Morrison warns banks not to pass on new ‘user-pays’ impost to finance ASIC reform

From The Conversation.

Treasurer Scott Morrison has warned Australian banks not to pass on to customers the $121 million user-pays charge imposed on them to finance a strengthened Australian Securities and Investments Commission (ASIC).

The banks will pay for almost all the $127 million four-year package, which the government hopes will take the sting out of Labor’s promise that it would set up a royal commission.

But Opposition Leader Bill Shorten said the issues were not just matters of the law but the culture.

The government will provide $61.1 million to boost ASIC’s technology to boost its surveillance capabilities. “In the 21st century economy, you need a tech cop on the beat,” Morrison said.

Another $9.2 million will go to ASIC and Treasury to ensure they can implement appropriate law and regulatory reform.

ASIC will get a further $57 million for the ongoing cost of increased surveillance and enforcement in the areas of financial advice, responsible lending, life insurance and breach reporting.

The measures follow a capability review of ASIC initiated by the government in July.

Among other changes, an extra ASIC commissioner will be appointed with experience in the prosecution of crimes in the financial services industry.

The government is accelerating the implementation of recommendations from the Murray review of the financial system for increased penalties and greater powers for ASIC to intervene on financial products.

ASIC’s employment practices will be exempted from the public service act, so it can recruit from the market people with experience in the sector.

The government will recommend that the financial services ombudsman changes its thresholds to provide greater access for treatment of claims and compliance.

An “eminent panel” will examine bringing together forums to have a “one stop shop” for consumer complaints.

Morrison told a joint news conference with Assistant Treasurer Kelly O’Dwyer that the banks would pay an additional $121 million to increase the resources of ASIC.

ASIC would also be moved to a full user-pays funding model. “No longer will it be the case that taxpayers will be hit to fund this regulator, this enforcement authority, this cop on the beat. Those whom it’s enforcing the regulations and rules on, will pay the price for that,” he said.

Asked whether the banks would not just pass on the impost in higher fees and charges, Morrison said the levies were “easily digestible by the banks”. He would be “furious” if the banks sought to pass the cost on and they had that message from him.

The term of ASIC chairman Greg Medcraft, which is expiring, has been extended – but only for 18 months to oversee the implementation of the reforms.

Making his pitch for reforming ASIC rather than having a royal commission, Morrison said: “What I have outlined today is a serious action plan. … This is what practical, effective targeted government looks like and that’s how we are responding to these issues of real concerns to Australians.”

He said Shorten “wants to spend your money to fund his political exercise which won’t get outcomes for people – it will just get a political outcome for Bill Shorten”.

O’Dwyer denied that the government previously tried to wind back consumer protections in the financial sector. “That’s simply not correct,” she said.

The Abbott government introduced regulations to water down the Labor government’s Future of Financial Advice (FOFA) reforms. But later these were disallowed by the Senate.

Shadow treasurer Chris Bowen said the package was “nothing more a political fix” to try to avoid a royal commission. “It’s a plan to hobble through an election.”

Responding to the government’s announcement Westpac said “The measures announced today by the government will play an important role in ensuring customers can be confident in our banking system.

“In line with our submission to the financial system inquiry, Westpac supports a user pays model for ASIC.”

Australian Bankers’ Association chief executive Steven Münchenberg said: “We support the introduction of a new industry funding model for ASIC” adding that it was “important that contributions are transparent and that the amount of fees levied matches the level of regulation and resources required for ASIC”.

He said that the banking industry supported, in principle, the product intervention power for ASIC to bolster consumer protections. “However, we need to be wary of any action that may have unintended consequences and adversely impact on product innovation or consumer choice.”

Author: Michelle Grattan, Professorial Fellow, University of Canberra

ASIC welcomes significant reforms

ASIC today welcomed the Government’s announcement of major additional funding for the regulator.

‘This will enable further surveillance and enforcement in areas such as financial planning, responsible lending, life insurance, and misconduct and breach reporting. It will also allow us to build our technological capacity to identify and assess risks and misconduct,’ said ASIC Chairman Greg Medcraft.

ASIC welcomed the Government’s support for the introduction of an Industry Funding Model.

‘ASIC has long believed that those who generate the need for regulation should pay for it,’ Mr Medcraft said.

‘ASIC has worked with Treasury to consult with industry and we look forward to continued engagement with those we regulate to see Industry Funding work well.’

ASIC also welcomed the Government’s response to the Capability Review. ASIC has provided an official response to the Capability Review which sets out the positive actions ASIC is already taking or will take to develop its capabilities in areas such as governance, culture and communication.

‘The Capability Review provided ASIC with the opportunity to consider the capabilities we need for the future to ensure trust and confidence in the markets we regulate and to deliver improved market outcomes for the Australian community. We thank the panel for its findings, observations and recommendations,’ Mr Medcraft said.

ASIC also noted the Government’s commitment to ensuring the key recommendations from the Financial System Inquiry are implemented as a matter of priority.

‘We will work with the Government and Treasury to make sure the regulatory framework allows ASIC to most effectively address market misconduct and contains the appropriate incentives for firms to put their customers first.

‘I also welcome the Government’s appointment of an additional commissioner for ASIC.’

On the 18-month extension to his term, Mr Medcraft said, ‘I welcome the Minister’s extension to my term as chairman.

It is an honour to be ASIC chairman and to work alongside the outstanding men and women employed here. We have a lot of important work to continue and I am keen to get on with the job.’

Small Amount Credit Review Recommends Tighter Controls

The final report of the Review of Small Amount Credit Contracts (SACCs) has been released. A range of recommendations tighten regulation of short term small loans and consumer leases. Of note is the need to disclose the actual APR of the transaction, be it a small amount credit contract or consumer lease. In the latter case, the cost of the relevant household good must be disclosed.

The review panel provided the Final Report to the Government on 3 March 2016.

The review was silent on mandating better collection of transaction data so  the true volume of loans could be recorded. As highlighted in the report accurate data is an issue.

Small Amount Credit Contracts (SACCs)

Recommendation 1 – Affordability – Extend the protected earnings amount regulation to cover SACCs provided to all consumers.
Reduce the cap on the total amount of all SACC repayments (including under the proposed SACC) from 20 per cent of the consumer’s gross income to 10 per cent of the consumer’s net (that is, after tax) income. Subject to these changes being accepted, retain the existing 20 per cent establishment fee and 4 per cent monthly fee maximums.
Recommendation 2 – Suitability – Remove the rebuttable presumption that a loan is presumed to be unsuitable if either the consumer is in default under another SACC, or in the 90-day period before the assessment, the consumer has had two or more other SACCs.
This recommendation is made on the condition that it is implemented together with Recommendation 1.
Recommendation 3 – Short term credit contracts – Maintain the existing ban on credit contracts with terms less than 15 days.
Recommendation 4 – Direct debit fees – Direct debit fees should be incorporated into the existing SACC fee cap.
Recommendation 5 – Equal repayments and sanction – In order to meet the definition of a SACC, the credit contract must have equal repayments over the life of the loan (noting that there may need to be limited exceptions to this rule). Where a contract does not meet this requirement the credit provider cannot charge more than an annual precent rate (APR) of 48 per cent.
Recommendation 6 – SACC database – A national database of SACCs should not be introduced at this stage. The major banks should be encouraged to participate in the comprehensive credit reporting regime at the earliest date.
Recommendation 7 – Early repayment –  No 4 per cent monthly fee can be charged for a month after the SACC is discharged by its early repayment. If a consumer repays a SACC early, the credit provider under the SACC cannot charge the monthly fee in respect of any outstanding months of the original term of the SACC after the consumer has repaid the outstanding balance and those amounts should be deducted from the outstanding balance at the time it is paid.
Recommendation 8 – Unsolicited offers – SACC providers should be prevented from making unsolicited SACC offers to current or previous consumers.
Recommendation 9 – Referrals to other SACC providers – SACC providers should not receive a payment or any other benefit for a referral made to another SACC provider.
Recommendation 10 – Default fees – SACC providers should only be permitted to charge a default fee that represents their actual costs arising from a consumer defaulting on a SACC up to a maximum of $10 per week. The existing limitation of the amount recoverable in the event of default to twice the adjusted credit amount should be retained.

Consumer Leases

Recommendation 11 – Cap on cost to consumers – A cap on the total amount of the payments to be made under a consumer lease of household goods should be introduced. The cap should be a multiple of the Base Price of the goods, determined by adding 4 per cent of the Base Price for each whole month of the lease term to the amount of the Base Price. For a lease with a term of greater than 48 months, the term should be deemed to be 48 months for the purposes of the calculation of the cap.
Recommendation 12 – Base Price of goods – The Base Price for new goods should be the recommended retail price or the price agreed in store, where this price is below the recommended retail price. Further work should be done to define the Base Price for second hand goods.
Recommendation 13 – Add-on services and features – The cost (if any) of add-on services and features, apart from delivery, should be included in the cap. A separate one-off delivery fee should be permitted. That fee should be limited to the reasonable costs of delivery of the leased good which appropriately account for any cost savings if there is a bulk delivery of goods to an area.
Recommendation 14 – Consumer leases to which the cap applies – The cap should apply to all leases of household goods including electronic goods.
Further consultation should take place on whether the cap should apply to consumer leases of motor vehicles.
Recommendation 15 –Affordability – A protected earnings amount requirement be introduced for leases of household goods, whereby lessors cannot require consumers to pay more than 10 per cent of their net income in rental payments under consumer leases of household goods, so that the total amount of all rental payments (including under the proposed lease) cannot exceed 10 per cent of their net income in each payment period.
Recommendation 16 – Centrepay implementation – The Department of Human Services consider making the caps in Recommendations 11 and 15 mandatory as soon as practicable for lessors who utilise or seek to utilise the Centrepay system.
Recommendation 17 – Early termination fees – The maximum amount that a lessor can charge on termination of a consumer lease should be imposed by way of a formula or principles that provide an appropriate and reasonable estimate of the lessors’ losses from early repayment.
Recommendation 18 – Ban on the unsolicited marketing of consumer leases – There should be a prohibition on the unsolicited selling of consumer leases of household goods, addressing current unfair practices used to market these goods.

Combined recommendations

Recommendation 19 – Bank statements – Retain the obligation for SACC providers to obtain and consider 90 days of bank statements before providing a SACC, and introduce an equivalent obligation for lessors of household goods. Introduce a prohibition on using information obtained from bank statements for purposes other than compliance with responsible lending obligations. ASIC should continue its discussions with software providers, banking institutions and SACC providers with a view to ensuring that ePayment Code protections are retained where consumers provide their bank account log-in details in order for a SACC provider to comply with their obligation to obtain 90 days of bank statements, for responsible lending purposes.
Recommendation 20 – Documenting suitability assessments – Introduce a requirement that SACC providers and lessors under a consumer lease are required at the time the assessment is made to document in writing their assessment that a proposed contract or lease is suitable.
Recommendation 21 – Warning statements – Introduce a requirement for lessors under consumer leases of household goods to provide consumers with a warning statement, designed to assist consumers to make better decisions as to whether to enter into a consumer lease, including by informing consumers of the availability of alternatives to these leases. In relation to both the proposed warning statement for consumer leases of household goods and the current warning statement in respect of SACCs, provide ASIC with the power to modify the requirements for the statement (including the content and when the warning statement has to be provided) to maximise the impact on consumers.
Recommendation 22 – Disclosure – Introduce a requirement that SACC providers and lessors under a consumer lease of household goods be required to disclose the cost of their products as an APR. Introduce a requirement that lessors under a consumer lease of household goods be required to disclose the Base Price of the goods being leased, and the difference between the Base Price and the total payments under the lease.

The Government is also consulting on whether the recommendations relating to consumer leases should apply to all regulated consumer leases (including motor vehicles) rather than only leases of household goods, and how second hand goods should be treated.

Bendigo and Adelaide Bank Update

In their business strategy and trading update today, they recapped on lending growth which  has been below system, and that they have a cost to income ratio which is still high (~2% above Suncorp).

Ben4NIM is under some pressure.

Ben6However, the bank is quite well positioned from a funding perspective. 81% is deposit funded, could go higher, this is significant because RMBS market funding pricing is line ball at the moment. They have moved from 20% to 6% RMBS, and this has created a capital headwind, so they will most likely focus on senior funding.

Ben7In terms of Strategy, Bendigo and Adelaide Bank, describes its aim to build around customer engagement and staff engagement, with an expectation that digital channels and customer centricity will out.

Ben3They are driving towards 24/7 digital platform, underpinned by their core banking system. Their vision is to be the most customer connected bank with a focus on customer service and the strengthening of core relationships.

Ben5However it is clear they are banking on benefits of moving from standard to advanced IRB capital model. Whilst they may wish to move to this basis, and this may be a phased implementation, it will be APRA who is holding the implementation cards. There is a benefit as their current mortgage risk weighting is about 39 basis points, whereas the major banks have a 25 basis point target by July 2016.

Homesafe will continue to be a drag on the business if property valuations in the major centres fall as the portfolios have to be marked to market, they of course had upside in the good times! 3Q16 Homesafe contribution was -$1.6m pre-tax. There are 2,500 contracts in the portfolio, average $125,000 funded.

Ben8Lending will be important and they wish to grow their books, with a focus on mortgages and small business (both highly contested areas). Arrears on mortgages and business seem under control.

Ben9Ben10They have a significant investment path in order to build the digital platform and IRB models. Restructure costs will be $2m or more in the half. The question will be whether the benefits out way the costs. You cannot really argue with the strategy, (though, it is not really a mobile first strategy), but its all about effective execution in a highly contested environment. The high customer satisfaction ratings will certainly assist.

 

Talk of reforming toxic banks is misguided: improve the product and culture will follow

From The Conversation.

The recent and strident language from financial regulators, politicians and credit ratings agencies about financial services culture is a sure indicator that something is seriously amiss in the sector.

This spike in hostility has arisen from some despicable behaviour and outcomes; however, neither reform of culture nor technological innovation are panaceas, as ideologies cannot replace a clear understanding of these complex businesses.

There are several markers in this conversation which need to need to be teased out because there is a real danger that consumers could end up suffering higher costs, achieve even less peace of mind dealing with financial services providers, and potentially transfer huge enterprise value to disruptive players which may ultimately misplace consumers’ trust in even quicker time than the so-called legacy institutions.

Firstly, understanding and addressing culture is far more complex than expressing a reactive political and regulatory narrative. As conduits of reasonable anger and disillusionment, politicians express a belief that parentalism will ensure that consumers are protected from harm. There are limitations to the regulatory narrative. Columbia University Law School Professor John Coffee identifies the causal and lagged link between appalling market outcomes and regulatory response.

On the other hand, industry participants need to re-assume authority over both narratives and rebuff further regulation.

This authority should arise from their constant and deep engagement with customers. Financial services firms own the benefits of information asymmetry (including emerging issues and product failures). This reinforces their authority.

Second, financial services institutions are complex businesses with many moving parts. Their interactions with customers occur in highly varied contexts or “customer-product interfaces”. Not surprisingly, it is a challenge to articulate an authentic cultural message for a financial services conglomerate.

Aggrieved customers and stakeholders mean that the term “customer-centric” is hollow. The customer’s wallet is the centre of what financial conglomerates do.

This commercial imperative is the legitimate reason that financial services exist. Similarly, financial innovation occurs because of the need to address customers’ economic needs, rather than mere predation. It solves customers’ problems and achieves a reasonable return for the provider within a highly regulated sector of the economy.

Providers of financial services therefore need to better explain what they actually offer and from there consumers can make informed decisions. There have been advances. The industry communicates in plain English and consumers are savvy enough to intuit that this industry provides a range of largely intangible things.

On the other hand, the industry seems to have difficulty in levelling with consumers about this, preferring to maintain institutional mystique (“trust us, there’s something more to it”).

The real challenge (and opportunity) is to reassure consumers in product interfaces, to clarify what is being provided, and if and when any trust is actually warranted. In other words, providers need to unbundle and explain simply what their products entail so that consumers (personal and institutional) understand what they are buying, if it suits their circumstances, and what (if any) trust is involved. Some examples are set out in the figure:

Bnak-Culture-ConversationThird, criticisms of culture are entwined with questions of morality. Legislation and regulation set boundaries informed by knowledge and conventions, and within this perimeter and the associated contested marketplace, providers must organise their businesses sustainably.At a high level, it is important to acknowledge that financial services firms are a mirror on their customers which have varying ethics and values. This must be the case, because otherwise they would not remain in business.

Society’s mores do change over time. Witness the prevailing household debt culture, the post-GFC emergence of government bailouts, the shallowing of thought and synthetic reasoning. However, it is unreasonable to expect the financial services industry to lead morality debates: rather that is the domain of legislators and regulators who need to both represent society and understand existing product markets.

Finally, informed regulation is especially important because digital technologies are being aggressively deployed to unbundle highly-regulated financial services. Innovations and industry disruption need to be carefully assessed so that consumers do not suffer from misunderstandings, broken promises and a loss of trust.

Although technology generally may suggest individual freedoms, transparency, engagement and creativity, when applied within financial services it is largely used for the more mundane functions of customer aggregation, processing documentation and bulk communications.

Informed regulators and providers therefore must work together to carefully consider if in fact innovation and disruptive technologies can genuinely resolve economic trade-offs and maintain a durable consumer trust. This will usually require an old-fashioned – but perennially trendy – strong balance sheet.

Author:  Martin Gold, Senior lecturer, Sydney Business School, Faculity of Business, University of Wollongong

APRA releases Trio investigation report

The Australian Prudential Regulation Authority (APRA) has released the report on its investigation into the failure of Trio Capital Limited (Trio), as a result of which APRA removed 13 former Trio directors from the superannuation industry for specified periods of time.

These 13 individuals were Trio Directors between 2003 and 2009, and APRA’s enforceable undertakings have prevented them from holding senior roles in the APRA-regulated superannuation industry for periods between 3 years 6 months and 15 years (with one having no expiry date).

APRA’s view is that, given the wide interest in this matter over a number of years, it is appropriate to release the investigation report as it provides a concise summary of the circumstances surrounding the collapse of Trio, together with an overview of APRA’s regulatory actions following the collapse.

The release of APRA’s investigation report follows the publication in May 2015 of final reports from the Trio liquidator and with the final steps in the winding up of Trio’s five registerable superannuation entities in progress.

APRA’s investigation focussed on six related-party investments totalling approximately $150 million, all of which were lost or unable to be recovered.  This included losses associated with investments in the Astarra Strategic Fund (ASF) as a result of fraudulent conduct.

The outcomes of the Trio investigation provide important lessons for trustees more broadly. APRA considers the significant investment losses can be attributed to a number of key factors:

  • inadequate investment governance processes;
  • failure to adequately manage conflicts of interest from dealings with related parties; and
  • failure to have adequate controls to mitigate fraud-related investment risk.

Since the Trio matter there have been a number of important enhancements to the regulation of the superannuation industry which impact directly on these three critical areas. These include introduction of prudential standards in superannuation, additional statutory duties imposed on trustees and directors, and further guidance provided by APRA on fraud risk management. Further detail on the lessons for trustees arising from the Trio investigation is available on APRA’s website at: www.apra.gov.au/Super/Publications/Pages/Other-Information-for-Superannuation.aspx

A copy of the investigation report is available on APRA’s website at: www.apra.gov.au/Super/Publications/Pages/Other-Information-for-Superannuation.aspx

Copies of APRA’s media releases announcing the enforceable undertakings of the 13 former Trio directors are available at: www.apra.gov.au/MediaReleases/Pages/13_34.aspx

Background

Q: What were the main outcomes of the investigation?
A: APRA accepted enforceable undertakings from 13 individuals, who were Trio directors between 2003 and 2009.  The enforceable undertakings effectively removed these individuals from holding senior roles in the APRA-regulated superannuation industry for periods between 3 years 6 months and 15 years (with one having no expiry date).

Q: What were the main areas of conduct by Trio directors that the investigation focused on?
A: The investigation focused on six related-party investments totalling some $150 million, all of which were lost or unable to be recovered.  The report notes that the key concerns identified by APRA were that Trio and former Trio directors failed to act in members’ best interests as:

  • the related-party investments had been made on the basis of insufficient due diligence;
  • the investments were on terms more favourable to related parties than would reasonably be expected had they been at arm’s length; and
  • there was inadequate monitoring of the performance of the related-party investments.

Q: What compensation has been provided to Trio members?
A: In 2011 and 2012 the Minister determined grants of financial assistance of approximately $55 million and $16.7 million respectively, totalling $71.7 million, for losses associated with the investments by Trio superannuation members in the ASF as a result of fraudulent conduct.  The grants included an allowance for costs associated with the grant applications and incidental costs of the acting trustee incurred as a consequence of the fraudulent conduct.

Q: What are the main lessons for industry from the Trio matter?
A: The main lessons for trustees out of Trio are the importance of a sound investment governance framework, adequately managing conflicts of interest and ensuring the risk management framework effectively manages fraud risk.  For further information on lessons for industry see www.apra.gov.au/Super/Publications/Pages/Other-Information-for-Superannuation.aspx

Q: What changes have there been to the prudential supervision of superannuation funds since the Trio matter?
A: In 2012 the Stronger Super Reforms expanded trustees’ statutory duties and included a duty to give priority to the interests of members over the interests of the trustee or other persons. APRA has also been given the power to make prudential standards in the superannuation industry, aligning APRA’s powers in this regard with those in the banking and insurance sectors. Prudential standards in superannuation also cover areas such as investment governance, conflicts of interest and risk management.

Q: Are there other relevant changes expected to the prudential framework for the superannuation industry?
A: The Government has introduced into Parliament legislative changes to further improve superannuation governance and improve transparency through portfolio-holding disclosure measures. APRA’s review of the Trio failure has also identified other areas of potential legislative reform, such as enhanced requirements for significant changes in ownership or control of RSE licensees, and is liaising with the Government on these changes.


The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $5.4 trillion in assets for Australian depositors, policyholders and superannuation fund members.

Banks get a bollocking from Turnbull on ethics

From The Conversation.

Prime Minister Malcolm Turnbull has given Australia’s banks a bollocking for unethical behaviour, suggesting they have not repaid the support they received during the global financial crisis.

Speaking at Westpac’s 199th birthday lunch – a day after the Australian Securities and Investment Commission launched legal action against the bank for allegedly manipulating the bank bill swap rate (BBSW) – Turnbull said many Australians were asking whether banks had lived up “to the standards we expect”.

He said he made no comments about any specific cases or institutions. “But we have to acknowledge that there have been too many troubling incidents over recent times for them simply to be dismissed.”

Banks did not just operate under a banking licence – “they operate under a social licence and that is underwritten by public confidence and trust”.

“We expect our bankers to have higher standards, we expect them always, rigorously, to put their customers’ interests first – to deal with their depositors and their borrowers, with those they advise and those with whom they transact in precisely the same way they would have them deal with themselves.”

He said he knew this was what the leaders of Westpac expected.

Turnbull said that during the global financial crisis – “or what probably should be better called the global banking crisis” – the Australian public, through the government, had provided the banks with vital support.

“Australians understood that we needed to ensure our banks kept trading, that a strong well-regulated financial sector in Australia was a great blessing, a great national asset,” he said.

He said today, many Australians were asking: “have our bankers done enough in return for this support?

“Have they lived up to the standards we expect, not just the laws we enact?”

Wise bankers recognised these were legitimate questions, Turnbull said. “Dismissing them as bank bashing misses the point.”

“The truth is that despite the public support offered at their time of need, our bankers have not always treated their customers as they should.

“Some, regrettably as we know, have taken advantage of fellow Australians and the savings they have spent a lifetime accumulating, seeking only dignity and independence in their retirement.”

Turnbull said that redressing wrongs was important, especially when “done promptly and generously”.

“Wise bankers understand that banks need to very publicly demonstrate that their values of trust, integrity, placing the customer first in every way – these must be lived and not just spoken.

“They recognise that remuneration and promotion cannot any longer be based solely on direct financial contribution to the bottom line. Employees who live those values, impart them to others and call out those who do not should be rewarded and recognised and promoted in a healthy banking culture.

“The singular pursuit of an extra dollar of profit at the expense of those values is not simply wrong but it places at risk the whole social licence, the good name and reputation upon which great institutions depend.

“Now all business is about more than just a profit or a new product – it’s about building opportunities for Australians, customers and staff and making a greater contribution to our nation.”

Nationals senator John Williams renewed his call for a royal commission into the financial sector. “First cab off the rank was Storm Financial. Then we went through the liquidators industry, where there’s some very bad eggs.

“Then of course we had the financial planning scandal. Now we’ve just had the managed investment schemes where billions of dollars were lost. Now the life insurance industry – and of course these latest allegations of bank bill swap rates.

“As time goes by the case builds stronger and stronger, in my opinion, for a royal commission into the finance sector. My concern is the culture is simply profit, profit, profit and to hell with the customers.”

Speaking to journalists after his address, Turnbull dodged a question on whether he would support a Royal Commission.

Author: Michelle Grattan, Professorial Fellow, University of Canberra

ASIC commences civil penalty proceedings against Westpac for BBSW conduct

ASIC says it has today commenced legal proceedings in the Federal Court in Melbourne against Westpac Banking Corporation (Westpac) for unconscionable conduct and market manipulation in relation to Westpac’s involvement in setting the bank bill swap reference rate (BBSW) in the period 6 April 2010 and 6 June 2012.

The BBSW is the primary interest rate benchmark used in Australian financial markets, administered by the Australian Financial Markets Association (AFMA). On 27 September 2013, AFMA changed the method by which the BBSW is calculated. The conduct that the proceedings relate to occurred before the change in methodology.

It is alleged that Westpac traded in a manner intended to create an artificial price for bank bills on 16 occasions during the period of 6 April 2010 and 6 June 2012.

ASIC alleges that on these days Westpac had a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower. ASIC alleges that Westpac was seeking to maximise its profit or minimise its loss to the detriment of those holding opposite positions to Westpac’s.

ASIC is seeking declarations that Westpac contravened s.12CA, s.12CB and the former s.12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s.912A(1), s.1041A  of the Corporations Act 2001 (Cth) (Corporations Act).

Further, ASIC has sought from the court pecuniary penalties against Westpac and an order requiring Westpac to implement a compliance program.

ASIC will be making no further comment at this time.

Background

On 4 March 2016, ASIC commenced legal proceedings in the Federal Court against the Australia and New Zealand Banking Group (ANZ) (refer: 16-060MR).

Prior to filing against ANZ, ASIC’s investigations into misconduct in the BBSW has seen ASIC accept enforceable undertakings from UBS-AG, BNP Paribas and the Royal Bank of Scotland (refer: 13-366MR, 14-014MR, 14-169MR). The institutions also made voluntary contributions totalling $3.6 million to fund independent financial literacy projects in Australia.

In July 2015, ASIC published Report 440, which addresses the potential manipulation of financial benchmarks and related conduct issues.

Former mortgage broker admits home loan fraud

According to ASIC, Ms Emma Feduniw (also known as Emma Khalil) of Brisbane, Queensland, a former mortgage broker with AHL Investments Pty Ltd (trading as Aussie), has admitted through her solicitor to eight charges brought by ASIC. The charges related to the falsification of employment documents to secure approvals for home loans, submitted to Westpac.

ASIC’s investigation found that between March 2013 and February 2014, Ms Feduniw submitted eight loan applications, totalling $2,720,400, containing false borrower employment letters. Of the eight loan applications, five were approved and disbursed, totalling $1,608,400. Ms Feduniw received commission on those five loans of $6,847.53.

The eight loan applications ranged in value from $250,000 to $480,000.

Ms Feduniw appeared before Beenleigh’s Magistrates Court and through her solicitor admitted to providing documents knowing they were false or misleading.

ASIC Deputy Chairman Peter Kell said, ‘The credit laws are designed to ensure borrowers do not take out loans they cannot afford. Actions by mortgage brokers to circumvent the laws, for their own financial benefit, erode trust and confidence in the mortgage broking industry and will not be tolerated’.

Ms Feduniw next appears in court on 3 June 2016 for sentencing.

The Commonwealth Director of Public Prosecutions (CDPP) is prosecuting the matter.

Background

Ms Feduniw was authorised to provide credit services as a credit representative to consumers from 1 July 2010 to 4 April 2014, when Aussie terminated her authorisation.

Ms Feduniw received her commission through Miga Loans Pty Ltd (ACN 106 962 467) a company controlled and owned by her.

Ms Feduniw was charged by ASIC under section 160D of the National Consumer Credit Protection Act 2009 whilst she was engaging in credit activity on behalf of Aussie. Section 160D makes it an offence for a person engaging in credit activities to give false or misleading information or documents to another person. She appeared in Court and pleaded guilty to the charges on 1 April 2016.

Ms Feduniw faces a maximum penalty of two years imprisonment or a fine, for each charge.

ANZ to refund $5 million to basic account holders – ASIC

ASIC says Australia and New Zealand Banking Group (ANZ) is refunding around 25,000 customers approximately $5 million after it failed to properly apply some fee reductions and fee waivers for customers who held an ANZ Access Basic account and who also held an ANZ consumer credit card or ANZ Everyday Visa Debit Card since 2007.

The fees included over limit and late payment fees on consumer credit cards and overdrawn fees on Everyday Visa Debit cards.

The refunds to affected customers also include an additional amount of interest. Some customers’ refunds include a component to cover the overpayment of credit card insurance premiums resulting from the impact of these errors on their account balances.

The failure arose as a result of breakdowns in the interaction between automated and manual processes, and in particular, the lack of reliability of some manual processes and controls. ANZ has implemented a permanent automated solution with a system-based automated waiver, eliminating the need for manual intervention.

An Access Basic account is available to customers that meet certain criteria which include holding a Seniors Concession card, Pensioner Concession card, Centrelink Health Care card or a Repatriation Health card.

ASIC Deputy Chairman Peter Kell said, ‘ANZ’s Access Basic account is specifically designed for low income consumers who are unable to pay high fees. This matter highlights the importance of appropriately managing manual processes to apply fee waivers and discounts, and designing and maintaining robust systems to support such features’.

ANZ has commenced contacting affected customers to explain the error and the reimbursement and intends to complete the remediation process by the end of April 2016.

Customers with queries or concerns about this matter should contact ANZ on 13 13 14.

The matter was reported by ANZ to ASIC under its breach reporting obligations in the Corporations Act. ASIC acknowledges the cooperation of ANZ in its handling of this matter.