Small business ombudsman calls for crackdown on banks denying SMEs “basic banking services”

Small business ombudsman Bruce Billson is calling on the federal government to require financial institutions to explain why they withdraw or deny insurance and banking services to small businesses.

In a submission to an inquiry into the prudential regulation of investment in Australia’s export industries, Billson said many small businesses are “unable to obtain insurance or banking services based on industry, location and other factors”.

The inquiry was established in February to examine opportunities for the nation’s export industries, and how changing practices across banking, insurance and superannuation institutions are challenging businesses.

Speaking to SmartCompany, Billson said a number of small and family businesses had contacted his office after financial institutions stopped providing them with insurance, as well as essential banking services.

“In many cases those decisions appear to be quite arbitrarily made, based on optics or some sense of corporate positioning,” Billson says.

Billson has proposed that the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) be empowered to require financial institutes to ‘show cause’ for decisions when they withdraw or reject a financial service to a small business.

This requirement would discourage financial institutes from making decisions that are not based on fair credit or risk assessments, he says.

Billson also proposed the government consider publishing the banks’ reasons for refusing services, and allowing the Australian Financial Complaints Authority to review them.

Other proposals to the inquiry came from businesses and organisations in the mining industry, with the Bloomfield Group, Centennial and the Australasian Institute of Mining and Metallurgy (AIMM) each making their own submissions.

AIMM submitted that mining is “poised to capture growth opportunities from the COVID-19 recovery” as Australia’s largest export industry, generating $283 billion in revenue in the last financial year.

A more critical submission came from the Whitsunday Conservation Council.

The conservation council said the inquiry was the government’s attempt to promote investment in the coal and gas industries, despite financial institutions becoming increasingly aware of the financial and health risks these industries pose.

Billson explains his submission was not related to ensuring businesses engaged in activities that contribute to climate change could operate without restrictions.

Rather, it was to ensure small businesses have access to insurance and essential banking services.

“We’re talking about basic banking services that every small and family business requires just to carry out its activity, that has no implications what so ever on climate change or other risk factors,” he says.

Accessing insurance has become a significant issue for small businesses across the nation, with a recent ASBFEO report finding that insurers are becoming more risk averse.

As a result, small businesses are either being denied insurance or are unable to find affordable insurance products.

And it’s not only businesses in the export industry that are being denied.

While Billson has received complaints from small businesses in live animal exports and mining, he’s also received complaints from businesses in the sex industry.

“Some of those are export-leaning businesses, not all of them,” he says.

“To turn off those banking services because someone decides they don’t want to be seen to be involved in that kind of activity can have a harmful impact on those businesses, and warrants some further scrutiny,” Billson says.