Day 480: 'There is a trust deficit'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 480.
Today in summary: ASIC says new legal powers and funding will propel it into a new era of enforcement; Aussie banks could face a hit under proposed New Zealand capital holding requirements; remuneration is expected to become a battleground between shareholders and banks; and the ACCC has granted interim authorisation so the peak body for mortgage brokers and financial advisers can continue to expel members for misconduct while it responds to royal commission recommendations.
-- Alex
@AlexESampson
Current banker panic level: 🙄🤑👮♀️
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ASIC says new legal powers and funding will propel it into a new era of enforcement. Chairman James Shipton last night told Senate Estimates that recent changes to legislation — including higher corporate misconduct penalties and new design distribution and product intervention powers — were “very welcomed” and would help ASIC extend its reach. But he said an extension of the Banking Executive Accountability Regime (BEAR) into ASIC's oversight would cover "tens of thousands" of financial services workers and make them more accountable.
Shipton was disappointed by comments from bankers that ASIC's tough new approach was making banks reluctant to lend.
“They don’t realise there is a trust deficit, and the need for them to prioritise fair outcomes for consumers and to make the financial system better and stronger.”
Meanwhile, APRA avoided an appearance before Senate Estimates after Parliament was prorogued this morning. Instead, Chairman Wayne Byres issued his opening statement and confirmed the regulator would make public its new enforcement approach later this month.
The ABC is reporting Aussie bank returns and dividends could face a hit under new New Zealand requirements. NZ's central bank has proposed increasing the amount of capital banks must hold to protect against market instability. But analysts have warned it will have a material impact on the big four Australian banks, which all have operations in NZ. The Reserve Bank of New Zealand wants the banks to have more "skin in the game" to protect against banking collapse.
JP Morgan senior economist Ben Jarman said:
“There's risks that the New Zealand economy bears itself … but there's also this idea that New Zealand is quite strongly tethered to Australia, so any shock that Australia would endure probably would be transmitted to New Zealand.”
Remuneration is expected to become a battleground between shareholders and banks during this year’s AGMs where the “two-strike rule” will put the power in the hands of shareholders. Prudential regulator APRA last month warned boards to put less weight on financial targets when paying bonuses, and focus instead on non-financial factors such as customer outcomes. The SMH is reporting APRA is expected to propose restrictions on bank executive pay in the coming weeks.
The ACCC has granted interim authorisation to allow the Mortgage and Finance Association of Australia — the peak body for the industry’s brokers — to continue to administer disciplinary rules enforcing its code of practice. The authorisation will give the MFAA “more time to consider and make changes to” its governance in line with recommendations from the banking royal commission. Authorisation by the ACCC removes any risk the MFAA’s disciplinary rules — which allow the body to expel members for misconduct — may breach competition provisions of the Competition and Consumer Act.
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Today’s burn prize: Senator John Williams
“I hope you do your job well and I hope you're successful in cleaning up the bit of a mess, as I can call it, after the royal commission.”
Williams bade ASIC chair James Shipton goodbye during his last Senate Estimates hearing after having been instrumental in bringing about the banking royal commission. Shipton took a moment to thank Williams for “ensuring that we have a fair, strong and efficient financial system for Australians”.
The Commentariat
Community Development Fund Advisors president Kenneth Thomas writes in American Banker that it‘s time to rebrand troubled US banking giant Wells Fargo. Thomas argues that while other bank scandals often did not impact retail customers, Wells Fargo’s frauds had “touched almost all customers”, and a rethink — rather than a breakup — is required.
“Some Democratic presidential hopefuls and influential members of Congress are calling for a breakup of Wells Fargo. While their anger is understandable, it would be better to rebuild a rebranded bank with a new senior management and board team. Sloan stepping down was an important fix — but the bank still has lots of work left to do.”
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