Day 554: 'Financial behemoth'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 554.
Today in summary: The entry of large technology firms to financial services could make the sector more efficient; APRA kicks off consultation on new regulation of super fund ownership; the Reserve Bank of New Zealand has ordered independent reviews of ANZ’s capital and statements; Westpac chairman Lindsay Maxsted has written to shareholders and apologised for the bank’s poor culture; controversy continues around the government’s superannuation policy changes that come into effect on July 1; and brand and reputation damage is the top perceived threat keeping global business leaders up at night in 2019.
-- Alex
@AlexESampson
Current banker panic level: 🤩🧐🧐☹️😖😳
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The entry of large technology firms such as Alibaba, Amazon, Facebook, Google and Tencent into financial services could make the sector more efficient and increase access to services, according to a chapter from the Bank for International Settlements Annual Economic Report, released yesterday. But services such as payments, savings and credit also introduce new risks.
In a chapter on big tech in finance, the BIS notes that these companies offer many potential benefits, such as facilitating financial inclusion for those otherwise excluded from banking. BIS says policymakers – including competition authorities, financial regulators and data protection supervisors – need institutional mechanisms to stay abreast of developments in the global digitisation of the economy.
The full BIS Annual Economic Report and Annual Report will be released on June 30.
APRA has asked for consultation on a draft form and guide for applications to acquire a controlling stake in a super fund. From July 5, any party seeking to acquire a greater than a 15% stake in a registrable superannuation entity (RSE licensee) must apply to APRA for approval.
The new process stems from the passage in April of the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019, and brings APRA’s change of ownership powers in superannuation in line with the banking and insurance sectors. A two-week consultation period is now open.
The Reserve Bank of New Zealand has ordered independent reviews of ANZ’s capital and statements “to provide assurance it is operating in a prudent manner”.
The first report will cover ANZ New Zealand’s compliance with the RBNZ’s current and historic capital adequacy requirements. Reserve Bank Governor Adrian Orr said ANZ remained “sound and well capitalised”.
Meanwhile, the New Zealand Government today announced moves to make NZ’s banking system safer for customers through a new deposit protection regime, and work to strengthen accountability for banks’ actions.
AFR | The Australian | SMH
Westpac chairman Lindsay Maxsted has written to shareholders and apologised for the bank’s culture being slow to respond, conservative, complex and low on accountability.
In a letter to shareholders published on the ASX this morning, Maxsted said the bank’s “Culture, Governance and Accountability” self-assessment completed in the wake of the banking royal commission found Westpac’s “consultative culture” could “slow down decision making, create undue complexity and dilute accountability”.
“Westpac has taken important lessons from these reports and has developed a range of actions to respond to the findings and address our shortcomings. Where we can, we are taking action now. However, for many of the royal commission recommendations we must wait for new legislation and regulation before implementation.”
Westpac will also overhaul how it calculates executive pay in response to last year’s shareholder vote against its remuneration report (64% voted against the report).
The Australian | AFR | SMH
Controversy continues around the government’s superannuation policy changes that come into effect on July 1. From Monday super funds will cancel the insurance on accounts that have not received any contributions for at least 16 months, unless members request to keep the insurance.
The government's reforms will also see inactive accounts with balances under A$6,000 transferred to the Australian Taxation Office, which will consolidate the money into a member's active account. The Australian Institute of Superannuation Trustees, Financial Counselling Australia and the Consumer Action Law Centre released a joint statement encouraging members to check their cover this week before the changes come in.
In her second speech as Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume told delegates at the SMSF Association Investor Expo in Sydney last week that making sure super was working in the best interests of members was one of her portfolio priorities.
Brand and reputation damage is the top perceived threat keeping global business leaders up at night in 2019. According to Binder Dijker Otte’s (BDO) latest Global Risk Landscape Report, computer crime came in second place, followed by economic slowdown in third.
This comes as banks reported high costs for compliance and risk management during the first-half reporting season in May.
Last month the Governance Institute of Australia released its 2019 Risk Management Survey The banking royal commission, APRA and ASIC’s ongoing investigations, and other changes to risk management had weighed heavily on banks.
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Today’s burn prize: Financial Counselling Australia CEO Fiona Guthrie
“The changes could detrimentally impact people who could benefit from insurance in super, but haven’t read, understood or even received a notice about an inactive account and will therefore not make an informed choice to keep it.”
Guthrie was talking about the changes to default insurance in superannuation, for low balance or inactive accounts, which come into force next week. She argued default insurance was protecting people caring for children, people in the gig economy, people with chronic illnesses and indigenous communities.
The Commentariat
It will be difficult for investors to track Westpac’s progress in turning around its poor culture given the bank has chosen not to release its self-assessment of culture, governance and accountability, writes the AFR’s Chanticleer.
“One source said while there hasn’t been much appetite to release the CGA report inside Westpac to this point, is does remain a point of discussion. Perhaps more APRA’s response to the CGA reports across the sector will prompt a further rethink.”
Facebook’s digital currency Libra will force governments around the world to introduce much tougher scrutiny and controls, writes AFR columnist Karen Maley.
“Particularly since, in an era of competitive currency devaluations, it's likely that consumers will start to see Facebook's digital currency as an attractive alternative to keeping their money on deposit in the bank, potentially transforming Libra into a financial behemoth.”
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