Australia: Mutual Banks Face “Avalanche” of Regulatory Change

A new benchmarking report from GRC Solutions highlights the challenges incoming regulatory requirements are presenting to the mutual banking sector.

Compliance training software provider GRC Solutions has published a new report providing a view into the current state of compliance in Australia’s mutual banking sector.

The ‘2021 Financial Services Benchmarking Report’ was produced to facilitate an understanding of the current pressures the sector faces, identify opportunities for collaboration and improvement, and drive growth in the sector’s compliance capability.

Australia has around 60 mutual (i.e. customer-owned) financial institutions providing banking and related services to some 4.5 million Australians, ranging in size from less than AUD 10 million in assets to over AUD 16 billion.

According to the report, the mutual banking sector remains resource-constrained and continually challenged by the rate and pace of regulatory change still flowing from the Royal Commission and other sources.

New regulatory requirements being introduced this year include the new design and distribution obligations; new internal dispute resolution requirements; a new deferred sales model for add-on insurance; changes to anti-hawking provisions; and a new breach reporting regime.

“The challenge for the sector is how to triage these requirements along with, or on top of, ongoing compliance programs,” GRC Solutions managing director Julian Fenwick says in the report. “This challenge is being dealt with against a background of internal constraints including tight compliance budgets, lack of skilled resources, managing and motivating remote workers, and maintaining a compliance culture in our organisations.”

The mutual banking sector also faces challenges from obligations to continually manage credit risk closely, ensure full compliance with cybersecurity requirements, and enhance crisis management and resolution contingency planning as required by APRA (Australian Prudential Regulation Authority).

Meanwhile, AUSTRAC – off the back of several significant penalties against banks in Australia – is currently reviewing smaller ADIs for their AML/CTF compliance. “Several survey respondents nominated Anti-Money Laundering compliance as an area that keeps them awake at night,” the report says.

In addition, many mutual banks are not yet in compliance with their obligations under the CDR (Consumer Data Right) regime, which required them to start sharing consumer data with accredited data recipients from 1 July 2021.

“We understand that many mutual ADIs have faced significant headwinds in preparing for the commencement of CDR data sharing due, in part, to the delayed provision of data sharing solutions by third-party providers,” the report says. “Several survey respondents commented on the difficulties they are currently facing in relation to CDR implementation.”

The findings in the report are intended to assist the mutual sector with planning and resourcing, allowing individual banks and credit unions to benchmark their own approach and practices to assess whether their compliance programmes are in line with those of the wider industry, and the expectations of regulators, staff and members.

The full report is published here.

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