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A new report by global accounting firm Grant Thornton has called on policymakers to consider proportionate regulation in banking over a one-size-fits-all approach, as a move to the latter could negatively impact smaller firms and their consumers.
Dubbed “A case for proportionate regulation,” the report said the fixed costs of regulation place a heavier burden on smaller institutions, which could limit growth opportunities.
“The royal commission will have implications for how risk to the consumer is minimised in the banking sector – most likely through regulation and additional resources, such as a Principal Integrity Officer,” said Darren Scammell, financial services leader – Victoria, Grant Thornton Australia.
“However, the level of risk isn’t the same across the sector, nor are the resources to carry the burden of additional regulation and requirements. For instance, we know of one credit union that hasn’t foreclosed on even one mortgage in more than 40 years. Compare this to one of the big banks which could have upwards of 900,000 mortgages on its books. The risk is disproportionate, and the regulation to safeguard consumers should be proportionate to reflect this,” Scammell added.
In particular, the report said customer-owned banks maintain a “considerably different” business model compared to big banks, as the former typically return 100% of profits to members in the form of reinvestment back into their local communities or as better rates and reduced fees. This leaves little wiggle room for reapportioning or taking on additional resources to comply with additional regulation as the bigger banks can do.
“This report shows that regulatory costs have a real impact on challenger banks and therefore on competition and consumer choice,” Customer Owned Banking Association CEO Mike Lawrence said. “Banking must be strongly regulated but excessive regulatory costs harm competition and consumers ultimately pay the price,” he added.
