Day 456: 'An entrenched imbalance of power'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 456.
Today in summary: Treasurer Josh Frydenberg today released a consultation paper on making provisions of financial services industry codes of conduct more enforceable; the Financial Services Council has indefinitely abandoned plans to launch its new life insurance code of conduct on July 1; wealth company IOOF will soon be hit with a shareholder class action; and some of Australia's most senior corporate advisers believe the big banks are overreacting to the banking royal commission.
-- Alex
@AlexESampson
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. The Australian Banking Association said measures to enforce finance sector industry codes were a welcome step following today’s release of a consultation paper about further enforcement of industry codes. The ABA said banks looked forward to identifying what more could be done to further enforce the new Banking Code of Practice 2019, which takes effect by July 1.
The code introduces a range of new measures to make banking products easier to understand and more customer focused and reflects the standard used by the Australian Financial Complaints Authority when assessing disputes. The paper proposes amending the law to allow corporate regulator ASIC to approve codes for a wider range of entities than currently possible and for it to take into account whether particular provisions of an industry code have been designated as enforceable before approving the code.
2. The Financial Services Council has indefinitely abandoned plans to launch its new life insurance code of conduct on July 1, after stakeholders complained it was not written in comprehensible English and corporate regulator ASIC warned the process was being rushed. The Australian Financial Review has reported the code would apply to FSC members and was designed to update the existing code, adding better customer protections for funeral insurance, mental health claims and pressure selling. The FSC must now consider more than 600 individual suggestions received during consultation. New rules on the use of genetic testing will still become active on July 1 whether or not the code is released.
3. Wealth company IOOF will soon be hit with a shareholder class action over its alleged failure to inform shareholders about its fallout with prudential regulator APRA over an alleged breach of superannuation laws. The class action, led by former Maurice Blackburn partner Damian Scattini, now with Quinn Emanuel, is expected to be filed within weeks, according to a report in the Australian Financial Review.
4. The Australian Financial Review is reporting that some of Australia's most senior corporate advisers believe the big banks are overreacting to the banking royal commission, selling and spinning off mortgage broking, financial advice and insurance businesses worth billions of dollars.
Luminis Partners co-executive chairman Simon Mordant said:
“In 10 years' time, people will look back and say 'why did they exit some of these businesses' and I wouldn't be surprised if in 10 years' time the cycle returns and they go back into some of these businesses.”
Today’s burn prize: Treasurer Josh Frydenberg
🔥🔥🔥
“It was under Labor that real minimum wages last fell, and remarkably fell in three out of the six years Labor was in office – an inconvenient truth for Bill Shorten today.”
In a statement today Frydenberg called Labor’s position on lifting the minimum wage is a “confused, irresponsible con job on the people of Australia”, highlighting that that under the Coalition the minimum wage had gone up every year at a rate faster than both the inflation rate and wage growth across the broader economy.
The Commentariat
The Australian senior writer John Durie writes that Treasurer Josh Frydenberg has opened a can of worms following through with royal commissioner Ken Hayne’s request for a wider banking industry code of conduct, because “codes themselves are debatable”.
“There are some who say codes work brilliantly in changing industry culture and others who say they are a complete waste of time, because they raise expectations around documents which are unenforceable.”
Business columnist Stephen Bartholomeusz writes in the Sydney Morning Herald that the merger of German banks Deutsche Bank and Commerzbank should send shudders through global markets and regulatory bodies.
“Both banks have spent the past decade struggling to cope with the legacies of the financial crisis and making little progress. And now they want to merge? The confirmation that the two big German banks are in negotiations, with the blessing of a German government keen to promote the emergence of a banking national champion, is an implicit admission by both banks that their paths towards stability remain too lengthy and difficult to contemplate alone.”
After sitting down with the chairman of buy-now pay-later business Splitit, Spiro Pappas, The Australian’s editor at large Alan Kohler gives a thorough overview of the new entrant, comparing its model to the “frightening cash flow” at Afterpay. Kohler notes that on its current trajectory Splitit should be cash positive next year and “start making decent money thereafter”, but cautions that merchants will have plenty of choice of such services and will start clamping down on how much of the margin they get.
“How does it work? Well, unlike Afterpay, Splitit uses Visa and Mastercard. It is a credit card overlay, whereas Afterpay is a separate payment system, which is why it charges merchants 4% and Splitit 2%. Afterpay takes credit risk; Splitit does not.”
Adele Ferguson writes in the Australian Financial Review that the ACCC is “itching” for the government to reform the A$170 billion franchising sector. Ferguson points to listed franchises such as Mortgage Choice, and argues the sector’s current model of governance is not fit for purpose. She notes last week’s damning parliamentary report which found inherent conflicts of interest and an entrenched imbalance of power between franchisees and franchisors.
“When a sector accounts for almost 8.9% of GDP and has been described in a joint parliamentary report as comparable to the financial services sector when it comes to poor corporate governance and cultural issues, it is time for the government to act. It is time for both sides of politics to step up and fix a sector that has been crying out for reform for decades.”
Bloomberg’s Christopher Balding writes in the Sydney Morning Herald that China's banks may have a flood of bad loans waiting in the wings, with banks having to dedicate more earnings to loan loss-provisions as a consequence.
“The situation won't inspire confidence among foreign banks that are kicking the tires of smaller local lenders they may use to enter the Chinese market. China urgently needs full and transparent disclosure of the size of its bad-debt problem, and a clear plan to address it. The longer it delays, the more expensive and painful the fix will be.”
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.