From Royal Commission to Accountability: How Rules Reshaped Banking Behavior
The modern contour of Australian banking regulation is best understood through a story of conduct reform layered atop prudential discipline. The Financial Services Royal Commission, which examined misconduct across banking, superannuation, and financial services, catalyzed a multi-year agenda of cultural and governance overhaul. Its recommendations amplified existing mandates from APRA and ASIC, yielding stronger accountability, clearer product governance, enhanced remediation practices, and better alignment between incentives and consumer outcomes.
At the heart of the shift is executive accountability. The Banking Executive Accountability Regime (BEAR) laid groundwork for mapping responsibilities, tightening fitness and propriety, and creating consequences for governance failures. Its successor, the Financial Accountability Regime (FAR), extends and deepens those obligations across a broader set of entities and accountable persons. For banks, FAR influences board composition, risk oversight, delegation frameworks, and the documentation of who is on the hook when operational, compliance, or prudential controls fail.
On the conduct side, ASIC’s design and distribution obligations (DDO) reshape product lifecycles. Lenders must define target markets, impose distribution controls, and monitor outcomes—closing gaps between product design and customer needs. Responsible lending rules reinforce robust verification and serviceability testing, especially salient in a housing-centric economy. Misconduct remediation, including addressing “fee-for-no-service” and mis-selling, has driven substantial provisions and systems upgrades to prevent recurrence.
Prudentially, APRA’s standards embed Basel III capital and liquidity requirements while sharpening local expectations. Stress testing across economic downturns, property price shocks, and funding squeezes drives portfolio re-weighting and underwriting discipline. Liquidity rules (LCR/NSFR) translate into a premium on sticky deposits and long-dated funding, prompting re-pricing strategies and competition for household savings. Information security and operational resilience standards lift investment in cyber defenses, incident detection, and recovery capabilities, with board-level reporting now routine.
AML/CTF enforcement by AUSTRAC brought a hard edge to compliance. Significant enforcement actions against large institutions highlighted the enterprise-wide nature of financial crime risk: customer due diligence, transaction monitoring, and international funds transfer reporting must operate seamlessly across sprawling legacy systems. Banks have responded with technology uplifts, improved data lineage, and more granular risk segmentation, but the fixed costs are material and persistent.
Competition and innovation are reshaped by Open Banking under the Consumer Data Right. Data portability enables personal finance tools, more precise pricing, and easier switching. The challenge for incumbents is to harness open APIs without losing defensive moats; the challenge for challengers is to convert access into viable scale, given the compliance intensity of being an ADI. Payments regulation, interchange caps, and the New Payments Platform have pushed toward faster, cheaper transfers—raising expectations that banks modernize customer experiences.
Taken together, Australia’s regulatory evolution has recalibrated incentives inside banks: stronger individual accountability, tougher prudential guardrails, and data-driven consumer protections. Costs are higher, but so are trust, resilience, and market discipline. The new equilibrium rewards institutions that embed compliance into strategy, leverage data responsibly, and treat governance as a competitive capability.
