SYDNEY, Australia–In order to get regulators to really understand how overwhelming the burden of their combined rules and regulations have become, this country’s credit unions had to turn to the “death star.”
The great irony appears to be that it has given life to some relief for regulated institutions.
The “death star” is the nickname given to a graphic created by Australia’s credit unions and customer-owned banks that shows all of the pending regulatory changes being put in place by the various regulatory bodies (see below). Putting all of those demands in one place has had its desired effect, according to Michael Lawrence, CEO of the Customer Owned Banking Association, which represents credit unions in Australia and which is a member organization of the World Council of Credit Unions.
Lawrence shared his country’s experience and other insights during a WOCCU webinar titled, “Credit Unions & The G20: The Push for Financial Inclusion,” that was designed to address the challenges in expanding services to underserved markets due to regulatory burden.
Officially, the G20 is an intergovernmental forum comprising 19 countries and the European Union that works to address major issues related to the global economy. But as is revealed by this CUToday.info series being presented during International Credit Union Week, unofficially the G20’s decisions and policies can often lead to undesirable outcomes for smaller organizations, including credit unions, when “proportionality” isn’t taken into account.
A Striking Comment
Lawrence recalled that in 2019 he joined his counterparts from the United States and Canada in meeting with the deputy secretary general of the Basel Committee to discuss the issue of “proportionality” of regulations, when he was struck by one comment the official made to them: that the Basel Committee exists to regulate international banks and what “your regulator does with your domestic banks is entirely up to them.”
“That was quite concerning, because our experience, as it is with many parts of the world, is that the local regulator is not proportionate in regulation and is just taking the Basel recommendations and applying it equally,” Lawrence said.
Seeking to make a point about proportionality in his home country, credit unions and customer-owned banks turned to the old saying about a picture being worth a thousand words, as shown in the “death star,” below.
‘An Absolute Blizzard’
“I don't expect you to be able to see the detail in this slide, but I think it'll give you a good sense of the amount of regulation that is coming our way in Australia over the next 18 months,” Lawrence said of the graphic presented above. “It's from all regulatory bodies…It is an absolute blizzard of regulation. Again, that is applied equally to all banks and credit unions, what we call authorized deposit-taking institutions, and it's not targeted, it's not proportionate, it doesn't take into consideration size and complexity and it's a one size fits all approach.”
Similar to what has taken place in the United States, Lawrence noted that 30 years ago Australia was home to approximately 350 credit unions. That number had shrunk to about 150 15 years ago, and today is about 65, a figure that shrinks by five or six CUs every year, he said.
“A lot of that is really (due) to the cost of compliance that's just getting more and more for the credit unions. They're drowning under the weight of it,” he said. “So, what we are saying to our regulators here and to the government is we need to address regulation from a proportion of perspective, and we need to also address it with a more coordinated approach, because it is impacting competition here in Australia. Every year there's less and less credit unions and that is not good for competition.”
Australia’s Big Four national banks control approximately 90% of the retail market.
A Pleasing Surprise
Seeking to make its point clearer, Lawrence said credit unions have taken the graphic of the combined number of rules coming down from various bodies and shown them to the Council of Financial Regulators, whose chairman is with the Central Bank of Australia.
“I showed him that slide, which we call the death star, and it was not lost on him in terms of the magnitude,” Lawrence told the WOCCU webinar. “One regulator is not talking to the next regulator and they’re not talking to the government and everything is getting pushed down the funnel.”
For credit unions accustomed to having their views being largely ignored by regulators, something somewhat amazing has happened Down Under, according to Lawrence: it appears credit unions have at least been heard.
He said the credit unions and customer-owned banks (a charter type to which many CUs in the country have switched) proposed the creation of an online portal in which every government regulator and agency would be required to participate by feeding in the types of rules they have planned.
It is now in the works.
Seeing What’s in the Pipe
“Credit unions at any point can go in and look at what is coming down the pipe at any time, whether it's a paper for consultation or whether it's legislation to be implemented,” Lawrence said. “What that means is there is going to be better sequencing of regulation, but also, importantly, we can look at the regulation that is coming out and try to apply for a more proportionate approach. The really pleasing thing is the governor of the Reserve Bank did take it to the Council of Financial Regulators, where it had a unanimous support from all the heads of every regulator. Treasury here in Australia has now been tasked with the pilot of building this regulatory grid to create better coordination of regulation and then, hopefully, better proportionality.”