ASIC says “You could have a share in $1.1 billion of unclaimed money”

The Australian Securities and Investments Commission (ASIC) is urging Australians to do a quick and free search on ASIC’s MoneySmart website to see if a share of $1.1 billion of unclaimed money is theirs.

‘There are more than a million records of unclaimed money from dormant bank accounts, life insurance, shares and other investments waiting to be claimed and we’re keen to reunite people with their money’, said Peter Kell, ASIC’s Deputy Chairman.

‘Unclaimed money is transferred to the Commonwealth after it’s been unclaimed usually for seven years.  The unclaimed money managed by ASIC is always claimable by the rightful owner with no time limit on claims.  In 2016, over $87m was paid out to more than 16,000 people’, Mr Kell said.

‘It’s free, quick and easy to use ASIC’s MoneySmart website to search for your name or family and friends, just visit‘, said Mr Kell.

There are vastly different amounts of forgotten money waiting to be claimed ranging from a few dollars to over a million.  The approximate amounts of unclaimed money available broken down by State and Territory are:

Figure 1: Unclaimed money held by ASIC by State and Territory, approximate amounts (rounded), April 2017

Infographic Unclaimed Money Media 2

People may find they have unclaimed money if they:

  • have moved house without letting the bank or the institution know;
  • have not made a transaction on their cheque or savings account for seven years;
  • stopped making payments on a life insurance policy;
  • have noticed that regular dividend or interest cheques have stopped coming; or
  • were an executor of a deceased estate.

Once a person has found unclaimed money using ASIC’s MoneySmart online search, they need to contact the relevant bank or other financial institution where the money is held if the money is listed as ‘banking’ or ‘life insurance’. The institution will assess and lodge a claim with ASIC.  ASIC aims to process claims within 28 days of receiving all necessary claim documentation and release the funds back to the institution.

‘If you find you have unclaimed money, ASIC’s MoneySmart website offers free and impartial financial guidance and online tools to help you use it wisely and make the most of your money’, said Mr Kell.

ASIC’s unclaimed money infographic shows how much is there to be claimed around Australia.

Infographic Unclaimed Money Thmb

Click to view


ASIC’s MoneySmart website provides trusted and impartial financial guidance and tools to help Australians of all ages manage their money and make informed financial decisions.  It also offers a free and easy search for unclaimed money.

Why is ‘unclaimed money’ held by ASIC?

‘Unclaimed money’ is money from dormant bank accounts, unclaimed life insurance policy payouts and money from shares and other investments that people have not been collected from companies.

‘Unclaimed money’ is transferred to ASIC after a certain period of time to be held by the Commonwealth.  The unclaimed money held by ASIC is always claimable by the rightful owner and there is no time limit on claims.

Interest on unclaimed money is payable from 1 July 2013.  No tax is paid on the interest you earn.

Banks, building societies and credit unions

ASIC holds money from bank, credit union and building society accounts that have not been used in 7 years and contain a balance of $500 or more.  On 31 December 2015 this changed from 3 years. Bank accounts created for children and those held in a foreign currency are exempt.

Life insurance policies

ASIC holds money from life insurance policies from insurance companies or friendly societies that have been unclaimed for 7 years after the policy matures. On 31 December 2015 this changed from 3 years.

Shares and investments

ASIC holds most of the unclaimed money from shares and other investments that people have not collected from companies. This type of unclaimed money is usually the result of a takeover and may include cash and/or shares, depending on the takeover offer.

The approximate amounts of money available in unclaimed bank accounts, life insurance policies and shares broken down by State and Territory are:


Bank accounts

Life insurance policies

Shares & other investments

New South Wales












Western Australia




South Australia








Northern Territory








MFAA boss rejects Sedgwick review, slams commission reforms

From The Adviser.

The association has warned that Sedgwick’s recommendations will give the banks “complete oversight” of brokers, erode independence, and further empower the major lenders.

The Mortgage & Finance Association of Australia (MFAA) has expressed serious concerns with some of the themes outlined in the Australian Bankers’ Association’s (ABA) Review, conducted by Mr Stephen Sedgwick AO, into commissions and payments, calling on banks to align with the “well-considered ASIC process” that is currently underway.

The association stressed that ASIC has recommended that the framework for the industry’s incentive structure should largely be left in place.

MFAA CEO Mike Felton said that while the ABA Review made a number of observations and recommendations regarding the third-party channel, it did not present realistic solutions.

“This is a review commissioned by the banks that aims to deal with the banks’ reputational problems, but as far as the broker channel is concerned does not create better consumer outcomes,” Mr Felton said.

“We are frustrated that this Review claims to be focused on a ‘customer-centric’ view. Brokers and aggregators already have a customer-centric view. Indeed, they are dependent on a relationship model and must focus on their customers in order to survive,” he said.

“The Review’s recommendations on the third-party channel appear to be based mostly on anecdotal evidence from its members. It is unfortunate that the Review process did not include meaningful consultation with the broader industry in developing this report.”

Mr Felton said there is no evidence provided in review that links consumer detriment to the current remuneration structure.

“This lack of poor customer outcomes has likely driven ASIC’s recommendation to leave the current commission structures in place, with a view to reviewing them again in four years to determine if consumer outcomes were affected by the potential conflicts identified by its Report,” he said.

“This was supported by comments made by ASIC chairman Greg Medcraft after the Report’s release, in which he said that brokers deliver great consumer outcomes, and that lenders are still responsible for lending.”

While the ABA Review assumes consumer detriment as a result of anecdotal evidence, Mr Felton pointed to MFAA data, which demonstrates that consumers are very happy with their brokers. The industry grew by 4 per cent in 2016, and 92 per cent of consumers reported they were ‘satisfied’ or ‘very satisfied’ with their broker’s performance, according to a 2015 Ernst & Young study.

“The data shows default and other metrics are closely aligned with outcomes driven by lenders’ staff,” Mr Felton said.

The MFAA boss further highlighted that the Sedgwick review recommends changes that go significantly beyond those recommended by the ASIC report, seeking to adjust or remove current incentives for mortgage brokers and potentially implement a lender fee-for-service approach.

“The ASIC Report does not recommend removing the link between loan size and commission, nor a fee-for-service model nor removal of trail commission — with good reason. A single, lender-funded, fee-for-service is likely to lead to a degree of standardisation of all fees, which ASIC is not calling for,” he said.

“It may also be considered anti-competitive by the ACCC, and therefore would not be able to be implemented. Ultimately, ASIC concluded these actions are not required because they do not create better consumer outcomes.”

The Review, which was released yesterday and included 21 recommendations, suggested that banks adopt, through negotiation with their commercial partners, an ‘end to end’ approach to the governance of mortgage brokers that approximates as closely as possible a holistic approach broadly equivalent to that proposed for the performance management of equivalent retail bank staff.

In effect, broker commissions would be governed by similar principles that banks would apply in assessing performance against a scorecard for their staff.

“Some commentary has questioned the role of ABA or the banks in this matter,” Mr Sedgwick noted.

According to Mr Felton, the Sedgwick review is essentially recommending a consolidation of power to lenders, giving them complete oversight of mortgage brokers.

“This would lead to a reduction in independence, would do little to enhance competition and tip an already precarious power balance further towards the big four and away from consumers’ interests,” he said.

Mr Felton said he believed the Review sought to re-interpret the ASIC report, providing unnecessary solutions to issues that ASIC had already reviewed and put aside.

“What really matters, in terms of remuneration, is the ASIC process and the regulatory outcomes from it. ASIC’s approach is considered and well-informed, and is based on extensive data and consultation with all parties,” he said.

ASIC found giving banks heads up on press releases

From Australian Broker.

Documents obtained in a freedom of information (FOI) request have shown that the Australian Securities & Investment Commission (ASIC) has previously worked together with banks in the drafting of press releases.

The FOI request was made by The Australian which received a number of emails sent between Adrian Borchok, senior manager at ASIC, and other staff around an investigation of Macquarie Bank’s wealth arm Macquarie Equities in 2013.

The emails showed how ASIC would permit the big banks to provide input when drafting press releases relating to financial services misconduct. However, there was no sign that Macquarie had any input into the specific press release sent out around Borchok’s investigation, The Australian reported.

In an interview with ABC’s The Business on Wednesday (19 April), Anna Bligh, head of the Australian Bankers’ Association (ABA), said the public and the system needed to have confidence that regulators were independent from the banks.

“I think the reports today would alarm many people. I’m not aware of any particular instances of this but if there is evidence of it then I do think it will erode public confidence that regulators are sufficiently arm’s length from the institutions they regulate.”

Bligh noted though that there was a role for ASIC to ensure press releases were factually accurate at all times. However, “there is no role for banks to play in affecting the tone, the message, the content of any statement from the regulator,” she said.

ASIC consults on establishing a Financial Services Panel

ASIC has today released a consultation paper on its proposal to develop and implement a Financial Services Panel (the Panel).

The Panel would add a strong element of peer review to ASIC’s administrative decision making processes.

ASIC Chairman Greg Medcraft said, ‘ASIC’s aim in establishing a Panel is to enhance the impact of ASIC’s administrative decisions. The significance of being judged by peers cannot be underestimated. Peer review panels are a form of co-regulation in Australia and overseas.

‘The Panel will also bring broader experiences and perspectives into ASIC’s decision making and ensure decisions reflect current industry practices and standards’.

ASIC is proposing that the Panel would be responsible for determining whether ASIC should ban individuals from the financial services and credit industries for misconduct. We would select matters and refer them to the Panel where they are significant, complex or novel. Over time, we may expand the range of matters on which the Panel will make decisions.

The Panel would comprise financial services and credit industry participants and non-industry participants (e.g. lawyers or academics) with relevant expertise, and at least one ASIC staff member. The Panel would sit alongside ASIC’s existing administrative structures and processes.

ASIC will be consulting on:

  • how the Panel would enhance the impact of ASIC’s administrative decisions;
  • the types of matters that would be referred to the Panel; and
  • the optimal composition of the Panel.

Submissions on Consultation Paper 281 Financial Services Panel (CP 281) are due by 23 May 2017.



There are currently a number of peer review bodies in Australia including the Markets Disciplinary Panel (MDP) established by ASIC to consider disciplinary action for alleged breaches of market integrity rules, the Takeovers Panel and the Companies Auditors Disciplinary Board (CADB).

Self reporting of contraventions by financial services and credit licensees

The Treasury has released a paper on changes to the AFS self-reporting regime for comment.  The closing date for submissions is Friday, 12 May 2017.

The self-reporting regime for Australian Financial Services licensees (AFS licensees) has come under scrutiny over the last decade or so in the media and in a series of inquiries into banking or banking and financial services related misconduct. Concurrently, ASIC has publicly outlined concerns with the effectiveness of some aspects of the existing regime.

The Taskforce has conducted preliminary analysis of these issues, with the benefit of ongoing targeted consultation with industry and other stakeholders. This has enabled the Taskforce to develop preliminary positions on a set of reforms aimed at enhancing the current regime and making it more effective.

The paper poses reforms that would:

  • clarify when the reporting obligation is triggered – reducing compliance costs and delays in reporting, and removing uncertainty about when and whether a reporting obligation exists in the circumstances;
  • increase accountability for licensees, and their employees and representatives by expanding the class of reports that must be made to expressly include misconduct by individual advisers and employees;
  • introduce new and heightened penalties for non-reporting, giving ASIC greater flexibility to impose a range of penalties in response to a failure to report;
  • require ASIC to publish data on breach reports for major licensees; and
  • introduce an equivalent reporting regime for credit licensees (who are currently subject only to annual compliance reporting).

The taskforce invites all interested parties to make a submission on the positions outlined in this paper.


Major bank reveals lack of ‘clarity’ around aggregator oversight

From The Adviser.

A big four bank has acknowledged that data quality and public reporting could be further improved in the mortgage industry, revealing it ‘does not have clarity’ around some aggregator data.

Speaking last week at the final leg of the second series of the Knowledge is Everything: ASIC Review of Mortgage Broker Remuneration — put together by NAB and Advantedge in association with The Adviser — NAB general manager for broker distribution Steve Kane touched on Finding 13 of the report, which notes that the regulator encountered “significant issues with the availability and quality of key data” from some participants.

According to the remuneration report, the lack of some data requested “affected [ASIC’s] ability to analyse the data for some of [its] core review objectives [and] raises concerns with the participants’ ability to monitor consumer outcomes in relation to their businesses”.

Some of the examples of the lack of data included an inability by a lender to “automatically track whether a particular loan was arranged by a particular individual broker or broker business”, which “increases the risk that lenders may be dealing with unlicensed persons” and “means that lenders have little visibility of patterns of poor loan performance connected to these individuals or businesses”.

At the NAB event, Mr Kane acknowledged that there was further work to be done in this area.

He said: “This is an interesting one. As a lender, we have lots of information on individual brokers and the loans they submit and we have lot of information about aggregators and their total portfolio… but we don’t have, for example, lots of information about any individual firms that operate (with many brokers under them) under that particular aggregator. That is just one example. So, we don’t have clarity around that.”

Mr Kane added that it is therefore “fair to say that the aggregators will be working much more closely with lenders around data” in the future.

The general manager for broker distribution went on to say that, through Proposal 6*, it was “clear that ASIC expected brokers to obviously adhere to NCCP, responsible lending and compliance issues around maintaining a licence, having your own ACL or being accredited under someone else’s’ ACL… [and that] the aggregators need to understand that brokers are actually compliant with all of those things… [and] actually be able to provide evidence of that and good consumer outcomes too”.

He added: “And they’re saying that the lenders need to do that as well…[they] need to ensure the aggregators have the proper information, proper record keeping, and proper understanding of the roles and responsibilities in relation to the legislation and good consumer outcomes.”

Public reporting regime

As well as improving oversight of brokers and broker businesses, ASIC has also proposed to Treasury that there be a new public reporting regime to “improve transparency in the mortgage broking market” (Proposal 5).

Specifically, this proposes that there be public reporting on:

(a) the actual value of remuneration received by aggregators and the potential value if all criteria for remuneration are satisfied;

(b) the average pricing of home loans that brokers obtain on behalf of consumers;

(c) the average pricing of home loans provided by lenders according to each distribution channel; and

(d) the distribution of loans by brokers between lenders to give consumers a better indication of the range of loans that brokers within the network offer.

Touching on this proposal, Mr Kane said that one such solution could be that brokers give their customers “information that says ‘I’ve settled 50 deals this year, I’ve used this number of banks, I’ve obtained this amount of finance and this has been the price on average I’ve achieved for the customer’. It could get down to this level, which is very important in terms of disclosure to the customers,” he said.

“This all goes to the governance of oversight perspective, which is really now starting to say: ‘Do we, as an industry, have a clear understanding of all of the consumer outcomes that brokers are providing to their customer? Do we have proper understanding of whether NCCP responsible lending is met at every instance for the customer? Do we have a robust process to identify when a broker has done wrong thing and therefore the accreditation has been removed from lenders and aggregators? Do we have a clear line of sight and understand what the process is for those people? Do we have a much stronger regime in relation to a register of all of these ‘bad apples’ and how do we go about doing that? How do we go about ensuring that the end consumers know that they are not to be dealing with those people?’”

Mr Kane concluded: “When it comes to governance and oversight, it really is about accountabilities and responsibilities and understanding that disclosure to the customer about all the facilities that are available to them.

“So,” he said, “you can see that there is going to be far more reporting available to the public around these things.”

“Governance and oversight will play a much bigger role and therefore there will be much more work an information sharing and much more collation of performance and outcomes for consumers.”

The Knowledge is Everything: ASIC Review of Mortgage Broker Remuneration — put together by NAB and Advantedge in association with The Adviser — also revealed that the big four bank believes that Australian brokers could achieve up to 73 per cent market share if reaction to the ASIC remuneration review is “right”.

NAB’s executive general manager for broker partnerships, Anthony Waldron, told brokers that the industry reaction to the current consultation on the ASIC report could further boost the third-party share of the market by improving trust.

Mr Waldron said that there is an “opportunity” if “industry can react and get this right”.

He explained: “It’s the opportunity for more people to understand what brokers do, it’s the opportunity to build trust even further in what you do. And if we can do that then we won’t be talking about 53 or 54 per cent of mortgages going through the broker community, we will be talking about more like the numbers in the UK where it is already in the 72 or 73 per cent.”

*Proposal 6 of ASIC’s Review of broker remuneration states that the regulator expects lenders and aggregators to improve their oversight of brokers and broker businesses, for example by using a consistent process to identify each broker and broker business (such as the use of the Australian credit licensee or credit representative number where relevant, or a unique number provided by the aggregator).

Why The Gap Between Bank Serviceability And Real Life?

Following the recent coverage of our mortgage stress analysis (light it seems is now dawning on regulators, industry commentators and others that household debt is a real and growing issue), one question we get asked is – yes, but surely the banks have guidelines on affordability and serviceability, minimum assumed rate 2%+ above current rates, or 7%+?

So surely, households should have buffers as rates rise?

This is a great question, with a long history attached to it. A couple of years ago the regulators got a shock when them looked at bank practice, and started putting out more specific expectations on lending standards. Back in 2015, Wayne Byres made this point in a speech on lending standards.  At its core was the observation that borrowers appeared to be able to get very different loan amounts from a selection of lenders, using the same base financial profile.

One significant factor behind differences in serviceability assessments, particularly for owner occupiers, was how ADIs measured the borrower’s living expenses (Chart 2a and 2b). As a regulator, it is hard to understand the rationale for large differences in what should be a relatively objective, and extremely critical, metric.4

Chart 2a: Minimum living expense assumptions shows percentage of owner-occupier borrower pre-tax salary income between 20%-35%
Chart 2b: Minimum living expense assumptions shows percentage of investor borrower pre-tax salary income between 0%-25%

Of major concern were a few ADIs who opted to make their credit assessment based on a lower level of living expenses than that declared by the borrower. That is obviously a practice that should not continue, and ADIs should be making reasonable inquiries about a borrower’s living expenses. In fact, best practice (and intuition) would be to apply minimum living expense assumptions that increase with borrower incomes; this was a practice adopted by only a minority of ADIs in our survey.

In 2014, the RBA made this statement in their Financial Stability Report.

Although aggregate bank lending to these higher-risk segments has not increased, it is noteworthy that a number of banks are currently expanding their new housing lending at a relatively fast pace in certain borrower, loan and geographic segments. There are also indications that some lenders are using less conservative serviceability assessments when determining the amount they will lend to selected borrowers. In addition to the general risks associated with rapid loan growth, banks should be mindful that faster-growing loan segments may pose higher risks than average, especially if they are increasing their lending to marginal borrowers or building up concentrated exposures to borrowers posing correlated risks. As noted above, the investor segment is one area where some banks are growing their lending at a relatively strong pace. Even though banks’ lending to investors has historically performed broadly in line with their lending to owner-occupiers, it cannot be assumed that this will always be the case. Furthermore, strong investor lending may contribute to a build-up in risk in banks’ mortgage portfolios by funding additional speculative demand that  increases the chance of a sharp housing market downturn in the future.”

“A build-up in investor activity may also imply a changing risk profile in lenders’ mortgage exposures. Because the tax deductibility of interest expenses on investment property reduces an investor’s incentive to pay down loans more quickly than required, investor housing loans tend to amortise  more slowly than owner-occupier loans. They are also more likely to be taken out on interest-only terms. While these factors increase the chance of investors experiencing negative equity, and thus generating loan losses for lenders if they default, the lower share of investors than owner-occupiers who have high initial loan-to-valuation ratios (LVRs; that is an LVR of 90 per cent or higher) potentially offsets this. Indeed, the performance of investor housing loans has historically been in line with that of owner-occupier housing loans.

The trouble is that the basis on which banks have been assessing available income has been too optimistic. This is because they are based their calculations on historic mortgage book performance, when incomes were rising strongly, and loan losses were very low.

But we are now in a new normal. We have flat incomes. We have rising costs. We have underemployment. We have low growth. But costs of living are rising (and higher for many than the ABS CPI figure would suggest).  Affordability is not what it was. Lenders need to adjust, hard to do when home prices are so high.

Combined, many households are stretched, and the prospect of rising interest rates in these conditions are making things harder.

In addition, households have been willing to gear up with the prospect of future capital growth, so reach for the largest mortgage they can get. Perhaps sometimes they exaggerate their incomes, and understate their costs. This is true we think for households with larger incomes, and lifestyles. Some of these are now under pressure.

So, the root cause of the gap between theoretical affordability and real life is a serious one. Banks often set and forget loans, so do not revisit households finances unless there is a reset or a crisis.  But for many, available incomes are falling (and bracket creep is not helping).  Ongoing financial health-checks might be in order.

ASIC is rightly looking at this issue anew, but we fear the horse may have already bolted. APRA will tighten capital. Both will put upward pressure on mortgage rates, and test affordability further. This is a paradigm shift.

Australia’s Limits on Interest-Only Mortgages Will Curb Riskier Lending

Moody’s says last Friday, the Australian Prudential Regulation Authority (APRA) announced new measures to restrict growth in riskier mortgage loans, including limiting the origination of interest-only mortgages, particularly those with high loan-to-value (LTV) ratios. On Monday, the Australian Securities Investments Commission (ASIC) announced that it will closely monitor lenders and mortgage brokers to ensure they are not inappropriately recommending more expensive interest-only loans to borrowers.

The new measures are credit positive for Australian banks, residential mortgage-backed securities (RMBS) and covered bonds because they will curb growth in riskier mortgage loans amid rising house prices and high household indebtedness. The measures include limiting the flow of new interest-only mortgages by banks to 30% of total new residential mortgage lending. Banks also will be required to have internal limits on the volume of interest-only lending at LTV ratios of more than 80% and ensure that there is strong justification for any interest-only loan with an LTV of 90% or more.

Interest-only loans accounted for 38% of total housing loan approvals in December 2016 and for more than 30% of total housing-loan approvals every month since June 2009 (see Exhibit 1). Housing investment loans, which are often interest-only loans, accounted for 35% of total housing loan approvals as of December 2016. In the RMBS sector, interest-only loans account for 35% of the mortgages backing the deals we rate.

We expect banks to raise interest rates on interest-only loans to reduce growth in this segment and support their net interest margin from ongoing price competition for lower-risk loans and stable deposits. When APRA introduced limits on housing investment loans in December 2014, banks responded by raising interest rates on such loans. In addition to the new limits on interest-only loans, APRA instructed banks to ensure that growth in housing investment loans remains “comfortably” below the 10% limit introduced in December 2014. APRA advised that banks will no longer have leeway to exceed this growth speed limit and that any breach will immediately prompt a review of the offending bank’s capital requirements. This contrasts with APRA’s original guidance, under which the 10% cap was not a hard limit.

APRA also announced that it would monitor the warehouse facilities that banks use to fund non-bank lenders. APRA does not regulate non-bank lenders, but monitoring the warehouse facilities will effectively allow the regulator to influence non-banks’ mortgage underwriting standards and promote the overall stability of the financial system. Non-bank lenders have increased housing investment lending since the introduction of the 10% limit on such loans (see Exhibit 1).

Although the APRA’s and ASIC’s measures add a layer of protection against a house price correction for banks, RMBS and covered bonds, it remains to be seen how effective these measures will be amid moderating house price appreciation, particularly when low interest rates continue to support housing demand. As Exhibit 2 shows, house prices have continued to rise, despite previous measures to slow the housing market.

APRA’s and ASIC’s latest measures and interest rate increases by banks on interest-only loans will slow demand for housing, but we continue to expect house prices in Australia to rise amid low interest rates. Although low interest rates will continue to support borrowers’ capacity to service their debt, rising house prices, in combination with high household leverage and low wage growth, remain risks for banks, RMBS and covered bonds.

Federal Court declares Melbourne licensee breached FOFA laws

For the first time we get a read on how the Future of Financial Advice (FOFA) reforms will be interpreted by the courts.

ASIC says the Federal Court has found that Melbourne-based financial advice firm NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) breached the best interests obligations of the Corporations Act introduced under the Future of Financial Advice (FOFA) reforms.

This is the first finding of liability against a licensee for a breach of the FOFA reforms.

This matter relates to financial advice provided by NSG advisers on eight specific occasions between July 2013 and August 2015. On these occasions, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements.

NSG consented to the making of declarations against it and after a hearing on 30 March 2017 the Court was satisfied that declarations ought to be made.

The Court found that NSG’s representatives:

  • breached s 961B of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that complied with the best interests obligations; and
  • breached s 961G of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.

Those breaches amounted to a contravention by NSG of s 961L of the Corporations Act, which provides that a financial services licensee must ensure its representatives are compliant with the above sections of the Act.

The Court made the declarations based on the following deficiencies in NSG’s processes and procedures:

  • NSG’s new client advice process was insufficient to ensure that all necessary information was obtained from, and given to, the client;
  • NSG’s training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests;
  • NSG did not routinely monitor its representatives nor identify deficiencies in the knowledge or skills of individual representatives;
  • NSG did not conduct regular or substantive performance reviews of its representatives;
  • NSG’s compliance policies were inadequate, and did not address its representatives’ legal or regulatory duties, and in any event, were not followed or enforced by NSG;
  • there was an absence of  regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor recommended changes implemented; and
  • NSG had a “commission only” remuneration model, which meant that representatives would only be compensated by way of commission for sales of life insurance products and superannuation rollovers.

ASIC Deputy Chairman Peter Kell said, “This finding, the first of its kind, provides guidance to the industry about what is required of licensees to ensure representatives comply with their obligations to act in the best interests of clients and provide advice that is appropriate”.

ASIC has sought orders that NSG pay pecuniary penalties in relation to the declarations made. A date for the hearing on penalty will be fixed by the Court.


On 3 June 2016, ASIC commenced proceedings against NSG in the Federal Court (refer: 16-187MR).

Separately ASIC announced:

ASIC has banned Mr Adrian Chenh and Mr Bill El-Helou from providing financial services for a period of five years each following an ASIC investigation.

ASIC’s investigation found that Mr Chenh and Mr El-Helou provided advice to clients that was in breach of the best interests duty introduced under the Future of Financial Advice (FOFA) reforms.

ASIC found that Mr Chenh and Mr El-Helou had:

  • failed to act in the best interests of clients in that the advice provided did not leave them in a better position;
  • failed to provide advice that was appropriate to the clients; and
  • failed to provide financial services guides, product disclosure statements and statements of advice.

An additional finding was made that Mr El-Helou was not adequately trained, or not competent, to provide financial services.

ASIC deputy Chairman Peter Kell said, ‘Financial advisers must act in the best interests of their clients and provide advice that is appropriate. ASIC is committed to raising standards in the financial advice industry.’

Mr Chenh and Mr El-Helou both have a right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decisions. Mr Chenh has exercised his right of appeal and filed an application for review on 21 March 2017.


ASIC has commenced proceedings against NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) for breaches of the “best interests obligations” contained in the Corporations Act, and is seeking declarations of breaches and financial penalties (refer: 16-187MR).  A hearing on liability occurred on 30 March 2017.

Both Mr Chenh and Mr El-Helou, previously representatives at NSG, gave financial product advice, particularly in relation to superannuation and insurance.

The Interest-Only Loan Debt Trap II

Last October we wrote a series of posts on the risks related to interest only loans. Given recent developments, and the belated focus from APRA and ASIC, we revisit the topic today.

Here is a plot from the APRA data showing the relative movement of investor loans and interest only loans. Yes, there is a correlation! The ABC’s Phil Lasker used this chart in the TV News on Friday.

Lenders will need to throttle back new interest only loans. But this raises an important question. What happens when existing IO loans are refinanced?

Less than half of current borrowers have complete plans as to how to repay the principle amount.

Interest-only loans may seem like a convenient way to reduce monthly repayments, (and keep the interest charges as high as possible as a tax hedge), but at some time the chickens have to come home to roost, and the capital amount will need to be repaid.

Many loans are set on an interest-only basis for a set 5 year term, at which point the lender is required to reassess the loan and to determine whether it should be rolled on the same basis. Indeed the recent APRA guidelines contained some explicit guidance:

For interest-only loans, APRA expects ADIs to assess the ability of the borrower to meet future repayments on a principal and interest basis for the specific term over which the principal and interest repayments apply, excluding the interest-only period

This is important because the number of interest-only loans is rising again. Here is APRA data showing that about one quarter of all loans on the books of the banks are interest-only, and that recently, after a fall, the number of new interest-only loans is on the rise – around 35% – from a peak of 40% in mid 2015. There is a strong correlation between interest-only and investment mortgages, so they tend to grow together. Worth reading the recent ASIC commentary on broker originated interest-only loans.

But what is happening at the coal face? To find out we included some specific questions in our household survey, and today we present the results.

We were surprised to find that around 83% of existing interest-only loan holders expect to roll their loan to another interest-only loan, and to keep doing so.  More concerning, only around 44% of borrowing households had an explicit discussion with the lender (or broker) at their last loan draw down or reset about how they plan to repay the capital amount outstanding.  Some of these loans are a few years old.

Around 57% said they knew the capital would have to be repaid (we assume the rest were just expecting to roll the loan again) and 26% had no firm plans as to how to repay whereas 39% had an explicit plan to repay.

Many were expecting to close the loan out from the sale of the property (thanks to capital appreciation) at some point, from the sale of another property, or from another source, including an inheritance.

Thus we conclude there is a potential trap waiting for those with interest-only loans. They need a clear plan to repay, at some point. It also highlights that the quality of the conversation between borrower and lender is not up to scratch.

We think some borrowers on an interest-only loan may get a rude shock, when next they try to roll their interest-only loan. If they do not have a clear repayment plan, they may not get a new loan. There is a debt trap laid for the unwary and the APRA guidelines have made this more likely.

Back in 2014, we wrote about the interest only situation in the UK.

So, now lets look at the UK experience. There are 11.3 million mortgages in the UK, with loans worth over £1.2 trillion. At the end of 2013 there were an estimated 2.2 million pure interest-only loans outstanding, and a further 620,000 part interest-only, part repayment mortgages outstanding on lenders’ books. Compared to 2012 this represents a fall of around 300,000 pure interest-only mortgages (down 12%), and around 90,000 part-and-part mortgages (down 13%).

According to the Council for Mortgage Lenders, at the peak of their popularity in the late 1980s, interest-only mortgages accounted for more than 80% of all loans taken out. This year, however, lenders are likely to advance only around 40,000 new interest-only loans for residential house purchase, less than 10% of the total.

Among first-time buyers, the decline in interest-only borrowing has been particularly pronounced. CML data shows that only 2% are taking out interest-only mortgages, with 98% opting for repayment loans. Interest-only accounts for a higher proportion of new borrowing by existing owner-occupiers who are moving (10%) and those remortgaging (13%).

Most new interest-only borrowing is in the buy-to-let market (aka investment mortgage), where this option remains the norm for very good reasons. Fixed-rate interest-only mortgages minimise costs for landlords and are more likely to produce a profitable margin. Interest-only mortgages also enable landlords to meet lenders’ requirements that their rental income produces an average minimum cover of 125% of their borrowing costs.

A couple of years back, there were concerns in the UK that interest only loans may be a problem, and alongside regulatory commentary, CML produced an “interest-only toolkit” designed to help mortgage lenders to work with their interest only mortgage customers, especially those loans due for repayment before 2020.

The regulators reached the conclusion that 90% of interest-only mortgage holders have a repayment strategy in place. Lenders made a commitment with the regulator (the Financial Conduct Authority) to contact interest-only loan holders and ask about their repayment plans.  The CML via it lender members found that Lenders have been using a variety of contact strategies. In addition to reminders and mailings requesting the customer’s written response (including questionnaire responses), telephone calls, face-to-face meetings and even home visits are also used by some lenders. Overall, around 30% of customers contacted have so far responded.

Among those borrowers who have responded, around four out of five already had a clear plan. Among those who did not, the survey found that the solutions and approaches lenders are offering typically include term extensions, permanent conversions to capital and interest, and overpayments.

There has also been a positive set of changes in the loan-to-value profile of outstanding interest-only mortgages. Two-thirds of outstanding interest-only mortgages have loan-to-value (LTV) ratios of less than 75% – and the vast majority of these are not due to mature until after 2020.

The chart shows that a large number of loans would have moved into a lower LTV band as a result of house price inflation alone. However, it also shows that borrowers are taking additional action to reduce their mortgage balances, as the effect of house price inflation alone would not have resulted in the improvements in outstanding LTVs that have been seen over the past year. Indeed, the number of loans in every LTV band below 75% would have seen an increase on the basis of house price inflation alone (as loans moved down from higher LTV bands) – but, in fact, every band saw a decrease.

Changes in interest-only loans outstanding, September 2012-December 2013, by LTV

01.05.14-changes-in-interest-only-loans-outstanding-by-ltvUnder the new mortgage regulations now in force in the UK, lenders may offer interest only loans, but only if a borrower has a credible repayment plan, at the time of application.

So some points to ponder.

1. How many interest only loans in Australia have a credible repayment strategy? To what extent is this considered by borrowers and lenders at the time of application?

2. Will rising house prices be the solution to interest-only loan repayment?

3. Are the review processes (on average each 5 years in Australia, even if the loan term is 25/30 years) sufficiently robust to identify potential issues?

4. Does Negative Gearing lead to a greater dependence on interest-only loans?