Day 412: 'Approaching crisis levels'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 412.
Today in summary: Badly behaved banks and their naughty executives are becoming costly to insure; the fintech-focused government has released an Issues Paper seeking feedback on initial coin offerings in Australia; and mortgage brokers may have actually increased product diversity and competition in the loans market.
-- Alex
Current banker panic level: 🤯🧐🤑
Please don’t keep The Inquisition to yourself. Forward this email to your colleagues and encourage them to sign up for free here.
1. Increasing class actions against banks and other financial institutions, such as AMP, as a result of the banking royal commission have triggered a hike in insurance premiums for businesses looking for “bad behaviour” cover, The Australian reports. This comes after the release of a report by multinational investment bank and financial services company JPMorgan and independent consultancy firm Taylor Fry, forecasting an 11% rise in premiums for professional indemnity cover this year.
“The royal commission has led and will continue to lead to class actions because it has highlighted poor practices by companies,” Taylor Fry analyst Kevin Gomes told The Australian.
“AMP is a good example — there are a number of class actions that have come from that and there will be more to come.”
2. Assistant Treasurer Stuart Robert says the government is committed to ensuring Australia is a global leader in fintech and will support developments in innovation “while ensuring that consumers are well-informed and protected against risks”. The government today released an Issues Paper seeking feedback on initial coin offerings in Australia and the application of Australia’s regulatory framework to ICOs, given these niche fundraising avenues rely on new and evolving distributed ledger technology, such as blockchain.
3. Mortgage brokers have cut banker’s lunches to the tune of 20% over the past 10 years, according to analysis by audit, tax and advisory company KPMG. Australian Financial Review reporter Duncan Hughes writes:
“More brokers, increased demand for product diversity and booming property markets helped turbocharge growth for big-four bank competitors by more than 50% to about A$15 billion in the past five years, separate analysis by CoreLogic shows. During that period, broker market share has increased by about 27% to almost 60%, a record high.”
Brokers have been out promoting their work and lobbying for support amid concerns the banking royal commission will recommend changes to their commission payments. The AFR is also reporting that only a few mortgage broking customers would be willing to pay A$2,000 for the service, leading the industry to argue that any change to a customer-pays model — a possible recommendation of the banking royal commission — would reduce competition and boost the market power of the big banks.
Today’s burn prize: Taylor Fry analyst Kevin Gomes
🔥🔥🔥
“The cost of class actions in the directors and officers class, particularly relating to breaches around disclosure obligations for listed companies, is approaching crisis levels.”
Discussing analysis from multinational investment bank and financial services company JPMorgan and actuarial consultants Taylor Fry that insurance premiums for professional indemnity cover have been and will be further driven up by legal action taken following the banking royal commission hearings.
The Commentariat
It’s going to be expensive for corporate regulator ASIC to issue a paddling to the banks and financial institutions, writes The Australian’s business correspondent Richard Gluyas. It will cost at least the A$50 million set aside, but probably more.
“ASIC chairman James Shipton is expected to pitch for more funding in the federal budget to litigate royal commission matters, on top of the A$51.5m announced by Josh Frydenberg in November to pursue criminal prosecutions for financial misconduct.”
Australian Financial Review senior banking reporter James Eyers discusses whether disaster or simply deflation will hit banks and the market when the banking royal commission final report lands on Monday. He questions whether it will deliver us from dirty corporate deeds, plunge us into market chaos or steer us into a regulatory reform.
“Analysts expect the report to prompt an overhaul of remuneration incentives, more litigation by regulators and fear tougher loan assessments could exacerbate falling house prices.”
This is an introductory service while we’re building a comprehensive daily paid online publication, coming soon.
We’re not here to offer opinion, simply to cut through the noise, and help you make sense of the emerging policy and market trends you need to be across. We call it pure intel. You can read more about us here.