Day 499: 'Do it properly'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 499.
Today in summary: Senior banking executives fear a potential ASIC test case on directors’ duties; peer-to-peer lender Marketlend reckons its industry’s code of conduct is rubbish and won’t sign it; APRA has launched a four-week consultation for proposed revisions to superannuation standards; and “unscrupulous” Freedom Insurance Group is winding down business.
-- Alex
@AlexESampson
Current banker panic level: 😓❌🤕
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Senior banking executives are reportedly worried about a potential ASIC test case on directors’ duties. The corporate regulator is in the process of deciding whether to bring a case against the Commonwealth Bank over its poor response to warnings issued by government financial intelligence agency Austrac in 2016 that the bank’s ATMs were being used for money laundering.
The Australian is reporting the watchdog is likely to make an assessment of its options before the end of the year, but that even an unsuccessful prosecution could determine the future framework of directors’ duties. Two shareholder class actions have already been lodged against CBA in relation to the issue which tanked the bank’s share price in 2017 when the investigation was exposed in the media.
Peer-to-peer lender Marketlend has kicked up a fuss about the online business lending code of conduct, labelling it “window dressing”. Citing concerns that the code does not protect borrowers, and is focused only on lenders, Marketlend has refused to sign. The latest iteration of the code, created by the Australian Finance Industry Association and governed by an independent compliance committee, came into force on December 31, 2018.
Marketlend raised its concerns via a submission to The Treasury’s consultation paper on whether to make finance services industry codes enforceable — a key recommendation in Hayne’s royal commission final report (1.15). None of the submissions are public. Marketlend’s submission, detailed today in The Australian, went on to say all licensees regulated by ASIC should face “tangible penalties” if they breached the code.
APRA has launched a four-week consultation for proposed revisions to superannuation standards, including a legislated outcomes assessment. This follows the passage of the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1 Bill 2019) through Parliament on April 4.
APRA is proposing revisions to SPS 515 to clarify how the legislated outcomes assessment interacts with APRA’s requirements, and to specify additional factors. Written submissions are due by May 29. The new standard is scheduled to commence from January 1 next year.
Freedom Insurance Group has taken on two directors to wind down business at the destroyed junk insurance provider. Freedom’s business model involved cold-calling potential customers to sell them low-value life insurance products and encouraged unscrupulous sales tactics through harsh incentives and a penalty commission system. The business model was roasted by the banking royal commission and corporate regulator ASIC. The company become infamous during the royal commission when it was revealed it had pressure sold accidental death cover to a young man with Down syndrome.
Earlier this month Freedom announced it would sell its policy administration business for A$5 million to Zurich based reinsurance company Swiss Re. The company also said there were plans to sell its Spectrum Wealth Management business. Any proceeds of the sales would be used to “pay creditors, wind down its remaining operations and meet any financial regulatory obligations”. It is understood those due compensation will still have a wait several months for payment until ASIC completes its investigation.
🔥🔥🔥
Today’s burn prize: Marketlend founder Leo Tyndall said
“If we are going to do a code, let’s do it properly.”
Marketlend has refused to sign the AFIA industry code of conduct for online lenders. Tyndall argues that a more meaningful code should be written in plain English and be mandatory.
The Commentariat
AFR columnist Christopher Joye writes that the RBA is weighing up alternatives to an interest rate cut. Joye argues there are several reasons why a more targeted approach to boosting the Australian economy may be preferred to an outright cut.
“Industry participants believe the central bank and banking regulator are considering a targeted alternative to a cut to the official cash rate, which would involve lowering the minimum 7.25% interest rate banks use when assessing a home loan borrower’s repayment capacity by 50 basis points to 6.75%.”
Bloomberg writer Daniel Moss also tackles rate cuts, arguing in the SMH that Australia's “perfect economy” is set for a wake-up call, following a nearly 28-year run of expansion.
“The chances that the RBA will deliver an interest rate cut as soon as next week rose after figures on April 24 showed a significant slowing in inflation. As in many developed countries, and quite a few emerging markets, the pace of price increases is consistently below target. Growth isn't collapsing, but it could do with some perking up.”
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