Day 521: 'Relegated to the dustbin'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 521.
Today in summary: APRA says risk culture is not well understood; IOOF is in more hot water; the Consumer Action Law Centre says ASIC must “urgently overhaul” responsible lending rules; and AFCA is recruiting.
-- Alex
@AlexESampson
Current banker panic level: 🤔🤯🤑🤗
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A new report from APRA on bank self-assessments into governance, culture and accountability has revealed risk culture is not well understood across the industry. The prudential regulator released a summary of responses to the Final Report of the Prudential Inquiry into Commonwealth Bank (released May 1, 2018) which were given in the form of written self-assessments.
APRA today released a 28-page information paper summarising the submissions it received from the country’s 36 largest banks, insurers and superannuation licensees but refused to disclose any detail or publish any submissions. The issues identified were “accompanied with lengthy lists of planned actions”. However, the responses also suggested that “many institutions have yet to develop a clear understanding of what factors have caused weaknesses to manifest and persist”.
AFR | The Australian | SMH | ABC
Meanwhile, Treasurer Josh Frydenberg has highlighted the “social responsibility” of banks to lend money in his response to yesterday’s announcement that APRA had proposed lenders set their own minimum interest rate floors, lifting the maximum amount of money a home buyer could borrow.
Financial services group IOOF is in more hot water and faces criminal charges if it does not meet a new deadline to clean up its superannuation business. If the deadline, set by APRA, is not met the prudential regulator could exercise new powers granted following the banking royal commission. Two IOOF subsidiaries have been asked to set up an office supporting superannuation trustees by June 30.
The Consumer Action Law Centre called on corporate regulator ASIC to “urgently overhaul” responsible lending guidance to better protect Australians from financial harm. This comes after prudential regulator APRA yesterday proposed changes to allow banks to lend more freely.
Consumer Action’s submission to ASIC’s consultation on responsible lending guidance says that clearer standards are required to strengthen lending standards. The group argued reform was needed because ASIC’s existing responsible lending guidance was failing and a stronger minimum standard must be set. The submission includes case studies of people who had received loans they couldn’t afford.The Australian Financial Complaints Authority has announced it is recruiting for a number of newly-created senior roles. Chief ombudsman and CEO David Locke will appoint a deputy chief ombudsman and general counsel to support AFCA through its rapid growth and the expansion of its jurisdiction on July 1, 2019, when it will start accepting complaints dating back to 2008.
Locke said:
“[AFCA] is now a much larger national body with an ambitious strategy that, as well as prioritising the effective resolution of disputes, also places an increased emphasis on identifying systemic issues and serious misconduct in the financial services industry.”
Locke told Australian Banking Daily last month that AFCA's funding model was sustainable and would support any increased demand, and that the extra staff would allow claims to be processed as quickly as possible.
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Today’s burn prize: Consumer Action Law Centre CEO Gerard Brody
“Burdening an individual or family with debt they can’t afford causes harm.”
Brody said responsible lending reform was needed because ASIC’s existing responsible lending guidance was failing.
The Commentariat
APRA's backflip on its 7% interest rate floor will have quelled fears of regulatory overreach playing a part in a housing market crisis, writes investment market columnist Patrick Commins in the AFR.
“It would be silly for the RBA to be cutting rates while APRA maintains such lofty regulatory restrictions on assessing serviceability – the two would be working at cross purposes. The hard 7% interest rate floor – which the big banks actually set at 7.25% – would have blunted the impact of a lower cash rate, some of which will presumably flow through to lending rates.”
Chanticleer columnist Tony Boyd writes in the AFR that it did not take long for the openness and transparency championed by the Hayne royal commission to be “relegated to the dustbin”.
“Until the prudential regulator conducts its business with an eye to public disclosure of information essential to building confidence in the financial system it will continue to have a cloud over its capabilities.”
The RBA has decided it is time for some real policies, writes senior economics correspondent Shane Wright in the SMH. There has to be better policy on the table, he argues, if millions of Australians are to be in steady employment.
“The Reserve has been hammering on about structural changes to boost employment for years. Yet the Coalition, scarred by the WorkChoices campaign of 2007, uses the Australian Building and Construction Commission as a fig leaf to cover its failure to engage in industrial relations.”
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