‘banks should ensure their response to any Compliance Monitors investigation focuses on the issue of compliance rather than dispute resolution.’

Compliance Monitors 2004 complaints handling flowchart

The complaints handling flowchart introduced by the Compliance Monitors sets out the twelve steps they follow, stating:

  1. A complaint sent to the Compliance Monitors is received and assessed by the Executive Officer; then
  2. If the Compliance Monitors cannot look at matters raised, for example where it predates the Code, the customer is advised and the case is closed; then
  3. If the Compliance Monitors can look at the matter, the complaint is referred to the bank; then
  4. The bank is asked to respond to the complaint; then
  5. The complaint and the bank’s response are reviewed by the Executive Officer; then
  6. The complaint is referred to the Compliance Monitors for review; then
  7. The Compliance Monitors meet to consider the complaint; then
  8. Notice of the Proposed Determination is issued to the complainant and bank; then
  9. Any submissions in response to the notice are reviewed by the Compliance Monitors; then
  10. Determination is issued to the complainant and bank; then
  11. The Committee liaises with the bank in respect of any remedial action required; then
  12. The case is closed.

In carrying out its review of the Compliance Monitors activities during the first year, FEMAG would have considered how effectively the Monitors and Executive Officer implemented the above steps.

The 2004-05 Annual Report notes the Compliance Monitors investigated and made a determination in one case, whilst the other 18 complaints remained open or were considered inappropriate due to:

  • 5 complaints predated the banks’ adoption of the code (no reference was made as to whether this refers to the 1996, 2003 or the 2004 code).
  • 2 complaints were simple queries that did not require determination.
  • 1 complaint had insufficient information to make a determination.
  • 1 complaint was about a financial service provider, not a bank.

At the end of the year, 9 complaints remained open.

As there was only one complaint investigated in accordance with the Compliance Monitors flowchart, and because the Monitors determined no breach occurred, the further aspirations of the Compliance Monitors and the FEMAG Report had to rely on remedies and sanctions, which had not been tested.

The 2004-05 Annual Report notes that ‘where there is a breach of the Code, the Compliance Monitors can require a bank to take remedial action or to give an undertaking as to future conduct. A bank can be publicly named if it fails to take the action prescribed by the Compliance Monitors, or where the breach is of a serious or systemic nature.’ As such, these principles were not applied during 2004/05.

In reporting its views with respect to how effective the Compliance Monitors practices were being implemented, FEMAG would rightly consider the force of the Monitors aspirations and its stated independence to ensure the future application of the high principles were paramount. Having regard to the Code Compliance Monitoring Committee’s resources, operating procedures, interpretation of its role under the Code and its relationship with other industry bodies, FEMAG tackled issues relevant to the institutional integrity and effectiveness of the newly formed consumer protection systems.

While the FEMAG review mentioned issues related to the bank CEOs constitution, that it was unable to explore, it concluded the Compliance Monitors were performing largely in accordance with their aspirations. However, FEMAG stated the potential existed for significant failures to arise due to flaws in the Code and the restrictive and opaque nature of the bank CEOs constitution.

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