The recommendations in the Final Report have the potential to improve the quality and fairness of services provided to farm businesses and rural communities with new procedures to improve farm lending. We summarise the key take-aways of the Final Report for the agricultural sector.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released its Final Report and recommendations for consideration by the Government. The recommendations relevant to the agricultural sector responded to the issues raised by farmers and rural communities during the Commission hearings. In addition the aim was to simplify the law where possible, address conflict of interest, improve compliance and effectiveness of the regulator and achieve more ethical behaviours in the financial services industry.
The Commission’s investigation allowed transparency and recognition of misconduct by the banking and financial services industry by assessing the difficulties faced by farmers and the broader regional communities.
Key facts on agriculture lending and regional communities (year-ending 30 June 2017):
As part of the investigations conducted by the Commission, 5 days of public hearings were allocated to agricultural lending and five days related to interactions between Aboriginal and Torres Strait Islander people and financial services entities. These hearings supported the observations submitted in the Commission’s Interim Report released on 28 September 2018.
The investigations drew out the social responsibility the banking and financial services sector has towards Australian’s living in remote and regional communities, in particular, the specific needs and characteristics of the sector that should be considered.
The fourth round of public hearings and broader investigations considered issues affecting farmers and Australians who live in remote and regional communities. These issues included, but are not limited to, sales practices, the charging of default interest, forced sales of farms and changes to conditions of lending to the detriment of the borrower.
Key issues analysed and set out by the Commission included: difficulty to deal with consequences of uncontrollable external forces such as drought; lending against a variable market value; a conflict of interest between the internal appraisal of security value of property and the validation of the loan; lack of expertise in dealing with the specific challenges of the rural sector arises when dealing with distressed agricultural loans; challenges for remote communities in accessing banking services or getting assistance required for application of standard identification requirements.
The Commission made recommendations which will specifically address key aspects of agricultural lending and services to rural communities. Some of the key recommendations made by Commissioner Hayne include but are not limited to the following:
The recommendations supported by the Commission in its Final Report have addressed some of the key challenges raised during the public hearing and summarised in the Interim Report. Some of these recommendations such as the implementation of the national farm debt mediation scheme were highly anticipated by the farm business sector. Other recommendations, if implemented, will enable significant change to support farming finance and remote communities and restore confidence and trust between the financial services industry and the stakeholders affected by their misconduct.
It is now key that the Government back all the recommendations made in the Final Report and that those recommendations deliver effective outcomes to the regional communities. At the time of writing, the Government has already endorsed some recommendations such as the Farm Debt Mediation Scheme, special consideration to distressed agricultural loans and 'specialised' agricultural bankers managing distressed farm loans.
In the short term, the biggest challenge will be to identify the priorities and pathways to deliver the outcomes in a timely manner to respond to the main concerns.
Going forward, further consideration and options for the agricultural sector to access new capital and reduce risk is crucial to enable farm businesses to contribute to the agricultural sector’s vision to double output to $100 billion by 2030 (read more in KPMG’s Talking 2030 report).