This article is more than 2 years old

This article is more than 2 years old

Australian financial institutions including the big four banks would be forced to break up their businesses and perform just one of four key functions in a radical Greens plan to increase competition.

The plan would force Westpac, ANZ, NAB and the Commonwealth Bank to divest their wealth management arms while Westpac’s BT Financial Group, AMP and MLC would be broken up separating superannuation, insurance and wealth management functions.

The Australian Competition and Consumer Commission would also gain a larger role under the plan, taking responsibility for consumer protection and joining the Council of Financial Regulators.

Australia's big four banks and AMP have had to pay or offer $222m to customers Read more

The Greens cite the “shocking degree of rot” in financial institutions uncovered by the banking royal commission as inspiration, but the policy significantly front-runs the commission and other major parties. The Greens were the first major party to call for a banking royal commission and have also called for a publicly-owned bank to improve competition.

Under the new plan, released on Wednesday, a financial institution will only be able to own and operate services in one of these four exclusive classes:

Retail banks, that take deposits and give loans including credit cards, mortgages and business lending

Superannuation funds

Insurance, including life insurance

Complex and sophisticated financial products including wealth management, investment banking, shadow banking, hedge funds, self-managed super funds, financial markets, and auditors and liquidators.

The Greens are also calling for a shake-up of financial regulators, with the ACCC to take consumer protection responsibilities off the Australian Securities and Investment Commission and the Australian Prudential Regulation Authority.

In its policy document the party says that Asic has “not been up to the task”, citing “AMP’s flagrant deception regarding the conduct of its financial planning arm” and the fact that Asic has prosecuted only one financial services licence holder in the last decade.

The former Asic chief economist Alex Erskine described the package as “comprehensive” and said it “directly addresses several of the failures inherent in the existing regulatory architecture” revealed by the banking royal commission.

Andy Schmulow, a financial regulation expert at the University of Western Australia, said the policy was “far-reaching”.

“But I cannot see lesser responses breaking the cycle of misconduct-cum-consumer abuse followed by apologies and undertakings to put things right, followed by further instances of misconduct,” he said.

The Greens leader, Richard Di Natale, said: “Banks should be working for us, not operating in this toxic culture that encourages and rewards bad results for customers through complex vertical integrations and the cross-selling of inappropriate and risky financial products, particularly in the form of financial advice, life insurance and superannuation.”

The Greens Treasury spokesman, Peter Whish-Wilson, said the policy would ensure the banks “are no longer too big to regulate” and would give consumer protection functions to “a regulator that is interested in policing the banks and pursuing justice when wrongdoing occurs, not one that issues speeding fines for highway robbery”.

On Tuesday the Turnbull government announced a plan to embed Asic officials in the big four banks and AMP Capital under a $70m plan to improve monitoring of their governance and compliance.

Asic to embed staff in big banks to enforce compliance Read more

In recent years Asic has forced Australia’s largest five financial institutions to pay or offer customers $222.3m in refunds and interest for failing to provide personal advice to customers while charging ongoing advice fees.

On Friday the Productivity Commission released a report finding that Australia’s banking system has become so concentrated under the “four pillars” strategy that the major banks could pass on costs and set prices to boost profits without fear of losing market share.

The treasurer, Scott Morrison, called for greater sharing of customer data to allow easier bank-switching and competition.

But he rejected the Productivity Commission’s recommendation for the ACCC to become a “competition champion”, including joining the Council of Financial Regulators to advocate for consumers’ interests.