BEZZI, Mr Marcus, Executive General Manager, Specialist Advice and Services, Australian Competition and Consumer Commission [by video link]

FRANKLIN, Mr Paul, Executive General Manager, Consumer Data Right, Australian Competition and Consumer Commission [by video link]

WON, Ms Leah, General Manager, Competition Enforcement and Financial Services, Australian Competition and Consumer Commission [by video link]

[13:49]

CHAIR: I now welcome representatives from the Australian Competition and Consumer Commission. Thank you for your time. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I assume we can go straight to questions.

Mr Bezzi : Yes, Senator.

CHAIR: In 2019, you did a review of remittance services, and your view was that there should be some additional work as a result of that inquiry, right?

Mr Bezzi : Yes. The debanking issue came through very loudly as an issue of concern, and we felt that there were issues that needed to be addressed. It was largely revolving around the anti-money-laundering set of problems, but I think it's probably slightly broader than that from a bank perspective. They have very serious obligations that they've got to ensure that they comply with. We understand, and they understand, that the rules are very strictly enforced by AUSTRAC, but, on the other hand, there are many businesses that do seem to have legitimate complaints about how the system is working at the moment. I and my colleague Ms Won can go into detail about the recommendations we made and what has happened since, if you'd like us to.

CHAIR: I think that would be useful if you could give us a top line.

Mr Bezzi : The government has set up a working group that is being led by Treasury, and it's being overseen by the Council of Financial Regulators. I'll invite Ms Won to perhaps take the committee through some of the recommendations that we made.

Ms Won : If it would assist the committee: we recommended at the end of that foreign exchange inquiry that a working group be formed to look at the issues, but our recommendation was associated with a due diligence scheme being put in place to really streamline the process for both the banks and the businesses to give them a common language about what was actually required to satisfy the banks that they were a reasonable AML/CTF risk. It was our strong view when we did the inquiry that it was important to have multiple parts of government in the room for that discussion, and that's why we welcome the formation of this working group. We think it's really critical that AUSTRAC and Home Affairs, as well as the other financial services regulators—and us, to the extent that we've got good visibility over the problem—are in the room and can work together towards a sensible solution. That working group was suspended through some of the COVID period, but it is now reformed. I think it is actively working and will report back to the Council of Financial Regulators.

CHAIR: Were you involved with the inquiry in 2019?

Ms Won : Yes.

Mr Bezzi : Yes, Leah and I were both involved in the inquiry.

CHAIR: And your view was that the debanking issues were legitimate and they were happening. Do you think they were happening for competition reasons, or are the integrity issues that have been raised by the banks legitimate, or is it a bit of both?

Mr Bezzi : We looked very closely at a number of instances, and we formed the view that there weren't matters that needed to progress, from a competition enforcement perspective. But, to be very frank, sometimes it was pretty unclear as to exactly what was the motivator in relation to particular decisions. I think that's one of the issues: often the people who are being debanked don't really know why and don't really know how to address the problem.

CHAIR: What sort of margins are we talking about here? It looks like the banks have been making a motza on these foreign exchange transactions from the year dot, pretty much. What sort of margins are they sitting on?

Mr Bezzi : The margins for the actual transactions? They're doing very, very well. We did go into that in a lot of detail in our report. I can't remember the exact figure. I invite Ms Won to test her memory.

Ms Won : I don't have it to hand either. We could easily provide that on notice, but it is not current, because that was done in the context of that report. We can certainly pull out the margins at that time and provide them to you.

CHAIR: Everyone knows it's a high-margin business.

Mr Bezzi : Correct.

CHAIR: And it hadn't been disrupted until the fintech providers came along. I guess the reason that we as a committee of the Australian Senate are interested in this is that we want to make sure that consumers are getting access to the best possible deals and that those transactions are being conducted in as safe a way as possible. I guess your inquiry now has been turned into another inquiry through the Council of Financial Regulators.

Mr Bezzi : It's not so much an inquiry. It's more a working group to figure out how to solve the problem that I think our inquiry had identified and highlighted in a very clear way.

CHAIR: Yes. It's in relation to providing clarity on the AML/CTF requirements, yes? That's the main driver?

Mr Bezzi : That's at the heart of it, although there may be other issues driving some of the behaviour, including concerns about sanctions laws and the obligations of banks not to breach the particular and very significant obligations they have not to breach sanctions laws.

CHAIR: Yes, okay. Some of these organisations are remittance providers. Some of them are crypto-backed remittance providers. What do you think about the potential for these organisations to inject more competition into this market? It's significant, isn't it?

Mr Bezzi : It's absolutely significant. You're right: the ones that have been in the market are offering a very good service at a very low price—well, not all of them. I'm not going to endorse all of them, but we identified a number of them as being very significant disruptors, and, from a competition perspective, we love disruptors. We love new entrants that are bringing innovation and choice to consumers. So we really saw this as an opportunity to work through these issues and open up these markets so that consumers can get a better deal.

CHAIR: Okay. The due diligence scheme is what the Council of Financial Regulators is now looking at how it can implement.

Mr Bezzi : And other options as well. That's an idea we came up. We're certainly not the experts in financial regulation, and we're certainly not experts in anti-money-laundering regulation. That's why it's so important that all of those parts of government are involved in the process. They're the experts.

CHAIR: Because we have the evidence that's been presented to the inquiry, we've seen how porous and hopeless and, frankly, rude some of the statements issued by banks to customers about their debanking have been. Why wouldn't banks be required to disclose reasons for debanking?

Mr Bezzi : We certainly thought that would have been a good start, and that was one of the things we addressed. Ms Won can give some details on what we said about that.

Ms Won : I think there is one area where banks may have some legitimate concerns about expressing reasons, and that is where the AML/CTF Act tipping-off provisions come into play—where they've got suspicious transactions and the tipping-off provisions actually make it problematic for the bank to explain all of the details to the customer. That certainly doesn't cover the entirety of the field, and I wouldn't suggest it does, but, just as a matter of fairness, I think it is appropriate to acknowledge that.

Mr Bezzi : As an additional point of fairness, many of the concerns seem to relate to the 'know your customer' requirement. It is sometimes difficult for some of the people that have been debanked to positively establish that they know their customers and that they know their customers' customers down the chain. That's an important requirement, as I understand it. As I say, I'm no expert, but I understand it's an important requirement of the anti-money-laundering laws.

CHAIR: I want to ask you about the New Payments Platform. Much has been said about access to this platform by fintechs. I think some access it through intermediaries, and there are various workarounds that have been made available to people. Like you, I'm no expert, but, if parliament was minded to consider an access regime for this particular platform, could the access regime provisions apply?

Mr Bezzi : There may be alternatives that offer a speedier resolution of disputes than the access regime does; it tends not to deliver quick outcomes. Mr Franklin might have some comments about the interaction with the CDR.

Mr Franklin : I'm happy to take that question. In relation to the New Payments Platform, there's typically a requirement for a direct participant to have an authorised deposit-taking institution licence. I note that a report into the future of payments regulation was recently released by Treasury, commissioned from Scott Farrell, that suggests a graduated licensing scheme, which could involve a progression from, say, a CDR data recipient accreditation through to a payments licence through to a banking licence or an ADI licence. I think there's a lot of merit to exploring that. We're certainly very supportive and keen to ensure that the licensing requirements are proportionate to each set of activities. I should disclose that I used to be involved in the development of the New Payments Platform before I joined the ACCC. In it's response to the review into functionality and access that was done by the ACCC and the Reserve Bank, that company indicated they'd be supportive of granting access to anyone who had an appropriate type of licence.

Senator MARIELLE SMITH: Senator Bragg has covered off most of my questions around debanking. I did want to ask you, briefly, a question around investment scams. In this space, we've heard a lot from legitimate businesses and operators in the crypto space who are looking to see greater regulation to legitimise their industry and looking to make progress as a legitimate part of our financial system in Australia. But there's another side to this, which is around consumer protection and the protection of retail investors and nefarious activity by some operators in this space, which can happen when you've got an area which is less regulated. I know that you release information on investment scams, and I think your last figures showed about $10 billion worth of investment scams in my state of South Australia. Could you break down those figures in terms of industry and products? Have you've got anything you could shed light on in terms of this space and your work there? Have you seen any issues come up for retail investors, from a consumer protection point of view, that we should be aware of?

Mr Bezzi : Thanks for the question. We very much welcome digital currencies as a disruptor within the market and recognise that there are significant advantages, from a competition point of view, in various types of business models that they will enhance, enable and promote. They'll circumvent gatekeepers. They'll introduce efficiencies into the market in a number of ways which are quite exciting. But you're absolutely right: in a largely unregulated environment, there has been a very disturbing growth in the standards that are reported to our Scamwatch website. We collect scam figures. We don't think that they are by any means a complete picture of what is going on. But the really disturbing figure we've got is that, in just the first six months of this year, $38.3 million worth of scams have been reported to us that relate to cryptocurrencies, and that is the highest proportion of types of scams within the investment scam category. The largest category within investment scams is cryptocurrency scams, and, within cryptocurrency scams, $25.7 million is represented by Bitcoin scams. So it's a very, very significant problem.

We are aware that everyone in their 20s seems to be fascinated with cryptocurrencies. I know that from personal experience; I have sons in that age bracket. We say to people that, if it seems to good to be true, it probably is. Unfortunately, those warnings sometimes fall on deaf ears. We also say don't invest in so-called sure money schemes unless you can afford to lose everything you are investing, because they are a significant problem.

If consumers are burnt by these scams, we urge them to report the experience to us on the Scamwatch website. If they have any details about the people they've been dealing with, there are various people within government we can coordinate reports to. For example, if the scammer has used telephones to recruit customers, we've got processes where we notify the telcos and they can put in place various blocking mechanisms. So there's a whole lot of disruption work that our Scamwatch team does, but it's a growing problem and quite distressing when you listen to some of the individual stories.

Senator MARIELLE SMITH: Would you be able to provide those figures you mentioned to the committee? The figures you have mentioned, in terms of the total proportion of these scams, are particularly alarming to me. Would you be able to break that down state by state? Is that possible?

Mr Bezzi : I'm not sure. We'll certainly do our best. We do keep some very good statistics, and many of them are available on our Scamwatch website. Part of the function of the Scamwatch website is to let people know of all the problems and be very transparent about that. But we'll get those figures to the committee.

Senator MARIELLE SMITH: Thank you. From a regulatory perspective—I'm not sure if this is a question you can answer; I guess it goes to policy—in terms of these specific scams and these issues for retail investors, what is the most urgent mechanism of regulatory reform to help provide adequate protections or improvements here? Is that something you can comment on?

Mr Bezzi : It's a complex set of problems. Many of the scammers are not based in Australia, so immediately there's the problem of how you enforce the law when you're dealing with someone who might be in India or Nigeria or somewhere else. There are things that can be done to disrupt the scammers, but to actually take enforcement action and get money back can be very difficult. There are a range of agencies that are looking at these issues. ASIC has a very good capability in this area, and our Scamwatch team thinks about these issues and does quite a lot of disruption work, but actually taking action and getting people's money back is often very difficult to do.

Senator MARIELLE SMITH: Would it be fair to say that a more comprehensive regulatory approach to these assets more broadly would assist in terms of the regulation and management of scam activity?

Mr Bezzi : It's hard to give you that assurance because many of these scammers are based offshore. If we had the perfect set of regulations, it may not make any difference because of the fact that they're offshore.

Senator MARIELLE SMITH: I appreciate your evidence, thank you. If you are able to provide some statistical insights with reference to the Bitcoin-specific scams, that would be really useful for our work.

Mr Bezzi : We certainly will.

CHAIR: Thank you very much. You go with our very best wishes. It's the highest accolade we can give you!

Mr Bezzi : Thank you very much, we appreciate it.

Senator SCARR: It's the only accolade we give, isn't it?

CHAIR: I don't like to hand the 'very' out too widely! It should be reserved for very important people.

Senator MARIELLE SMITH: A lot of people are checking their transcript right now, Senator Bragg!

CHAIR: I'm sure there are people who are always risk averse, and that makes them less fun.