Day 505: 'Ineffective and weak'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 505.
Today in summary: Westpac’s sin fund totalled A$896 million and resulted in a 22% profit loss for the first half; Choice wants “ineffective and weak” industry codes thrown in the bin and rewritten by ASIC; and the Financial Services Council wants a single regulatory regime for financial advisers.
-- 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.
A wealth business restructure, customer remediation and bad weather have caused pain for Westpac in its 2019 interim results, leading to a 22% profit drop to A$3.29 billion. Westpac is the latest bank to reveal significant losses due to the financial burden of compensating customers for unfair banking practices, with its remediation bill in the half coming to A$896 million ($617 million after tax).
Westpac chief Brian Hartzer also dismissed concerns that interest rates were stifling the banking sector, saying the economy is in "reasonable shape", echoing the sentiment of NAB acting chief executive Phil Chronican last week. But Shadow Treasurer Chris Bowen wasn’t having any of it, telling the National Press Club that rates were now “almost at emergency levels” and could be reduced further.
The Australian | AFR | SMH
Choice and the Superannuation Consumers' Centre say it's time to kill off “ineffective and weak” industry codes and give ASIC “proper regulatory teeth”, arguing industry “has little interest in addressing problems they're currently profiting from”. In a submission to Treasury, the two groups have called on the next Federal Parliament to grant corporate regulator ASIC new rule-making powers.
These powers would allow ASIC to write and administer mandatory financial services industry codes rather than allowing industry to write their own rules to ensure the interest of customers are prioritised. Choice pointed to the Life Insurance in Superannuation Code, which was meant to deal with longstanding issues with duplicate accounts and poor value insurance, but instead was one of the “weakest codes in the financial services sector”.
The Financial Services Council wants a single regulatory regime for financial advisers. The industry peak body, which sets mandatory standards and develops policy for financial services, says the independent review of the Tax Practitioners Board and the Tax Agent Services Act 2009 is an opportunity to streamline two separate regulatory regimes into one that applies to all financial advisers.
The FSU’s submission to the review suggests streamlining existing Tax Financial Advisers requirements into a single regime under the Financial Adviser Standards Ethics Authority (FASEA) which could help reduce regulatory costs to the advice sector.
🔥🔥🔥
Today’s burn prize: Choice policy adviser Patrick Veyret
“It's clear the industry cannot be trusted to write their own codes.”
Veyret reckons the scandals exposed by the banking royal commission mean Australia must change how its financial services industry codes work because the current approach has “consistently resulted in weak, unenforceable and ineffective codes”.
“Choice has been part of more failed industry code development processes than we can count,” Veyret said.
The Commentariat
The big question on Alan Kohler’s mind this morning was whether the central banks of Australia and the US would cut interest rates “purely because of low inflation rather than low growth and high unemployment”. Kohler said both the Reserve Bank of Australia and the US Federal Reserve were this year faced with the same “momentous and probably unprecedented” decision.
“Both the Australian and US decisions come in the midst of extreme politics — here because of the election and in the US because of Donald Trump and the pressure he’s putting on the Fed.”
Melbourne Business School adjunct professor Mark Ritson writes in The Australian that Opposition Leader Bill Shorten’s suggestion of turning local post offices into banks was silly and unnecessary. He argues the digital revolution will create the real competition.
“Competition is coming for the big four — but not from your local Post Office. A far bigger threat is moving, quietly, into the Australian banking market. If Bill Shorten wants to make life more competitive for our big banks he does not need to empower the local post offices of Australia.”
John Durie argues in The Australian that the big banks have tanked their results after spending A$4.8 billion in the past 18 months paying back customers for “shoddy service”. And while the hit to profits and reputation have been bad, Durie believes the real regulatory battle is still ahead of the banks.
“The ALP has gone soft on bank bashing this campaign, but both the government and the opposition have made it clear banks are convenient whipping boys.”
Cut or wait? RBA governor Philip Lowe hasn’t moved interest rates at all during his 33 months in the job, and University of Technology Sydney Industry Professor Warren Hogan argues there is a case for either move.
“Adjusting rates during a campaign can be seen as interfering with the democratic process. It unavoidably has an impact on perceptions of the economy and economic management. That said, not changing policy rates when there is a compelling case to do so can itself be seen as interfering with the democratic process.”
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.