Day 432: 'Labor has flipped 180 degrees’
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 432.
Today in summary: The Senate inquiry report into the buy now, pay later sector has made some recommendations that buy now, pay later giant Afterpay won’t like; Labor has released a controversial formal response to the banking royal commission final report, backflipping on its promise to implement all recommendations; and the IMF’s latest Financial System Stability Assessment report, out today, says Australia’s financial regulators need to up their game if they want to meet global standards.
-- Alex
@AlexESampson
Current banker panic level: 🤑🤑😭
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1. The buy now, pay later sector, in consultation with regulator ASIC, should develop regulation that ensures lending providers “appropriately consider” consumers' personal financial situations before credit is extended, the Senate inquiry report into the sector reveals, delivering the blow the industry hoped to avoid.
The Economics References Committee report, handed down this afternoon, remarked that while the committee was confident products such as Afterpay would find the right regulatory balance, there was no guarantee “future entrants to the sector will take a similar approach”. The report also noted that the buy now, pay later sector’s growth had to date outstripped the regulatory response, and that the gap should be filled, including bringing the sector’s products under the National Credit Act.
Meanwhile, Parliament is investigating whether MPs and their staff are in "contempt of the Senate" after shares in the sector fell when the draft report was circulated internally. Corporate regulator ASIC told Senate Estimates on Wednesday night it was also looking into the “unusual trading”.
2. Fines for bad banking behaviour could top A$2 million under Labor’s proposed compensation plan response to the banking royal commission. The Opposition proffered its formal response to Hayne’s recommendations today — nearly three weeks after the final report was released on February 4. The response revealed that Labor, which originally pledged to implement all 76 recommendations of the royal commission in full, will actually only implement 75 recommendations. Shorten said the one remaining recommendation — Recommendation 1.3 (mortgage broker remuneration) — will be “implemented in a manner that will achieve the objectives set out by Commissioner Hayne”. Treasurer Josh Frydenberg labelled the move as “one of the most humiliating back-downs in recent memory”.
Read Labor’s full plan here.
3. A report from the International Monetary Fund, released today, applauded Australia for steps taken “to further strengthen the financial system”, while backhanding its regulators, saying they need to be more transparent, co-operate more and invest heavily in data collection. The IMF's Financial System Stability Assessment report indicated that regulators were missing "opportunities to close identified gaps and strengthen arrangements" and would need to lift their game in order to meet global standards. APRA chair Wayne Byres said the FSAP had made positive findings but insisted Australia’s financial system remained fundamentally sound.
“In addition, the report notes the encouraging progress that has been made in strengthening APRA’s resolution powers and expanding banks’ recovery planning, as well as strengthening the coordination between Australian and New Zealand authorities in this regard.”
4. In an appearance before Senate Estimates today Reserve Bank of Australia chair Philip Lowe pushed back on ongoing speculation that changes to mortgage broker remuneration recommended by the banking royal commission would impact household consumption, saying if things were to change it would be “because of what we [the RBA] did” and not other factors.
“Despite the banks having put up their posted rates, the average rate that Australian households are paying has hardly moved at all, and that type of change really hasn't had any effect on household spending.”
“The royal commissioner made a number of recommendations on mortgage brokers and, broadly, I would support them. The end of trail commissions, making sure that brokers have an obligation to act in the best interests of the person that they're helping, and subjecting them to the requirements of financial advisers — they all make a lot of sense to me. Who should pay the fee? That remains an open question. I think it's worth taking time to get that right, because many of the smaller lenders in the country rely very heavily on brokers. I think a shift to a 'borrower pays' model could in principle work, but it would need to be managed very carefully. It is not something that should be done quickly.”
Today’s burn prize: Opposition leader Bill Shorten
🔥🔥🔥
“Labor has also already drafted bills to enact five of Commissioner Hayne’s recommendations — these could be law before the election if Scott Morrison ends his protection racket for the big banks and agrees to extra sitting weeks in March.”
Shorten took the chance to hit out at the Coalition’s rejection of extra sitting time as he launched Labor’s response to the banking royal commission final report — 18 days after it was released.
The Commentariat
Institute of Public Affairs executive director John Roskam writes in The Australian that the NAB board will pay a heavy price for the bank’s top executive uncertainty.
“What happened at NAB demonstrates that, these days, directors are more likely to make the easy and supposedly popular decision rather than the right decision. NAB got it the wrong way around. Thorburn and Henry should have stayed and it should have been the board that quit.”
Australian Financial Review columnist and contributing editor Christopher Joye argues that Labor has undermined its credibility by formally rejecting one of the royal commission's most significant recommendations due to its backflip on mortgage broker remuneration.
“After copping criticism for gifting A$2.6 billion to the banks by removing their single biggest mortgage distribution cost — broker commissions — and shunting this expense on to consumers, Labor has flipped 180 degrees.”
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