ASIC accepts enforceable undertaking from NAB and CBA to address inadequacies within their wholesale spot FX businesses

ASIC says it has today accepted enforceable undertakings (EUs) from each of the National Australia Bank Limited (NAB) and the Commonwealth Bank of Australia (CBA) in relation to the banks’ wholesale spot foreign exchange (FX) businesses.

As a result of ASIC’s investigation, ASIC is concerned that between 1 January 2008 and 30 June 2013, both banks failed to ensure that their systems and controls were adequate to address risks relating to instances of inappropriate conduct identified by ASIC.

ASIC Commissioner Cathie Armour said, ‘A well-functioning foreign exchange market depends on all participants acting with integrity and fairness. ASIC is committed to ensuring that major financial institutions have in place effective mechanisms for ensuring that their employees are trained, monitored and supervised to provide financial services efficiently, honestly and fairly.’


ASIC identified the following conduct by employees of NAB between 1 January 2008 and 30 June 2013:

  • on several occasions, a NAB employee on an offshore spot FX desk, acting together with an employee of another Australian bank, shared confidential information and entered offers into the trading platform without any apparent legitimate commercial reason for placing the offers;
  • on a number of occasions, NAB employees disclosed specific confidential details of pending client orders to external market participants, including identification of the client through the use of code names; and
  • on several occasions, NAB employees on an offshore spot FX desk inappropriately exchanged confidential and potentially material information about the bank’s client flow or proprietary positions.

ASIC is concerned that NAB did not ensure that its systems, controls and supervision were adequate to prevent, detect and respond to such conduct, which had the potential to undermine confidence in the proper functioning of the market.

Under the EU, NAB will develop a program of changes to its existing systems, controls, monitoring and supervision of employees within its foreign exchange business to prevent, detect and respond to, amongst others, the following types of conduct:

  1. attempts to manipulate the market for a currency, including by placing offers without a legitimate commercial reason and attempts to influence benchmark rates;
  2. inappropriate trading while in possession of confidential and potentially material information; and
  3. disclosures of client confidential information.

The program and its implementation will be assessed by an independent consultant appointed by ASIC.

Upon implementation of that program, for a period of three years, NAB will provide to ASIC an annual attestation from its senior executives that the systems and controls in its spot FX business are appropriate and adequate to effectively prevent, detect and respond to specified conduct. The program will also be subject to annual internal reviews and assessment by the independent consultant for a period of three years.

NAB will also make a community benefit payment of $2.5 million towards advancing financial literacy education related to the aged care sector and the promotion of ethical behaviour in Australian financial markets.


ASIC identified the following conduct by employees of CBA between 1 January 2008 and 30 June 2013:

  • on two occasions, CBA employees on an offshore spot FX desk acquired proprietary positions in a currency after coming into possession of knowledge of large CBA fix orders in that currency;
  • on at least two occasions, CBA employees traded in a manner that may have been intended to cause the trigger price for a stop loss order to trade when it might not have traded at that time; and
  • on a number of occasions, CBA employees on an offshore spot FX desk disclosed confidential details of pending client orders to external third parties, including identification of the client through the use of code names.

ASIC is concerned that CBA did not ensure that its systems, controls and supervision were effective in relation to such conduct by its employees. Such conduct had the potential to undermine confidence in the proper functioning of the market.

Under the EU, CBA will develop a program of changes to its existing systems, controls, monitoring and supervision relating to the management of fix orders, management of stop loss orders, and external communications containing specific confidential information to address such conduct. The program will incorporate changes already made by CBA as part of an existing review of its Global FX business.

The program and its implementation will be assessed by an independent consultant appointed by ASIC. Upon implementation of the program, CBA will also provide ASIC with an annual attestation from a senior executive, for a period of three years, that the systems and controls in its spot FX business are appropriate and adequate to effectively manage specified conduct risks.

CBA will also make a community benefit payment of $2.5 million towards advancing financial literacy education related to the aged care sector.

ASIC encourages market participants to adhere to high standards of market practice, including those set out in the Global Code of Conduct for the Foreign Exchange Market, published by the Bank of International Settlements (BIS Global FX Code). The BIS Global FX Code provides a global set of good practice guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market. Phase 1 of the Code was published in May 2016, and Phase 2 is due for publication in May 2017.

ASIC is grateful for the assistance of our international regulatory counterparts in progressing our investigation, including the UK Financial Conduct Authority and the NZ Financial Markets Authority.


The wholesale spot FX market is an important financial market for Australia. It facilitates the exchange of one currency for another and thus allows market participants to buy and sell foreign currencies. As part of their spot FX businesses, both banks entered into different types of spot FX agreements with their clients, including Australian clients.

Spot foreign exchange refers to foreign exchange contracts involving the exchange of two currencies at a price (exchange rate) agreed on a date (the trade data), and which are usually settled two business days from the trade date.

CBA Lifts Mortgage Rates

Commonwealth Bank has today announced an increase in its Standard Variable Rate investor home loan interest rates by 0.07%, to 5.56% per annum, and an increase in the Viridian Line of Credit interest rate by 0.15%, to 5.78% per annum. So, all the majors have now lifted rates.

These changes are effective from Friday, 16 December 2016.

We have carefully considered the current environment when making this decision – in particular the higher costs associated with funding mortgages, the increased capital costs associated with providing home loans, and the need to remain below the regulatory 10 per cent investor home loan growth cap. We believe these changes balance the needs of our borrowers and shareholders, while helping to underpin the long-term sustainability of the Australian home loan market.

The Owner Occupied Standard Variable Rate remains unchanged at a historical low of 5.22% p.a.

They have also introduced new reference rates and products for customers making interest only repayments to more accurately differentiate this repayment option.


CBA makes another bid to cut Apple Pay deal

From ITWire.

The Commonwealth Bank has attempted, on its own, to break the impasse with Apple over Apple Pay, by offering to pay the tech firm for use of its payment infrastructure.

However, the CBA is still insisting that Apple should give it access to the near field communications controller so that it can set up payments, a demand that Apple is unlikely to grant.

A report in the Australian Financial Review quoted Matt Comyn, the head of retail banking at CBA, as saying the fee that Apple was asking for use of Apple Pay was not the main hurdle to cutting a deal.

He said: “If we could get access to the NFC antenna and our wallet had the same experience [as Apple Pay] on parity, there is no way the interchange fee, as currently contemplated, would be the stumbling block.”

The CBA is currently using a workaround for its iPhone customers to access its payment app, with a sticker that can be placed on the back of the phone to serve as an antenna.The sticker costs $2.99 and Comyn said 400,000 customers had ordered them but the latest numbers showed 600,000 transactions had been made per month.

The CBA, along with Westpac, the National Australia Bank and Bendigo and Adelaide Bank, have been denied permission by the Australian Competition and Consumer Commission to negotiate as a cartel with Apple over Apple Pay.

Apple has repeatedly said it will not allow direct access to the NFC controller.

Update on licence conditions of two CBA financial advice businesses

ASIC has released the findings of a report by KordaMentha Forensic assessing the steps taken by Commonwealth Financial Planning Limited (CFPL) and Financial Wisdom Limited (FWL) to communicate with and compensate customers of 15 former advisers for advice they provided between 2003 and 2012.


This report was required under additional conditions imposed by ASIC, with consent, on the Australian financial services (AFS) licences of CFPL and FWL in August 2014 (refer 14-104MR and 14-192MR).

The report finds that in most instances, the licensees have complied with their licence obligations to consistently apply a remediation program to customers of the 15 advisers.

However, in some instances, the licensees failed to meet the time-frames specified in the additional licence conditions. In those instances, the licensees failed, within the required time-frames, to communicate with customers or provide them and their independent advisers with relevant information to help them to assess their advice or compensation. The licensees subsequently rectified these deficiencies by providing the information to the clients and advisers. ASIC does not propose taking any further action.

The report also provides an update on compensation outcomes arising from the additional licence conditions. To date, the additional licence conditions have resulted in a further $4.96 million being offered to 185 customers of the 15 advisers. This is in addition to the $26.97 million paid to 707 customers of the same 15 advisers under a previous compensation program. For further information about that compensation program, see KordaMentha Forensic’s Comparison Report, published in April 2015 (refer 15-083MR).

KordaMentha Forensic’s next report regarding the licensees’ current review of advice given in 2012 and earlier by 17 further potentially high-risk advisers, including any further compensation outcomes, will be published by ASIC in 2017.

CommSec pays $200,000 in infringement notice penalty

ASIC says Commonwealth Securities Limited (“CommSec”) has paid a penalty of $200,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (“MDP”).


The MDP had reasonable grounds to believe that CommSec contravened subsection 798H(1) of the Corporations Act by reason of contravening rules 2.1.3 and 3.3.1 of the ASIC Market Integrity Rules (ASX Market) 2010.

Rule 2.1.3 generally requires a market participant to have appropriate supervisory policies and procedures to ensure compliance with the market integrity rules.

Rule 3.3.1 generally prohibits a market participant from entering into a market transaction for a client, and from allocating a market transaction to a client’s account, except in accordance with the instructions of the client or of a person authorised by the client.

No instructions from client

On 25 March 2014, CommSec received formal notification of the death of one of its clients, who held two accounts with CommSec — an equities account and a margin loan account. At that time, CommSec failed to apply a holder record lock to either of the accounts.

Between 25 March 2014 and 14 October 2014, CommSec entered into 59 market transactions on behalf of the deceased client on the instructions of a family member of the deceased client through CommSec’s online trading portal. Although the family member was authorised in relation to trading on the margin loan account in the event of a margin call, the family member was not authorised to provide instructions to enter into any of the market transactions. CommSec allocated the market transactions to the deceased client’s accounts.

The MDP was satisfied that CommSec entered into the market transactions for the deceased client, and allocated them to the deceased client’s accounts, without the instructions of the deceased client or of a person authorised by the deceased client.

Inadequate supervisory policies and procedures

During the relevant period, CommSec’s deceased estate area were in the process of undergoing an internal restructure. In October 2014, CommSec became aware that the restructure had resulted in a backlog of deceased estate work involving failures to apply holder record locks to a number of accounts of deceased clients, including the deceased client.

The MDP was satisfied that, although CommSec had written deceased estate policies and procedures designed to prevent unauthorised trading on deceased client accounts, they were not properly implemented and integrated into the business or appropriately monitored.

The compliance with the infringement notice is not an admission of guilt or liability, and CommSec is not taken to have contravened subsection 798H(1) of the Corporations Act.

CBA 1Q Trading Update – Running Hard Under Sail

The Commonwealth Bank (“the Group”) today advised that its unaudited cash earnings for the three months ended 30 September 2016 (“the quarter”) were approximately $2.4 billion. Statutory net profit on an unaudited basis for the same period was also approximately $2.4 billion, with non-cash items treated on a consistent basis to prior periods.

Our take is the CBA ship is running hard under sail, but the seas are far from calm, with funding costs rising, and more capital required to support the mortgage book.

Key outcomes for the quarter are summarised below:

Business Performance:

  • Operating income growth was slightly below that of FY16, impacted by the low interest rate environment, a strengthening Australian Dollar (AUD) and higher insurance claims. Banking income growth was solid, supported by strong trading income. Group Net Interest Margin was lower in the quarter due to higher funding costs;
  • Expenses were well managed in a lower growth environment, resulting in positive “jaws” in the quarter, notwithstanding ongoing investment in the business;
  • Across key markets, volume growth remained either broadly in line with, or ahead of system in home lending, domestic business lending and household deposits. In Wealth Management, Average Assets Under Management (AUM) and Funds Under Administration (FUA) rose by 3 per cent and 2 per cent respectively    driven by stronger investment markets and positive net flows. ASB customer advances continued to grow above market in the quarter.

Credit Quality:

  • The credit quality of the Group’s lending portfolios remained sound, with consumer arrears decreasing in line with seasonal expectations;


  • Loan Impairment Expense (LIE) was $322 million in the quarter, equating to 18 basis points of Gross Loans and Acceptances, compared to 19 basis points in FY16.


  • Consumer LIE was higher in the quarter, primarily driven by continued stress in areas of WA and QLD impacted by the mining downturn. Group Troublesome and Impaired Assets were slightly higher at $6.8 billion reflecting ongoing stress in the New Zealand Dairy sector;

Prudent levels of provisioning were maintained, with Total Provisions at $3.8 billion.

cba-1q17-update-provisionsCapital, Funding and Liquidity:

  • The Group’s Basel III Common Equity Tier 1 (CET1) APRA ratio was 9.4 per cent as at 30 September 2016. After allowing for the increase in risk weighting for Australian residential mortgages and the impact of the 2016 final dividend (which included the issuance of shares in respect of the Dividend Reinvestment Plan), the CET1 (APRA) ratio increased by 34 basis points in the quarter, primarily driven by capital generated from earnings. The Group’s Basel III Internationally Comparable CET1 ratio as at 30 September 2016 was 14.3 per cent.


  • The Group’s Leverage Ratio was 4.8 per cent on an APRA basis and 5.4 per cent on an internationally comparable basis;
  • Funding and liquidity positions remained strong, with customer deposit funding at 66 per cent and the average tenor of the wholesale funding portfolio at 4.3 years. Liquid assets totalled $135 billion with the Liquidity Coverage Ratio (LCR) standing at 126 per cent.  The Group issued $12.5 billion of long term funding in the quarter.

Collaborative Australian home ownership

CBA has highlighted some of the disruptive business models which may impact on the housing market in the future.


Buying a home in Australia may be set for a major makeover in the next 15 years as economic, cultural and demographic trends lead to the emergence of new ways of funding home ownership.

CommBank’s Future Home Insights Series has identified a number of trends that are predicted to significantly influence the Australian housing market from now until 2030 and beyond, including population growth, urban living trends and the rise of multi-unit dwelling construction. The series also found that Australia’s society will encompass a broader collection of social groups, which will influence how Australian property is built and sold.

Dan Huggins, Executive General Manager Home Buying, Commonwealth Bank, said: “We know these trends will significantly impact how Australians live, buy and sell property. At the same time, these trends could change how lenders meet the needs of Australian home buyers in the future.”

CommBank has identified eight existing and emerging pathways to home ownership, including:

Collaborative buying

Co-living arrangements could become more sophisticated with the emergence of collaborative buying/living models. ‘Co-housers’ typically own or rent a smaller-sized dwelling that’s part of a bigger development and contains some communal areas. If residents can share spare rooms, living areas, storage sheds and laundries, then each house can be smaller – and therefore more affordable. Co-housing also reduces the overall physical and environmental footprint per household through more efficient land use.

Group loans

A growing number of people are splitting the costs of buying a home by partnering with a sibling or friend so they can share mortgage repayments with someone they trust. Analysis by CommBank shows that the number of applications with two or more applicants is trending up, from 64 per cent in 2014 to 67 per cent in 2016, while the number of single applicants for mortgages is slowly trending down. This approach coincides with the rise in multi-generational living and provides buying power that comes with two generations contributing to a property.

Communities in common

By 2030, new dwellings will average 119 square metres in size, which is around half the size of the average house in Australia today. To compensate for smaller private living spaces, many developers and architects are designing communities that encourage people to share generous common spaces with like-minded people in their building. Communities in Common also occur when individuals formally band together because they share certain values and lifestyles.

Joint-ventures and syndicates

Pooling funds to gain greater buying power is becoming more common in Australia.

Increasingly, all kinds of people, from siblings to cousins and friends, are coming together to enter the property market as a group. Group development models – where people buy and develop blocks of land collectively – also deliver economies of scale. It can be far cheaper to build several properties at once than one dwelling at a time.

Guarantor Loans

Australians may be familiar with guarantor loans as a way for parents to form joint property ventures with their children. These loans help young people get into the housing market sooner by allowing parents or family members to use their own property as additional security.

Crowd housing

Online crowd housing platforms are connecting homebuyers who share common interests with property developers and architects, giving groups of people more say in the kinds of homes they’d like to see built. For buyers, it means they’re able to express their needs to property developers in real-time; and for developers, it means reducing settlement risk by creating more attractive apartments that specifically meet the needs of buyers.


Moving up the property ladder by buying more shares in an individual property, and hopefully one day attaining full ownership, is known as ‘staircasing’. Instead of buying a house outright, home owners are buying a share in a property and gradually increasing this stake as their savings grow. Whilst this is new to Australia, overseas’ examples include a British government scheme, which allows home owners to pay as much as they can afford – usually between 25 per cent and 75 per cent of the total value of a property – increasing their ownership stake when funds allow.


Australia is seeing a rise in the variety and frequency of online portals such as Airbnb that connect homeowners looking to monetise their spare bedroom or couch. This works well as it provides additional income for the homeowner to put towards the mortgage and other bills, and it offers the tenant a place to stay whether it be on a short-term or a longer-term arrangement.

Genworth Renews CBA LMI Contract

Genworth Mortgage Insurance Australia has announced it has renewed its Supply and Service Contract with CBA to provide Lenders Mortgage Insurance from 1 January 2017. This contract represents 43% of Gross Written Premium in 1H16.

Chess-HusingThe contract will be for 3 years to 31 December 2019. Genworth will be the exclusive provider of LMI to CBA for a minimum specified percentage (determined by the number of funded applications for new loans) of new high LVR residential mortgage loans. The minimum LMI percentage is consistent with the level set in 2014 and is fixed for the duration of the renewed term.

You can read our recent post on LMI here.





Commonwealth Bank and Alipay to develop innovative payments solutions

Commonwealth Bank and Alipay, the world’s largest mobile and online payment platform, operated by Ant Financial Services Group, have signed a landmark Memorandum of Understanding (MOU) to deliver payment solutions that will benefit Australian and Chinese consumers and retailers.


Under the terms of the MOU, the two companies will work together to make it easier for Australian consumers to pay for purchases made through Alibaba Group’s e-commerce websites, supported by Ant Financial’s payment infrastructure, including AliExpress, a platform for Chinese merchants to sell to global consumers.

Commonwealth Bank and Alipay will also work together on a simple payment solution that allows Chinese tourists and Chinese students to use Alipay in-store payments at Australian retailers.  This agreement allows both companies to leverage the strengths of their collective e-commerce capability and Commonwealth Bank’s Albert smart payment tablet, powered by the Pi platform.

Mobile payments in China have increased exponentially in recent years. Last year, China overtook the United States as the world’s largest market in mobile payments with a transaction volume of US$235 billion, and China is expected to process $6.3 trillion in mobile payments by 2020. Approximately 19,000 Chinese tourists visit Australia every week and spend almost $8,000 per person.

“Australia is a popular destination for Chinese travellers and Chinese students studying overseas. We want Alipay users to enjoy the kind of convenience they are used to at home. We are working with regional and global partners like CBA to make this happen,” said Douglas Feagin, Senior Vice President of Ant Financial Services Group and Head of Alipay International.

Kelly Bayer Rosmarin, Group Executive, Institutional Banking and Markets, Commonwealth Bank said “We are thrilled to be the first Australian bank to collaborate with Alipay in building an innovative payments solution that leverages our leading e-commerce and point of sale platforms. We are constantly working on payment solutions that offer flexibility and choice for our customers so the prospect of bringing them closer to a globally leading mobile payments provider, and its 450 million active users, is truly exciting.”

NSW Leads The States, Says CommSec

The latest CommSec State of The States report has been released. NSW has held on to the position as the best performing economy, supported by strong construction activity, whilst the economic performance of Western Australia reflects the ending of the mining construction boom.

The states performing better are associated strongly with rising residential construction, home prices and home loan volumes.

Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; business investment; unemployment; construction work done; population growth; housing finance and dwelling commencements.


Just as the Reserve Bank uses long-term averages to determine the level of ‘normal’ interest rates; we have done the same with key economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the ‘normal’ performance.

The latest State of the States report also includes a section comparing annual growth rates for the eight key indicators across the states and territories as well as Australia as a whole. This enables another point of comparison – in terms of economic momentum.

NSW has retained its top rankings on business investment, retail trade, and dwelling starts. But NSW is now is second spot on unemployment, construction work, population growth and housing finance. NSW is in third spot on economic growth.

Victoria remains in second spot on the economic performance rankings. Victoria is top ranked now on population growth and ranked second on retail trade and business investment. Victoria is third ranked on construction work, housing finance and dwelling starts.

The ACT also has held on to its position as the third ranked economy. The ACT is top ranked on housing finance, second on economic growth and third ranked on retail trade, unemployment, business investment and population growth. Retail trade is up 5.1 per cent on a year ago.

The Northern Territory holds fourth position and remains in top spot for economic growth, construction work done and unemployment. However the Territory economy is losing momentum, ranked last on four indicators – population growth, business investment, housing finance and retail trade.

The South Australian economy is in fifth position. South Australia is middle ranked on business investment and housing finance and fifth ranked on three indicators.

Queensland is in sixth placeon the economic performance rankings. The economy is second-ranked on dwelling starts and population growth is lifting. Both tourism and agricultural exports will provide momentum in coming months and higher coal prices are encouraging.

Tasmania has improved from eighth position to seventh on the rankings. Tasmania is fourth ranked on two indicators and fifth on three indicators. Annual growth on home lending is strongest in the nation at 10.3 per cent.

The economic performance of Western Australia reflects the ending of the mining construction boom. But income levels will lift in line with record mining export volumes and the recent improvement in resource prices.