Recognising, as I must, that no systems for processing the numbers of transactions or variety of arrangements offered by banks will ever operate perfectly, does not mean that there is nothing to be done except sweep up the consequences after the event.
Banks must do more to prevent these errors. As was noted in the Interim Report, even confining attention to home loans, about $239 million had been repaid to customers in respect of processing and administrative errors before the Commission began its inquiries.[1] And it will be recalled that other forms of processing and administrative errors were explored and are discussed in the Interim Report.
Mr Elliott, the CEO of ANZ, told the Commission that processing and administrative errors arose from a combination of factors.[2] Of those, I mention two in particular: number and complexity of products, and absence of ‘end-to-end’ accountability. Both are issues wholly within the control of every financial services entity.
It is for each bank to decide what products it will issue. It is for each bank to determine whether its administration and IT systems are set up in ways that will deliver to customers what the customers have been promised and charge them no more than is agreed. And the more numerous and more complex the bank’s offerings are, the greater the care needed to ensure that the bank can deliver what it has promised and charge only what it is entitled to charge.
The evidence led in the Commission shows that processing or administrative errors have occurred when the ‘left hand does not know what the right hand is doing’. And that has occurred because there has been no clearly identified ‘ownership’ of the overall process beginning with someone within the bank proposing a new product or product feature and culminating in the bank offering that product, or product feature to customers. There has been, in Mr Elliott’s terms, disaggregation of the management of the value chain with no-one ‘accountable from the design of the product through to its implementation and if something goes wrong, remediating it and, importantly, keeping it fit for purpose’.[3]
Each of the tasks mentioned by Mr Elliott is fundamental to the performance of a bank’s business. So important is it that a senior executive within the bank be accountable for the bank meeting the promises it makes to customers in respect of the products it sells or issues to them, that I consider that it is a responsibility that should be subject to the provisions of the Banking Executive Accountability Regime (BEAR). There should be one person in the bank responsible for those tasks in respect of all the bank’s products. The person having responsibility for those tasks should be an ‘accountable person’ under section 37BA of the Banking Act 1959 (Cth) (the Banking Act); the ADI should have the accountability obligations specified in section 37C with respect to that person (and the accountable person, the obligations set out in section 37CA); and the key personnel of the ADI should have the obligations described in section 37D with respect to the accountable person.
To these ends, APRA should consult with at least the four largest banks about how best to describe or define, for the purposes of section 37BA(2)(b)(ii) and (4) of the Banking Act, a responsibility embracing the matters described by Mr Elliott in respect of product design, delivery, maintenance and, where necessary, remediation. Following that consultation, APRA should determine that responsibility for the purposes of section 37BA(2)(b) of the Banking Act. The consequence would be that each bank subject to the BEAR would be required to give APRA an accountability statement and an accountability map under section 37F identifying (among other things) the responsibilities of the accountable person and details of the reporting lines and lines of responsibility of the accountable person.[4] The further consequence would be that there should no longer be that disaggregation of responsibility that has contributed to so many and such costly processing and administrative errors.
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Recommendation 1.17 – BEAR product responsibility After appropriate consultation, APRA should determine for the purposes of section 37BA(2)(b) of the Banking Act, a responsibility, within each ADI subject to the BEAR, for all steps in the design, delivery and maintenance of all products offered to customers by the ADI and any necessary remediation of customers in respect of any of those products. |
[1] FSRC, Interim Report, vol 1, 37.
[2] Transcript, Shayne Elliott, 28 November 2018, 7277–8.
[3] Transcript, Shayne Elliott, 28 November 2018, 7278.
[4] Banking Act ss 37F, 37FA, 37FB.