‘Bank’ title to be unlocked across all ADIs

by Miklos Bolza18 Jul 2017
The government is considering looser restrictions on use of the terms ‘bank,’ ‘banker,’ and ‘banking’ in an effort to promote greater competition in the banking system.

A joint media statement from Treasurer Scott Morrison and Minister for Revenue and Financial Services Kelly O’Dwyer has recognised that prohibitions on these words for new entrants into the banking system create a simple but significant obstacle.

Currently, only authorised deposit-taking institutions (ADIs) with capital greater than $50m are permitted to use the terms ‘bank’, ‘banker,’ and ‘banking’.

“This acts to discourage innovative new players from entering the market, as the use of the term ‘bank’ can be key to their business model at the critical early phase of their development,” the joint statement said.
“The restriction on ‘bank’ may also lead the public to mistakenly believe that small banking businesses differ from the larger players in terms of regulatory protection.”

The government has proposed lifting the prohibition on the words ‘bank,’ ‘banker,’ and ‘banking’ through draft legislation released yesterday (17 July). The new proposal will ensure that any banking business with an ADI licence can describe itself using these terms.

The legislation will also permit the Australian Prudential Regulation Authority (APRA) to use discretion over whether to permit an ADI to use these terms and ensure that community expectations around the application of this term are maintained.

In determining whether an ADI can use these words, certain players may still be prohibited if they do not possess the “ordinary characteristics” of banks. APRA can deny the use of these words in select circumstances.

While non-ADI institutions can also apply to use the term ‘bank,’ this will be limited to special or unusual circumstances. Through this move, the government has redrawn the line to include ADIs in general rather than those with capital greater than $50m.

Mark Degotardi, CEO of the Customer Owned Banking Association (COBA), welcomed the decision as one which would level the playing field.

“It makes sense that all ADIs should be able to choose to use the term ‘bank’ to explain what they do – which is banking,” he said.

“The historic restriction on use of the term bank by ADIs with more than $50m in capital is out of date and no longer relevant.”

With 18 customer owned banks in the retail banking market, these could be joined by 60 more customer owned banking institutions currently trading as credit unions and building societies, he said.

“Some credit unions and building societies may prefer not to rebrand but at least now they will have a choice.”

The exposure draft of the legislation and associated explanatory material can be found on the Treasury website with public submissions open until 14 August.

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