By Jenée Tibshraeny
Banks and money remittance firms are eagerly awaiting a landmark High Court judgement that will determine which industry will have to give way, and change the way it does business in line with anti-money laundering laws.
The money remittance company, E-Trans International Finance, is accusing Kiwibank of breaching a number of laws by endeavouring to close its bank accounts mid last year.
E-Trans says Kiwibank has followed the big four Australian owned banks operating in New Zealand (ANZ, ASB, BNZ and Westpac) in implementing a blanket de-risking policy to get rid of money remitters, rather than assessing their anti-money laundering/countering financing of terrorism (AML/CFT) risks on a case-by-case basis.
It says Kiwibank is the “last bank standing”, and without it servicing money remitters, the industry will be driven into the ground. See this story interest.co.nz did at the beginning of the trial for more background and an outline of both parties’ arguments.
Yet Kiwibank has hit back saying it’s its choice who it does business with and E-Trans may have to change its business model if it wants to remain competitive in an environment with tougher anti-money laundering laws.
Kiwibank: Money remitters need to move with the times
In his closing submission, presented at the High Court in Auckland at the end of last week, Kiwibank’s Counsel Tom Weston QC, says the “real answer” to E-Trans’ problem lies outside the court in the policy arena and with the money remittance industry itself.
He says the industry has to be innovative to respond to changing market conditions.
“Innovation can be expected in [the] face of the sort of difficulties that the AML legislation creates. This may mean that the plaintiff's business model may not succeed in the future. But it does not mean that the plaintiff, itself, or MTOs [money transfer operators] as a category, will fail,” Weston says.
He notes Kiwibank is more concerned about the way E-Trans (as well as other remittance firms) is set up to carry out remittances, than it is specifically about its compliance with AML/CFT rules.
He suggests E-Trans assesses the way its “casual” corporate structure affects how assets are held and accounted for; the way funds credited in New Zealand to E-Trans accounts occur via eftpos and are aggregated making them hard to track; and the way the aggregation task is undertaken by its Australian company.
He also red flags E-Trans’ “casual approach” to the way large sums of money (totalling $9.5m) flow between E-Trans accounts in New Zealand and those of a specific individual.
E-Trans: Kiwibank needs to move with the times
On the flipside, E-Trans maintains Kiwibank is obliged to invest in the necessary systems for it to bank money remittance customers in line with the AML/CFT Act.
After all, the Department of Internal Affairs has given E-Trans’ AML/CFT Act compliance programme its tick of approval.
In his closing submission, E-Trans’ counsel Jim Farmer QC says:
“Kiwibank failed to have in place sufficient resources and facilities to carry out its individual customer due diligence obligation to the required statutory standard.
“Kiwibank’s change of policy to one of blanket closing or de-risking of all MTO accounts including that of E-Trans was a breach of its duty to manage its AML risks.”
Farmer argues that under the AML/CFT Act, Kiwibank has to cooperate with other reporting entities like E-Trans, and “comply with the Act in a manner that infringes their rights no more than is reasonability necessary”.
Furthermore, he says Kiwibank has failed to observe the “statutory direction” the Reserve Bank gave banks in January last year, not to fulfil their AML/CFT obligations by adopting blanket de-risking policies.
He maintains the bank’s also gone against the recommendations made by the Financial Action Task Force – an inter-governmental policy-making body which has spoken out against blanket de-risking. The taskforce warns this could drive financial transactions underground, reducing transparency and increasing laundering and terrorism risks.
Kiwibank: We can choose which services we want to provide to whom
Yet Kiwibank’s Weston says it isn’t a matter of Kiwibank not having the infrastructure to meet AML/CFT standards.
“If Kiwibank wants to reduce its exposure to the risk of facilitating, or being associated with, money laundering that is its choice to make. In that case, compliance with the AML/CFT Act sets the floor, not the ceiling,” he says.
“Kiwibank is entitled to adopt a more conservative approach than E-Trans to reflect a range of different considerations relevant to its business model (Government-owned bank; dependent on raising funds from investors who have a range of banks they can invest in; risk aversion around reputation; risk aversion around Crimes Act) as opposed to E-Trans' model.
“In short, it is not enough for E-Trans to criticise Kiwibank for the assessment it has made, and the risk appetite it has chosen, just because it is different to those of E-Trans.”
Weston says the risks are real, and points out E-Trans has even admitted money laundering might be occurring.
He likens the situation to the fact a person with a drivers’ licence may still be driving dangerously.
“Compliance by E-Trans with its own procedures provides only a limited answer to Kiwibank's much wider concerns. Further the risk posed by this cannot be addressed by pricing; the potential reputational risk and criminal liability have no price tag.”
E-Trans: Competition among remitters will be quashed if Kiwibank wins
E-Trans argues competition in the remittance industry is being quashed by banks’ blanket de-risking.
Farmer says, “In the present case, by virtue of it having become the bank of choice for the 100 remaining MTOs [figure contested by Kiwibank]… Kiwibank’s closure of E-Trans’ account (if it is allowed to proceed) does have significant consequences for the market by virtue of the cumulative effect.”
He recognises that while banks may not be overtly “colluding”, they’re responding to a situation in such a way that would normally be seen as anti-competitive.
Farmer points out banks also operate in this money remittance market, which they’re essentially driving their competitors out of.
Kiwibank: The future of the money remittance industry doesn’t hinge on us
Yet Weston disputes E-Trans’ claim that all banks have ditched remitters, leaving Kiwibank as the last bank standing.
He says other banks must be continuing to provide these services.
“They must do so given the number of remitters that were never Kiwibank customers, yet appear continuously over the years on the Department of Internal Affairs list, and were still there at the last published list in December 2015; and given the number of remitters that have remained on that list for over 12-18 months after having been exited by Kiwibank,” Weston says.
“This is not a market in which the exit of one participant will make a difference to price, or quality of service available in the market as a whole.”
Furthermore, Weston questions why Kiwibank should bear the brunt of E-Trans’ troubles finding a bank which is willing to service it.
“The same obligation does not lie on the other banks who have already exited money remitters – just Kiwibank,” he says.
Kiwibank: A large can of worms will be opened if E-Trans wins
Weston says the fundamental right of a bank to choose which services it provides to whom, will be challenged if E-Trans gets its way, and Kiwibank is forced to keep its accounts open.
He says the consequences of this outcome would be far-reaching.
“Each time a commercial party terminates a contract, it will be obliged to consider the competitive effects of that decision,” he says.
“If Kiwibank is unable to exercise its right to terminate then the court will have found a duty on Kiwibank to deal with not only E-Trans but up to 86 MTOs.”
What’s more, Weston says Kiwibank would have to bank those customers regardless of their changing risk profiles and the impact this may have on its business.
He questions whether Kiwibank would still have to continue banking a customer if criminal charges were brought against it for money laundering, or if Kiwibank was no longer able to access funds from investors due to its connection with remitters.
“It is far from clear where the logical boundaries would lie, but clearly the impacts for Kiwibank could be great,” Weston says.
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.
2 Comments
Interesting... I think that the lawyer for Kiwibank is asking for us to join him in his regard that NZ's competition laws are a ridiculous burden..!!
The commerce act has been in place for 30 years. Who is out of date here?? Goodness.
WESTON: ""He says the consequences of this outcome would be far-reaching. “Each time a commercial party terminates a contract, it will be obliged to consider the competitive effects of that decision,” he says.""
From the website of the Commerce Commission, the competition law fact sheets state:
"Section 27 covers .... informal agreements ... between suppliers and customers. It is illegal ... to reach an ... agreement [...]. Even attempting [...] an agreement [that limits competition] can break the law. It also doesn't matter whether [it] is deliberate... - if it substantially lessens competition, it will be illegal."
(here - http://www.comcom.govt.nz/business-competition/fact-sheets-3/slc-agreem…)
All three parts can be proven to have occurred on a balance of probabilities: (1) A substantial drop in competitors. (2) A cause and effect relationship with banks, who govern access to the electronic payment system, showing that banks are acting in a way that lessens competition (3) that meetings did occur, and articles have been published, citing related decisions which pre-dated (1) and (2). Add to that (4) - Regulators have come out and said to banks: "don't do it".
And an agreement does not have to be mutual and fair. An agreement could be simply: Big Bank to Little Bank: We have a policy that says we mustn't do business with Money Service Businesses. We also can't do business with you, if you do business with them - which gives you a choice. What is more valuable to you - your relationship with them, or your relationship with us? Do you get my drift? If so - make it so. You have 9 months to comply. Little Bank concedes: OK Big Bank. We understand".
THAT IS AN AGREEMENT, obviously. Not a mutually beneficial one to the little banks - but still - an agreement. And because it closes out a competitor here in NZ, under NZ law, that would be an offence. Willingly or not, a New Zealand bank has entered into an agreement that blocks other New Zealand competitors to access a network that all banks and payment operators use to offer competing services.
The NZ Commerce Act states: 'An agreement doesn't have to be deliberately anti-competitive to be illegal - but if it has a substantial impact on competition - it will be'. So WESTON is so out of line - one would think he was momentarily carried away in the rhetoric - and accidentally mis-spoke his claim.
The response to this would be:
---------------------
Dear Commerce Commission:
CC: Reserve Bank, Department of Justice (Author of the AML act).
We have recently received a threat by an offshore entity to cease trading with all money transfer businesses in New Zealand. The offshore entity has given us no choice but to comply. You might argue that there are over 8,600 banks in the US - or one per 40,000 people (i.e. NZ would have 120 banks at that ratio!) - and that no one bank has market power - but be assured, the reality is that a small number of large banks control everything, behind the scenes - and when one of them says jump - we all have to.
We object to this on principle, and also believe that this is against the letter and spirit of New Zealand's anti-competitive laws, which we seek to uphold. On a purely commercial basis, we would have to comply with their demand, unless we can provide the following:
(a) A declaration from our regulator or the commerce commission, stating that closing accounts for approved and supervised third parties in the payment services business, in order to secure ongoing business with a foreign currency supplier for our own benefit, is illegal.
(b) That we are not permitted under law, in New Zealand, to close any current supervised financial service operators, unless there is urgent evidence that there is a case specific and with new evidence or concerns, following the approval of the supervisor. In this case, Foreign Banks are invited to raise a claim or concern to the MSB supervisor, and/or to provide us with specific details where you have evidence or suspicion that one of our customers are in breach of your laws or our laws.
(c) NZ Banks will only provide an MSB with NZD clearing access here locally where requested - and will not provide an MSB with a nested account at an offshore institution in their home currency, without first having permission of that bank to do so. It is our preference that the MSB should apply for that facility on a country by country basis directly. This means we may not be able to provide an MSB with payment services or FX capability to a country where that MSB does not have a physical presence. Our MSBs understand that.
Or a statement from our regulator or the commerce commission that (a), (b), and (c) are permissible, and that Kiwibank is immune from anti-competitive behaviours or any other recourse, if we are to close all accounts of MSBs, as has been requested.
From our perspective at Kiwibank, failure to have these three caveats, or the forth immunity in place, means that we may lose our ability to process US Dollars (or EUR, etc) - and that loss may disadvantage Kiwibank vs other banks in New Zealand, who may be prepared to close down MTO accounts in order to offer NZ businesses potentially lucrative services in concerned currencies.
We believe there should be an even playing field - and that these offshore banks don't have the authority to close down our customers accounts - but by taking a stand, we would be put at an unfair disadvantage within our industry.
As it is, the New Zealand Dollar is the 10th most traded currency in the world, and we believe that given a uniform response, backed by regulators, international banks will back down on their demands to close MSBs, as New Zealand is one of the lowest risk countries in the world, with amongst the least corruption and financial crime in the OECD, according to the World Bank and UN and other entities.
We have every reason to believe, that, with (a) and (b) in place, banks will still deal with New Zealand banks, and that not having (a) and (b) in place will eventually force all NZ banks to de-risk MTOs in New Zealand and this may force large numbers of transactions underground - as it is already doing in Australia (reuters article) which could see more ultimatums passed onto us by offshore banks and major financial centres.
We note that according to the IMF - around 30% of the worlds financial crime happens in the US (USD 3,000 - $5,000 per capita), and 20% in the remaining 40 OECD countries (USD 1,000 - $2,000 per capita). While around 50% of financial crime, according to the IMF - that is USD 1 trillion - happens in all remaining countries (about $150 per capita) - so we see remittances to countries where a large amount of our customers have family, such as Tonga, Fiji, Samoa and other Pacific Islands is very very low risk - and see no reason to terminate these operators based on miscalculated demands from offshore.
We would welcome a discussion about this at the next Banker's Association meeting on XX/YY/DD Date, and would be very happy to raise any consideration papers on the topic that you may have in place by then, for discussion, as a priority.
With sincere thanks in advance,
Kiwibank
-======================
The quantity of time spent on the enormous amount of discussion at industry conferences and compliance officer meetings, or even through the NZ Banker's Association, where banks have sat and discussed their AML risks, and having to close out their exposure to 'unknown' risks - is virtually ubiquitous and impossible to refute. It's not E-Trans' fault kiwibank has had this pressure put on it - nor is it kiwibanks fault - but someone has to take the initiative.
If kiwibank was really worried about the risk - it would have written to the RBNZ and asked the Reserve Bank to challenge the ongoing approval to operate given by E-Trans. It would have said:
===========================
Dear RBNZ,
We are worried about our ability to comply with AML laws when supplying [An MSB] (FSPR number 34262) with an electronic payment facility here in New Zealand.
We believe that [the MSB] is posing a high risk to our AML efforts and we are not satisfied that their policies are sufficient for them to comply with AML/CTF obligations, or for us in turn to comply with our own AML/CTF concerns because of their practices.
(A) We have raised this with the DIA, but have not had any specific assurances that our concerns have been addressed. The DIA says [the MSB] is compliant and has received clean External Audits {<- but will not provide any further assurances>??}. However, the MSB fails to provide us with responses regarding our requests for ability to monitor transactions (including the sender, receiver, and purpose of transfer data) - and we are therefore concerned, as we have a right to investigate any and all transactions for compliance reasons - yet we have suspicions that the MSB is not complying.
Further, they still remain on the Department of Internal Affairs' list of approved entities.
As our regulator and supervising entity, can you (the RBNZ) please request the DIA to review this MSBs' compliance programs and ongoing monitoring - or to issue an instruction to the MSB that it must provide us with data, or that (if) the MSB is unable to satisfy the DIA's requests for information and to provide its intermediaries with data, then a date on which the MSB will be removed from the register is set and they will be closed (we confirm we will immediately close the MSBs' accounts on that date).
Or (B) if that the MSB has exemptions from reporting to us as the intermediary for reasons determined adequate by the DIA and RBNZ jointly, then please confirm in writing that we are to be held immune from any prosecutions or accusations of wrong-doing relating to these account(s) in this regard. We did not yet receive this advice from yourselves of the DIA.
If further action is required, please confirm, that while investigating this MSB, the RBNZ and the DIA issue us, Kiwibank, acting as its intermediary, full indemnity from prosecution under AML activities relating to this account, during this time - until bot the DIA and the RBNZ are fully satisfied that they are compliant and that we are authorised to process transactions for them.
As you will know, Kiwibank is obliged under the Competition Act to reasonably supply a competitor with services even though both Kiwibank and the MSB offer similar products for international transactions.
Therefore we feel we cannot act unilaterally to close down an approved operator that has recently passed its compliance audit, and remains approved by the DIA despite our compliance concerns, until they are removed from the FSP register and no-longer supervised.
We're in a tricky position here - and we would like your support in resolving this within 60 days. By the way, Bank of America and Citibank are our correspondent banks - and they want us to de-risk all our MTOs because Credit Suisse and HSBC are similar banks to them, and got fined elsewhere and are criminals. We still deal with them because they have a banking license. Which seems fair.
Can you please have a word to someone high up and issue a statement to enable us to exit them lawfully, or to continue providing the service with immunity while they are under investigation.
Yours Faithfully
Kiwibank
===========================================
But Kiwibank has done no such thing - or have they?
If they have not, we go back to some form of other argument. What is it?
The Financial Action Task Force has an idea (here: http://www.fatf-gafi.org/documents/news/rba-and-de-risking.html and here http://www.fatf-gafi.org/documents/news/derisking-goes-beyond-amlcft.ht… - where it notes that AML risk is not the only driver for shutting bank accounts!!!)
But what about between banks in NZ? Is it likely to be the big banks bullying the little ones not to hold MTO accounts? Even if there may not have been a documented agreement (although it may well be minuted somewhere) - even an informal agreement or understanding, that "all banks are doing it" gives other banks the confidence to 'act like a heard' (cluster for cover)/(settle for safe haven) is both a given, and also wrong/illegal. Bank's commercial interests do not supersede the interests of the community, and public law. It's that straight forward. We all know what happens when the banks all run in one direction --- we get a crisis. And this is a crisis for the financially vulnerable.
In my opinion - it's not fair that Kiwibank is being singled out here - sure - but it's also illegal for all banks to act in a uniform way to close-out other businesses that compete with them, against the advice and guidance of their Regulators. NonBank/Independent operators in some corridors has been reduced by 100% over the past two years. Only the banks (or bank selected operators) are left. Dozens of Government approved and supervised operators have vanished. Some have stayed on the register - and are hiding the transactions from the banks... as this article (Australia) says. This means banks aren't targeting risky behaviour - as they can't identify it. They are targeting remittance operators:
http://www.reuters.com/article/australia-remittances-banks-idUSL3N16445X
WESTON tried to claim this consideration (i.e section 27) was unreasonable. I look forward to the ComCom's view here - if it were to get involved. I am sure they won't find that using any number of services that the banks themselves offer (or receive income from - i.e. Kiwibank branches acting as an agent for Western Union seems fishy?!) would been seen a a substitute for fair competition, if the banks shut out all competitors. I would invite the gentleman Weston to take 45 minutes of his day to visit ANZ, Westpac, BNZ, ANZ, TSB, Co-op or any other bank in NZ (kiwibank is a given) - and see if there is any bank imposed restriction on trade in place when he tries to open a money transfer account.
We have plenty of evidence that banks are prone to acting unfairly and without thinking about the consequences. Here's some thoughts from as far away as the UK - http://www.bbc.com/news/business-18540832. It's wide spread... and it's not customer serving. Otherwise we'd all love our banks.
And the US : customers-dont-trust-big-banks
http://bucks.blogs.nytimes.com/2010/02/03/the-least-trusted-banks-in-am…
Key Question: If a brand cannot be trusted, how can it have any value?
http://thefinancialbrand.com/wp-content/uploads/2010/02/customers-dont-…
And we all know how well liked the parent banks of our banks, are in their homeland.
http://www.businessinsider.com.au/another-seven-australian-banks-could-…
In terms of "Kiwibank Taking One for the Team" - I do feel for them. The Aussie Banks have exited the market - and Kiwibank is left holding the paddle - which is more tricky as the government owned bank. Jim FARMER (QC for Kiwibank) is correct - banks, as the gate keepers of the payment system, have been quick to exit - and Kiwibank has been trying to do the right thing and has been abandoned by it's peers.
BUT --- THERE IS NO EXCUSE. Compliance costs are far far less than the cost of this court-case, surely!!!
WESTON seems to be grasping at straws. Everyone in the industry knows that HSBC, Credit Suisse, Citibank, Deutchse Bank - and more - are all guilty, and in some cases convicted as criminally culpable of Laundering Money - http://www.wsj.com/articles/SB10001424052702304422704579571732769356894
But WestPac and BNZ (etc) still hold accounts for the likes of Credit Suisse, and the rest - eg ASB/CBA ANZ & Kiwibank at the likes of Citi, JP Morgan, HSBC and so many more, directly and indirectly providing these convicted 'criminal' offshore entities/institutions with access to the NZ payment system. But they are refusing to provide access to NZ companies, who are supervised and held to the same standerds, by the New Zealand Government? Wow. WESTON is well out of his depth in this regard. As is Kiwibank - but the thing to do is enable kiwibank to become a local intermediary, make a lot of 'free' money from these remitters (who - if there are 86 of them - would probably be paying more than $500,000 a month to Kiwibank in fees anyway) - and get on with being the most AML compliant bank in the world.
As for not attracting investors? Are they kidding? They are owned by the government. If Weston has knowledge of a proposed Kiwibank float on the Stock Market - then this is news to everyone...!
Sorry for the long comment - but there's one more point:
WESTON may have thought he had got ETRANS into a legal trap, by stating that money laundering MAY be occurring at E-TRANS. But that's unequivocally true of all payment instruments. I bet he would have to admit that somewhere in kiwibank there is also money laundering happening - and with 800,000 customers - that's more likely than at ETRANS. Also - you don't ask a road contractor to confirm before they build a road, that a road should not be built if there is a possibility that someone using that road may speed - the road builder is not facilitating illegal activity. The road has rules, the drivers have terms and conditions - and breaches are reported to the police. Just like in a payment service. Except that payments are all tracked - which is not the case for cars and bikes.....
The facts remain, that using the financial system to gather evidence of illegal transactions is by far and away the best, most robust, and most transparent method of putting criminals in jail there is. Al Capone went to jail not for racketeering or murder - but for tax evasion (same thing so many banks are guilty of) - which is why it is actually beneficial for transactions to occur within the payment system - not out-side of it.
All that needs to happen is for government to add 'registered, supervised, audited and approved MTOs to the "low risk/Simplified Customer Due Diligence' register under section 18 of the AML act. If they want - they can also indemnify banks for any transaction running via an MTO (of value less than $10,000) from higher order AML punishments. Kiwibank stands to make more than $5m profit a year by helping the lowest income people in the world save money. Who can object to that?
Plus - I am sure that Jim Farmer QC is not asking Kiwibank's Tom Weston QC to undertake an in-depth competition law analysis on any/every customer that it no-longer wishes to do business with (kiwibank has some 800,000 accounts - most of which are extremely unlikely to have any competition law burden when closing) - and I think it's a bit offensive to suggest that anyone thinks that.
But in just the same way, Tom & Kiwibank are required to be, BY LAW, aware, that to deny access to an infrastructure of a government approved competitor is not a clever action - (the other banks are all openly doing this too - not just Kiwibank) and this is an anti-competitive behaviour - it does block competition - and that their considering this a possible breach under competition law when shutting down a regulated/government approved competitor that relies on the generic access to banking services in-order to provide that competitive service to consumers, and then looking for other solutions, is actually a form of self preservation and/or intelligence. Doing nothing, or blanket banning this industry - as is the case, is a very high risk approach indeed - not to mention expensive.
This is such a no-brainer - that we are forced to allow Weston to withdraw his comments, rather than to tar all banks with such an aloof brush. He can't have meant what he said; Of course the law applies to banks - No one in their right mind could possibly disagree with this under any circumstances.
For guys like this, our society has laws on both sides of the fence - called "checks and balances": For example, on one hand - the law asks banks and other types of businesses to check that they're not unwittingly allowing or enabling money laundering or terrorist financing to occur within their institutions (though wilful neglect) - if it is - it must be reported. Two - there are balances on this such as the Fair Trading Act, and the Commerce Act as Jim Farmer QC puts to the court.
Checks and Balances (such as the Commerce Act) make sure the market is able to operate with sufficient competition to make sure customers have choices. And to make sure things go too far in one direction, as in this case, where banks are closing the accounts of everyone with the name OSAMA or who lives in SAMoA (samoa and osama a similar - believe it or not), or disadvantages people who support family overseas, or who Common sense and data analytics suggest that are not likely to do any money laundering.
For people that are more likely to be exposed to a future scandal, the law says you must collect MORE information on them - "enhanced customer due diligence" it's said. It doesn't say anywhere that a bank will be punished for having a customer that commits a crime (unless the bank was willfully negligent, stupid, or complicit) - so the law actually wants banks & other supervised entities to collect MORE information on risky people - not less. Closing them out of the market or driving them underground is specifically listed as an UNDESIRABLE outcome.
What the law says, is that you must know who your customer is - and not knowingly allow any of your customers to carry out business in (a) an anonymous fashion, or (b) an illegal fashion. If you DO know about it - the only real obligation is that you REPORT IT. Not stop it. Then the police take over, and monitor the accounts until they have enough evidence to freeze the accounts - and make a case to put the perpetrator in Jail. But they still have to convince a judge to do that.
The financial institutions don't have the powers to act as judge and jury. They are just there to report, provide evidence, and follow the law. They certainly don't worry about dealing with other banks, even when the other banks are accused of financial crimes, or pleading guilty to them.
BUT it just goes to show - that banks (and their lawyers?!) really don't understand "risk based" approaches to decision making. The reserve bank has already told them to sharpen up on this, but still they don't seem to.
Here in this case, there is the most blatant sense of a one-size-fits-all mentality... I.e. all customers are the same - and must be treated with the same amount of onus and obligation.
Not so. Otherwise we'd all be getting weekly invites to the Corporate Box. Complying with competition law is the same - as is complying with AML. There is no way that there could possibly be an extraordinary anti-competitive burden for dealing with Joe and Sue's joint account in Te Kuiti - vs the way you would deal with E-Trans' accounts that do millions of dollars per week; vs the way you'd deal with someone who has enormous cash transactions running through their account, has no government cash-handling approval, and has a lot of bar-bills on their Platinum Credit Card for casinos in Auckland, Melbourne, and Maccau.
For one.... E-Trans is a government approved competitor. This is low risk. The gambler is a cash-heavy high net worth individual who is constantly on the move across boarders, and a high penchant for risk taking in a 'negative long-run returns' environment. That is high risk. Jannett and John from Twizel or their cousins in Te Kuiti, are farmers with highly regular payments from a low number of suppliers/sources.
See the difference? Our banks say they can't distinguish at least two out of these three... or they don't want to.
Sadly - determining the focus you need to apply to each scenario when taking actions, in this case, is called "taking a risk based approach" which is the core of the AML Act. All the banks in NZ and Australia (and else where) are trying to "opt out" of complying with the risk based approaches.
"to [illegally?] close down a competitor, while openly professing a right to disregard any possible obligations under competition law - is exactly the kind of behaviour that banks need to be fined for - not because they need to be fined - no-one wants to see kiwibank fined -- but fines teach banks how to think. They ignored laundering regulations until they were fined... and now they are ignoring their regulators insttuctions (not to close down money service businesses) - and will do so (even citing impunity from competition law in the process!!) until they are fined. It's how banks work.
Surely they can spot the difference between an average joe on the street who refuses to repay his credit card - over and over - which actually costs the bank money --- and a regulated entity approved by the government to compete with them - and how the two are very different scenarios. If they can't - as Weston cites - then ... oh gosh!
Let's quickly refer to Competition Law (which banks are definitely not above!!):
The Commerce Commission's website states:
_
Refusal to supply:
http://www.comcom.govt.nz/business-competition/fact-sheets-3/taking-adv…
A refusal to supply can occur when a business operates at more than one level of the supply chain.
Typically a business refuses to supply a competitor with an input, such as a raw material, or to give access to infrastructure, such as port services. The competitor needs the input or infrastructure to be able to compete in downstream markets, where the business refusing to supply also operates.
What is the supply chain?
The supply chain refers to all steps in the production, distribution and sale of a product. It includes buying raw materials, manufacturing or importing, wholesaling, distributing, retailing and customer service. Each of these steps in the supply chain is described as being downstream of the ones before it.
We may be concerned about a refusal to supply if:
~the product or service, or a close substitute, is not available cost-effectively from other businesses
and
~it does not make economic sense for the competitor to build its own infrastructure or to produce the input product or service itself.
_
We know - that all other banks in NZ are not servicing MSB accounts. So the ComCom says "it may be concerned if ... the product or service, or a close substitute, is not available cost effectively from other businesses, AND it does not make economic sense for the competitor to built its own infrastructure or to produce the input or service itself".
Can this be ANY MORE CLEAR? Are we saying that access to the banking system is available? All MTOs and the banks themselves say it is NOT AVAILABLE. It is there, yes --- but it is not available. AND it certainly does not make sense for small businesses to re-build the inter-bank payment system when it is there - and it is is simply being withheld (against the instructions of the regulatory/supervising bodies) by commercial operators on the grounds that banks themselves feel they cannot comply with the laws --- despite being told by the regulators that this is inadequate.
The Reserve Bank is cooking up some serious egg-on-face, if, as Weston (possibly mis-states) that the banks believe that their own interstes are above that of the community they operate in - and above the law, and their own regulators - i.e. that they do not need to consider the community (public law/competition law) when making decisions regarding shutting out competitors
I don't think banks are bad. I think they provide a public good - i.e. even though it is currently convenient to blame banks for 'keeping' a large part of the OCR cut from last week, they also haven't (as of yet) really dropped the Term Deposit or On Call savings rates either. So they are not profiting from an OCR drop - savers are.
http://www.interest.co.nz/charts/interest-rates/online-call-rate2
And we really want banks supporting savers, not borrowers. Borrowers benefit enough from the use of the funds - where as savers have to battle inflation - and hope that Moore's law applies to more than just computer chips.
Anyway... banks are there for a reason - they are allowed to be profitable for a reason - they are issued hugely expensive banking licenses for a reason - to lower competition - and to ensure stability through higher profits. But there is a point, where the people get mad.... and where the ability to exist in a non-competitive environment goes too far.
Even if the banks them-selves don't see it coming..!
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