Day 424: 'A confronting but valuable experience’
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 424.
Today in summary: ASIC has today issued a consultation paper to provide clarity on how to comply with responsible lending laws; Westpac may soon join the other big banks in divesting its wealth arm; and AMP haemorrhages profit following the banking royal commission.
-- Alex
@AlexESampson
Current banker panic level: 😱😱🤭
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1. Corporate regulator ASIC has today issued a consultation paper to provide clarity on how to comply with responsible lending laws, particularly in relation to the controversial Household Expenditure Measure (HEM) benchmark. The regulator doesn’t plan to ban the use of HEM models, but wants to ensure the measures are “realistic”. An updated guidance note will be released by September this year.
“ASIC’s guidance has been in place since 2010 when the responsible lending laws were first introduced. Although the laws have not changed since 2010, ASIC considers it timely to review and update the guidance in light of its regulatory and enforcement work since 2011, changes in technology, and the recent Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.”
2. Westpac Bank is understood to be in process of divesting its financial planning group to Melbourne-based Viridian Advisory. The Australian is reporting that negotiations are advanced. Senior banking reporter Joyce Moullakis writes:
“As it stands, the deal doesn’t include all of Westpac’s advisers, focusing instead on those that have bigger and more profitable client books.”
“Westpac’s financial results showed it had 803 salaried and aligned planners as at September 30, down 21% from a year earlier.”
Westpac is the last of the big four banks to divest its wealth management arm.
3. AMP this morning reported a net profit of only A$28 million for the year, down from the $848 million last year – a 97% drop. AMP’s superannuation and investments division has recorded nearly A$4 billion net cash outflows due to the fallout from the banking royal commission. A$3.1 billion of that was in the second half of 2018 alone, after the commission’s hearings were in full swing in September. Part of the loss was people moving their superannuation to industry accounts. AMP’s shares dropped 4.1% in morning trade.
“The Royal Commission has been a confronting but valuable experience for the financial services industry and has served as a catalyst for change at AMP. We have undertaken Board and leadership renewal, accelerated client remediation and sharpened our focus on delivering better value to customers including reducing fees on our MySuper products,” AMP Chief Executive Francesco De Ferrari said.
Today’s stating the obvious prize: Suncorp chief executive Michael Cameron
🤔🤔🤔
“The financial services industry today faces a great deal of change. This includes future policy settings, shifts in regulation, and material impacts on business and distribution models. I acknowledge the importance of the royal commission process, and accept that Suncorp has, at times, fallen short of community expectations.”
Cameron reflected on changes to the financial services industry when delivering Suncorp’s December half-year results — the first time the bank has responded to the royal commission final report.
The Commentariat
KPMG Law head Stuart Fuller says the banking royal commission final report is a "velvet hammer" that will have wide ranging effects, especially for the legal profession, creating “a new world” for lawyers. Fuller argues lawyers need to “refocus the lens through which they view the new world”.
“The last two recommendations, on the final page of the report – that conflicts should be eliminated, not managed; and that desired behaviours and norms should be articulated as a means to drive the simplification of the drafting and enforcement of laws – are where the velvet hammer hits the anvil of change.”
“What I see is a merger of the traditionally separate areas of legal, risk, regulatory and compliance.”
Deloitte's governance, regulation and conduct practice director Dennis Gentilin draws on his experience in banking, including as a whistleblower in the 2004 forex trading scandal, to discuss the complexity of banking reform.
“When you're operating in an oligopoly that generates super-normal profits and there is little threat of regulatory action there is no burning platform – complacency is the order of the day. The hope is that the royal commission has provided directors and executives in the industry with the burning platform they need to effect the changes that are sorely needed.”
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