On 18 October 2018, the Australian Securities and Investment Commission (ASIC) announced a national review of school banking programs (Review), focused on primary schools. This follows both the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Banking Royal Commission) focusing on financial services misconduct and the earlier revelation that the Commonwealth Bank Dollarmites scheme had been used for internal fraud. ASIC is performing the Review under its remit as the lead government agency for financial capability in Australia.
Banking Royal Commission and The Dollarmites Scheme Scandal
By way of background, Youthsaver accounts are part of the CBA's School Banking Scheme. Run nationally since 1931 through participating primary schools, School Banking encourages children to regularly deposit money into their Youthsaver account and earn silver 'Dollarmites' tokens, which can then be redeemed for a reward through the School Banking Rewards Program.
According to an investigation by Fairfax Media, "CBA has more than 1.6 million Youthsaver accounts and each year an estimated 120,000 new accounts are opened". In a related article, the Australian Financial Review reported that as at 30 June 2018 just over 300,000 students and almost 4000 schools around the country participated in the CBA school banking program.
In May 2018, the Commonwealth Bank (CBA) issued an apology to its customers, admitting that in early 2013 staff had been making deposits into students' Dollarmites bank accounts in a bid to improve staff incentive compensation. It was found that CBA staff either used the bank’s money or their own money to illegitimately activate Youthsaver accounts for financial gain. According to CBA emails obtained as part of the investigation, neither ASIC nor the CBA Board were notified about the misconduct until 2016, despite the incident occurring about three years earlier.
The emails obtained in the investigation described the practice as "widespread", as “serious misconduct” and "an unacceptable and unethical sales practice...in breach of the Code of Banking Practice."
In a similar vein to the Banking Royal Commission, Consumer Group CHOICE has also been critical of the payment of significant commissions to schools that are linked to the number of accounts opened and ongoing deposits made - "in 2016, the CBA paid $2.3 million in commissions to schools."
Much of the Banking Royal Commission's focus has been on how the banks live up to community expectations about conduct regarding financial literacy and the effects of the banks' (including CBA) financial misconduct on its customers. With ASIC's recent announcement of the Review, it seems that CBA's marketing and community financial literacy programs in schools will also come under the microscope.
Further Background to the Review - National Financial Capability Strategy
ASIC is the lead Australian Government agency responsible for financial capability (and a lead organisation on the National Financial Capability Strategy).
The National Financial Capability Strategy seeks to broaden the reach and impact of financial capability initiatives that assist Australians, including school students, to be in control of their financial lives. The National Financial Capability Strategy identifies three behavioural areas in which students can be empowered to take control of their financial lives:
- managing money day-to-day
- making informed money decisions
- planning for the future.
This is largely implemented in schools through connections to financial literacy in the Australian Curriculum.
According to the Review, school banking programs are programs where a bank has a relationship with a school to offer deposit products to their students. These students are encouraged to establish bank accounts and make ongoing deposits into those accounts at the school.
Australian Curriculum and Financial Literacy
Curriculum Connections identifies multiple areas in the Australian Curriculum that support the development of financial capability in students. These include:
- mathematics, where students learn to accurately make computations and check results, interpret numerical, graphical and other information, and construct and use financial models to help make financial decisions
- humanities and social sciences, where students explore how making responsible and informed decisions about consumer issues, money management and assets can affect the individual’s and the community’s quality of life, sense of security and awareness of future options.
ASIC, in the Review, is drawing on education as a key component to support stronger financial capability and to better prepare students to manage financial decisions throughout their life.
Terms of the Review and Expected Completion
The Review will:
- seek to understand how school banking programs are implemented and how they are marketed to school communities
- consider how students are engaging with school banking programs and the accounts established through these programs while they are at school and after they leave school
- assess the benefits as well as the risks of school banking programs, and will set out principles for appropriate conduct and good practice in this area.
Deputy Chair of ASIC, Peter Kell, said, "Transparency around school banking programs is important. ASIC wants to understand the motivations and behaviours around school banking programs to ensure they ultimately serve the interests of young Australians, and to enable school communities to have an understanding of the potential impact of these programs."
CBA's executive general manager of retail banking, Mark Jones, said that CommBank's Dollarmite program is voluntary for schools and families. The program gives students a savings account, which Mr Jones said is "designed to encourage regular savings behaviour [and] good money habits".
ASIC will consult with various stakeholders, including those from the education sector, consumer organisations, other regulatory agencies, and the banks offering the programs.
It is expected that the Review will be complete by mid-2019.