De-Banking Policy Advice: Australian Government Pledges Response

The Australian government will formally respond to a report advising banks of their responsibility to provide services to virtual currency trading platforms, FinTechs, and remittance providers. Published in August 2022, the report aims to address de-banking in these industries and provide advice on potential policies.

Led by the Treasury and developed by a working group consisting of the Council of Financial Regulators, AUSTRAC, the Australian Competition and Consumer Commission (ACCC), and the Attorney-General’s Department, the report outlines four policy recommendations, including:

• Collecting de-banking data
• Introducing transparency and fairness measures
• Advising the government on the risk tolerances of the four major banks
• Investing in improving banking capabilities provided to digital currency exchanges, FinTechs, and remittance providers

Policy recommendations

The report proposes collecting data from the “Big Four” banks on “the extent and nature of the debanking problem.” A two-phased approach is suggested, with the initial data collection exercise being voluntary before introducing a more formal and regular data collection process under the Financial Sector (Collection of Data) Act 2001. The staggered approach is to confirm the process provides valuable insights before implementing a permanent requirement.

The Treasury also recommends banks apply five measures “designed to increase transparency, consistency, and fairness to individual and small business customers regarding all debanking decisions.” These transparency measures include:

• Documenting reasons for de-banking a customer
• Providing de-banked customers with the bank’s reasoning
• Ensuring de-banked customers have access to Internal Dispute Resolution procedures
• Providing a minimum of 30 days’ notice before closing a customer’s existing core banking services
• Self-certifying adherence to the above measures

The report’s third recommendation suggests banks publish guidance on risk tolerance and compliance requirements for high-risk banking businesses. By outlining the banks’ expectations and standards for maintaining a banking relationship, existing and potential customers in the high-risk sectors will be granted greater clarity on how to meet the banks’ expectations.

Fourthly, the Treasury recommends that consideration be given by the government to fund targeted education, outreach, and guidance to the FinTech, digital currency exchange, and remittance sectors. The report highlights that such an investment would increase the capabilities of each high-risk sector and “enhance compliance outcomes and reduce compliance risk.” 

De-banking concerns 

De-banking is defined by the Financial Action Task Force (FATF) as situations where financial institutions restrict or terminate business relationships with clients, sectors, or even entire countries to avoid risk. 

In September 2021, the CEO of FinTech Australia told the Senate committee that approximately 150 of her organization’s members had been de-banked by financial institutions, with no reason provided or ability to appeal the decision. 

In November 2021, AUSTRAC issued guidance around de-banking, urging financial institutions to take a risk-based, case-by-case approach to managing anti-money laundering and combatting terrorism financing (AML/CTF) challenges rather than simply closing accounts. AUSTRAC’s chief executive, Nicole Rose, also raised concerns that such measures could increase the risk of money laundering by pushing criminals underground where regulators would have less visibility. 

The Treasury reemphasizes Rose’s concerns throughout the report, noting that de-banking could have a “devastating impact” on businesses, individuals, market competition, and innovation in emerging sectors. 

In a statement released on Monday, October 3, Australian Treasurer Jim Chalmers welcomed the report’s recommendations, noting that “the government is committed to promoting innovation and competition in the financial services sector and will continue to work with affected customers.”

Key takeaways

From regulatory sandboxes allowing license-free testing for up to two years to the Banking Royal Commission opening the door to innovation in 2019, Australia’s pro-competition and pro-innovation outlook tee up further legislative and regulatory support for the FinTech industry. 

To stay on top of Australia’s evolving regulatory landscape, compliance staff in high-risk sectors should ensure they are familiar with AUSTRAC’s current guidance: 

• Preventing the criminal abuse of digital currencies
• Detecting and stopping ransomware payments
• Digital currency exchange risk management methodology fact sheet
• Independent remittance dealers in Australia risk assessment 2022
• A guide to preparing and implementing an AML/CTF program for your digital currency exchange business
• SMR and digital currency exchange provider webinar recording