The Coalition will hold an inquiry into banks' treatment of small business to fend off calls for a royal commission

Bill Shorten. Photo: Getty Images

The federal government has announced an inquiry into specific cases of mistreatment of small business customers by banks, in a bid to take the steam out of Labor’s call for a royal commission.

In doing so, it has killed off Labor’s push but raised the prospect of further regulation for the sector.

The government made the announcement minutes before Labor leader Bill Shorten used the start of the new Parliament to move a motion calling for a royal commission.

The motion was set to fail when Liberal-National MP George Christensen, who had been calling for a commission, spoke on behalf of the government and said he was satisfied with the measures taken.

The federal government has announced an inquiry into specific cases of mistreatment of small business customers by banks, in a bid to take the steam out of Labor’s call for a royal commission.

In doing so, it has killed off Labor’s push but raised the prospect of further regulation for the sector.

The government made the announcement minutes before Labor leader Bill Shorten used the start of the new Parliament to move a motion calling for a royal commission.

The motion was set to fail when Liberal-National MP George Christensen, who had been calling for a commission, spoke on behalf of the government and said he was satisfied with the measures taken.

Kelly O’Dwyer, the Minister for Revenue and Financial Services, announced the new inquiry which was the fourth reaction by the government this year to try and stop some of its own MPs crossing the floor to support a royal commission.

Already, it has boosted the powers and resources of ASIC, compelled bank executives to appear at least once a year before a parliamentary committee, and promised to establish a bank victims tribunal.

As revealed by The Australian Financial Review on Wednesday, the fourth measure is designed to provide victims with immediate and specific redress to their grievances.

Ms’ O’Dwyer and Small Business Minster Michael McCormack announced the Australian Small Business and Family Enterprise Ombudsman will undertake an inquiry “into the adequacy of the law” to address concerns raised by the Parliamentary Joint Committee on Corporations and Financial Services in its report released in May.

It will examine selected cases identified by the committee regarding small business lenders to determine whether further regulatory action is required.

Some of these have been directly raised with Liberal Party MPs like Warren Entsch who have been loudest in their criticism of banks.

“The Parliamentary Joint Committee raised serious concerns about how banks treated some of their small business lending customers and made a number of recommendations to address the deficiencies they identified,” Mr McCormack said.

Ms O’Dwyer said the Ombudsman would be able to identify “through a forensic analysis if further reforms are needed”.

“The Australian Small Business and Family Enterprise Ombudsman has extensive powers to review matters affecting small business and to make recommendations to prevent small business lending customers being abused.

She said the Ombudsman will provide interim findings to the Ramsay review which the government announced last week would design the victims tribunal which would be a broader dispute resolution body.

‘Fed up with banks’

In Parliament, Mr Shorten tore into the banks and the government for defending them.

“The truth of the matter is that Australians are fed up with the conduct of their banks,” he said.

He challenged Mr Turnbull to join him Thursday when he will meet victims of bank scandal.

“Come and join me, meet the victims, look them in the eye and tell them everything is fine because it’s not, Prime Minister,” he said.

Shadow treasurer Chris Bowen said “for a Government which denies there is a problem they sure try and find different answers”.

“We were told originally more money for ASIC was the answer, that would fix everything. Then we were told coming in for a little chat with the Liberal dominated House Committee once a year, that would fix everything. Then we were told some sort of banking tribunal which would sit above the financial services ombudsman, that’s the answer,” he said.

“Now there are some secret plans for more measures. Why don’t they just hold a Royal Commission.”

Shorten’s statement

Mr Shorten’s motion, seconded by independent MP Bob Katter, notes that: “Scandals in the banking and financial services industry have led to retirees having their retirement savings gutted, Families being rorted, Small business owners losing everything, Life insurance policy holders being denied justice; and agricultural assets being improperly foreclosed; and despite several inquiries, new powers, new resources, and a Financial Ombudsman Service, the rorts and the rip offs continue;

“It is clear from the breadth and scope of the allegations that the problems in this industry go beyond any one bank, type of financial institution or group of receivers;

“Labor, Greens, crossbench, Liberal and National parliamentarians have supported a thorough investigation of the culture and practices within the financial services industry through a Royal Commission which is the only forum with the coercive powers and broad jurisdiction necessary to properly perform this investigation; and

“Therefore, calls on the Government to listen to the many victims of banking and financial scandals who are calling for the immediate establishment of a Royal Commission.”

O’Dwyer inquiry

The terms of reference for Ms O’Dwyer’s inquiry are:

“In undertaking the inquiry, the Ombudsman should: review a selection of the cases that have been identified by the PJC as unfair and ascertain whether there are any deficiencies in the regulation of authorised deposit taking institutions in lending to small business;

“refer any matters identified in the review to the relevant authority for further consideration as necessary;

“determine whether the regulatory deficiencies identified by the PJC, or additional deficiencies identified through the inquiry, are being addressed by subsequent Government and industry reforms; and

“recommend whether additional reform measures should be implemented (legislation, regulations, guidance and practices) to ensure products perform in the way they should, taking into account that consumers have a responsibility to accept their financial decisions, including market losses, when they have been treated fairly, and any impact on the availability and cost of credit to small business.”

The inquiry will take 12 weeks.

This story first appeared in The Australian Financial Review. Read it here or follow the Financial Review on Facebook.

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