ACCC banking on further inquiry
The Australian Competition and Consumer Commission (ACCC) has called on the Government to support an inquiry into competition within the retail banking sector.
Before the Standing Committee on Economics, on 18 September 2019, the ACCC chairman, Rod Sims, expressed his concerns over the market dominance of the big four banks (namely, CBA, Westpac, NAB and ANZ). These comments have been reiterated in recent days in a number of forums.
Mr Sims told the Parliamentary Committee that “[e]ven though we have got some quite big players outside of the big four, it’s not clear any of them are really displacing any of the big four or making serious in roads.”
“They seemed to want to position themselves roughly in accord with each other. That’s not surprising. Obviously, if one of them started a price war, they’d expect the others to respond, so they’d all lose money.”
The competition regulator says it is not pushing for a large-scale inquiry, such as a royal commission, but rather a smaller focused inquiry that would continue the series of banking related investigations lead by the ACCC that have reviewed residential mortgages and foreign currency exchange services.
The ACCC maintains that a government directed inquiry, rather than a self-driven inquiry, is necessary to “unlock our information gathering powers.” Mr Sims says that “[w]ithout the direction, we don’t have the powers … If we don’t have those then we’d just be doing a desktop study like anybody else; we wouldn’t be adding the value that we think the ACCC can add.” The Chair is referring to the powers the ACCC obtains under s 95ZK of the CCA, holding an inquiry following a direction by the Treasurer under s 95ZH.
Mr Sims proposes that the inquiry address two points: “a lack of price competition” and “why have we got four players who seem to be able to maintain their share and earn very high profits?”
“We have got four big banks, which have about 70 to 75 per cent of the market, and they are not competing on price because they look similar.”
Mr Sims would like to see “different players at different stages of development with different models” in the backing sector.
The ACCC chairman relayed concerns of the Customer Owned Banking Association, which proposes that the major banks should have differentiated rules, as further regulation could stifle smaller banks.
“[S]ome of the requirements are a burden on the big banks, they’re a huge burden on the little banks,” says Mr Sims.
The member for Mackellar, Jason Falinski MP questioned the need for another inquiry in the wake of other ACCC inquiries, the Productivity Commission’s review and the recent Royal Commission into the Banking, Superannuation and Financial Services Industry. Mr Falisnski suggested that the industry be given time to absorb the recommendations that have already been made before charging into a new inquiry.
Mr Sims maintained that a further ACCC inquiry was still necessary: “You can think about the timing of how you deal with them, but I think they need to be dealt with.”
In 2018, the Productivity Commission released their report on Competition in the Australian Financial System with 34 recommendations. The inquiry addressed the interaction of market participants, consumer issues and the functions of regulators in the sector.
“The Productivity Commission did that big review on competition in financial services, which came out with quite sweeping recommendations. Our job is to dive much deeper and have quite specific recommendations.” Says Mr Sims.
Mr Sims told the Committee that the then Treasurer, now Prime Minister Scott Morrison, announced that the ACCC would have a permanent role in investigating competition in the banking sector, in the 2017 budget.
“The idea was to start post the Productivity Commission’s review—that is, they’d do the broad look and then we’d come along and pick out specific deep dives. The idea was there’d be a sequence of those deep dives. Of course, the only way we can do those deep dives with our information-gathering powers is if the Treasurer gives us a direction”, said Mr Sims.
The ACCC’s Financial Services Unit (FSU) was highly critical of Australia’s biggest banks for their lack of transparency and discretionary pricing for residential mortgages in their 2018 report (which we have written about here). The report on foreign currency exchange services released earlier this year was also critical, finding that customers could have saved $150 million if services other than the big four banks were used to transfer money overseas.
The Treasurer confirmed on 4 October 2019 that the possibility of a banking inquiry would be given “due consideration”. We will continue to monitor and provide updates, as and when they become available.