‘Modest reforms’ rely on regulators winning more cases
Allan Fels isn't convinced there will be lasting change from the royal commission
Hayne’s ‘sensible middle ground’ requires follow through
By Alex Sampson
We’re resending this after the email police stopped many people getting the earlier version.
The public will have to “come to terms with gap between the bad impression created of the banking industry and the rather modest reforms” Commissioner Hayne has recommended, University of Melbourne economics Professor Allan Fels says.
Experts, industry and the public have all perceived the report differently, as anywhere from weak to heavy handed.
“There are some quite useful recommendations, particularly on remuneration practices, especially regarding mortgage brokers, but in the end much depends upon two factors and in each case one has doubts as to whether there will be full delivery,” Fels said.
“The first is a major change in bank culture, that in the end I have doubts that will happen.
“I think there will be short term transition improvements but there’s nothing to stop a gradual relapse into the ways of the past and likewise, there’s a great deal of emphasis placed on the regulators doing their job properly, and again, I’m somewhat sceptical.”
Fels says Hayne, being a law man, placed great emphasis on requiring regulators to litigate, but it was often difficult to win cases in court.
“If I have one criticism of Commissioner Hayne – a former High Court judge – it would be that he has not sufficiently acknowledged that it has been the legal system, the judges, the lawyers and so on that have made it difficult to win cases in court because of their legalism,” Fels said.
“People have been calling since 1990 for improvements in ASIC and they’ve not happened, at best I have an open mind that they may make a difference. But my feeling is that not enough has been done to prevent, after two or three years, a relapse into ways of the past.”
Mostly sensible
Grattan Institute CEO John Daley said many of the recommendations in Hayne’s report struck him as the “very sensible middle ground”, particularly in terms of single superannuation accounts, which echoed the Productivity Commission’s final report.
“That would obviously be quite a substantial shift for the industry, one we think would be in the best interests of consumers, frankly not in the best interest of industry, but that’s not actually what we’re about here,” Daley said.
“In terms of remedies for superannuation trustees, he didn’t propose large scale changes, just said duties should be taken a lot more seriously and the regulator should look at them a lot more carefully, so that spoke to me as being as a less substantial change to the existing law than it might have been.”
Daley said the thing no one seemed to be questioning when it came to responsible lending – not even Hayne – was whether the lending provisions were sensible.
“In particular, does the benefits of those provisions – as interpreted – outweigh the costs,” Daley said.
“And I think there’s a very real argument to say that they don’t.
“Banks have been carrying on, many of them not assessing borrowers’ actual circumstances for a long time, particularly in the mortgage businesses, and yet Australian loss and arrears rates on mortgages are extremely low, both absolutely and by global standards.
“So, if the loss rate is extremely low, and you have been adopting a way of assessing those loans in a way that is inherently low cost, exactly what problem are we trying to fix?
“One of the main faults with that system is that most borrowers don’t know what their expenses are, so asking them is frankly a waste of time. Changing the measure, and verifying it, will just add a whole heap of costs that consumers are going to have to pay for.”
This comes as the corporate regulator ASIC last week announced it would examine and clarify the measures used for lending assessments, including the use of the controversial HEM benchmark.
Daley said one of the more substantial recommendations from Hayne was the proposal to ban all commissions for mortgage brokers.
“Obviously this is a pretty significant change to the mortgage industry, which is the largest of all bank products,” Daley said.