Australia : Finance Sector Union demands best interest test for bank lending
Banks should be required by law to sell retail products such as home loans and credit cards only where it is in a customer's best interests, the Finance Sector Union has told a key industry inquiry.
In a submission to a probe into the incentives facing bank staff, the union also argues that frontline bankers are under such pressure to hit performance targets that this is now the greatest health risk from working in a bank, instead of armed robbery, as was once the case.
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Plagued by scandals stemming from staff bonuses and commissions Australia's banks commission a review of their internal practices.
It says staff are "named and shamed" for failing to hit sales targets, and the pressure takes a heavy toll on many employees' mental health.
The Australian Bankers Association opened an inquiry into remuneration amid calls for a royal commission in April, and a new submission from the FSU argues public trust in banks is being undermined by the pressure on staff to sell financial products, whether customers need them or not.
In response, it is calling for the government to expand rules that have already been introduced in financial advice, which ban advisers from receiving commissions, and require them to act in the best interests of customers.
After surveying 1300 members, the union says 71 per cent believe the pressure on staff to hit sales targets is undermining the public's trust in banks.
To address the banks' trust problem, it calls for the Future of Financial Advice (FoFA) laws to be extended to retail banking, in particular lending.
"Why is it that the customer's best interest test does not apply to all of the products and services provided by banks, particularly debt related products?" the submission says.
Major banks have conceded remuneration will change. The latest collective agreements of Commonwealth Bank, National Australia Bank, ANZ Bank, and Westpac have already removed the link between fixed pay and sales targets.
The chief executive of Westpac's consumer banking arm, George Frazis, said in a speech on Friday that bankers who dealt with customers would increasingly be rewarded on the basis of the service they provided.
But imposing a "best interest test" would likely be fiercely opposed by banks, which are already subject to responsible lending rules, but not an over-riding duty to act in their customers' interests.
Banks are also making submissions to the inquiry, but these are likely to be kept confidential. The ABA called the inquiry into commissions and other conflicted payments in April, as the industry was facing calls for a royal commission.
The FSU submission also seeks to highlight the heavy pressure on staff to meet sales targets. It says most banks use "league tables" to identify which staff are making the most sales, and embarrass those who are not making enough sales.
"These league tables are used to name and shame workers who are below target for sales and sales referrals," the submission says.
"Staff are informed that the consequences of appearing on the leader board as performing below target are that they won't receive a bonus and that their employment will be jeopardised."
"What's not officially acknowledged is the shaming and embarrassment of being public branded as underperforming amongst your peers."
The greatest health risk of working in a bank used to be an armed hold-up, but the submission says it is now the pressure from sales targets. A quarter of the cases in its grievance handling records since 2013 related to sales targets.
FOFA, which was initially opposed by the industry, requires financial advisers to meet a "best interest duty."
Banks already control a large slice of financial advice sector, and the union says legislation is needed to also require tellers to act in the best interest of customers, because the industry will not change on its own.
Stephen Sedgwick, a former former Australian Public Service Commissioner who is carrying out the review, said the review would target the remuneration of frontline staff and the couple of layers of management above them.
It was "inevitable" the bank would also look at how more senior roles interact with remuneration in banks, such as as who awards bonuses.
"We are also looking at the system within which performance is managed, the rewards and remuneration structure is implemented," he said.
Mr Sedgwick said he expected to publish an issues paper towards the end of the year. The review is expected to collect detailed data from banks on the remuneration they pay, and how it may be linked to individual products sold by staff.