ACCC takes proceedings against ANZ and Macquarie bank for attempted cartel conduct

The Australian Competition and Consumer Commission says it has today taken proceedings on a consent basis against Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Limited (Macquarie) in relation to alleged attempts to engage in cartel conduct.

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Following cooperation by ANZ and Macquarie, the parties have agreed on the following facts to be presented to the Federal Court for its consideration:

  • a Macquarie trader, together with traders employed by ANZ and a number of other banks, all located in Singapore, communicated via private online chatrooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate);
  • on various dates in 2011, traders employed by ANZ and the Macquarie trader attempted to make arrangements with other banks that particular submitting banks would make high or low submissions to the ABS in relation to the ABS MYR Fixing Rate.

The ACCC alleges that on various dates in 2011, ANZ or Macquarie sought to influence the ABS MYR Fixing Rate published on that day, and thus attempted to contravene the cartel provisions of the Competition and Consumer Act 2010.

“These proceedings are a reminder that Australian cartel laws apply to financial markets, and capture cartel conduct by firms that carry on business in Australia, regardless of where that conduct occurred,” ACCC Chairman Rod Sims said.

“The ACCC recognises the integrity of foreign exchange markets plays a fundamental role in our market economy.”

ANZ has admitted to 10 instances of attempted cartel conduct and Macquarie to eight.Submissions to the Federal Court have been made as follows:

  • ACCC and ANZ have jointly submitted that ANZ pay a pecuniary penalty in the amount of $9 million and make a contribution to the ACCC’s costs; and
  • ACCC and Macquarie have jointly submitted that Macquarie pay a pecuniary penalty in the amount of $6 million and make a contribution to the ACCC’s costs.

Ultimately it is for the Court to decide whether penalties in these amounts are appropriate and the ACCC will not make any further comment regarding penalties until the Court makes final orders.

Background

ABS benchmark rates are used as reference rates for settling non-deliverable forward contracts (NDFs). Non-deliverable currencies are not freely tradeable outside the domestic economy, so a benchmark rate must be set by banks submitting their views on the appropriate rate. That benchmark is used to enable trade in forward contracts. Banks and other institutions primarily use NDFs for hedging and risk management.The ABS MYR Fixing Rate would ultimately affect NDF settlement payments.

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks. The ABS Rules required this be done independently and without reference to other submitting banks.

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank however it often initiated discussions between traders.

The ACCC estimates that the annual MYR NDF turnover in Australia in 2011 was approximately $9 to 10 billion. ANZ and Macquarie’s customers included Australian companies.

Banking Competition Under The Microscope – Finally?

Within the report issued today there is an important section on Banking Competition (or the lack of it) in Australia. This is something we have been saying for some time. The Committee is quite damming on the role of the current regulators, non of whom, it appears is taking the lead on the question of competition in the banking sector. In addition, “Ongoing monitoring of the banking sector’s competitiveness will fill an important gap in Australia’s regulatory framework”.

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A lack of competition in Australia’s banking sector has significant adverse consequences for the Australian economy and consumers. It: creates issues around banks being perceived as too-big-to-fail (TBTF) (such as moral hazard); reduces incentives for the major banks to innovate and invest in new infrastructure; and can allow banks to use their pricing power to extract excess profits from consumers.

The committee finds it very surprising that no Australian government has completed a wholesale review of competition in the banking sector in recent times.

More surprising, however, is that despite the Australian Competition and Consumer Commission’s (ACCC’s) clear concerns about the level of banking competition, it has acknowledged not closely monitoring the sector because ‘the RBA, APRA and ASIC are…observing the banks.’

None of these regulators, however, have a clear mandate to promote competition in the financial sector. The ACCC does.

The Reserve Bank of Australia (RBA) are primarily concerned with financial stability; ASIC with ensuring market integrity and protecting consumers; and APRA with ensuring the financial soundness of prudentially regulated institutions.

This means that no regulatory agency is regularly considering the level of competition in Australia’s banking sector and whether change is required

Exactly! Now, the question is, will anything be done about it? This is the root cause of many of the issues underlying financial services in Australia.

 

House of Representatives Standing Committee on Economics’ report on the Four Major Banks

The report from the Standing Committee was released today.  There are ten recommendations covering a diverse range of issues. Establish a Banking Tribunal, Make Executives Accountable, New Focus On Competition, Empower Consumers, Make New Entrant Access Easier, Force Independent Risk Review, Improve Internal Dispute Resolution and Boost Transparency in Wealth Management. Some of these are significant.

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Recommendation 1.

The committee recommends that the Government amend or introduce legislation, if required, to establish a Banking and Financial Sector Tribunal by 1 July 2017. This Tribunal should replace the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

The Government should also, if necessary, amend relevant legislation and the planned industry funding model for the Australian Securities and Investments Commission, to ensure that the costs of operating the Tribunal are borne by the financial sector.

Recommendation 2

The committee recommends that, by 1 July 2017, the Australian Securities and Investments Commission (ASIC) require Australian Financial Services License holders to publicly report on any significant breaches of their licence obligations within five business days of reporting the incident to ASIC, or within five business days of ASIC or another regulatory body identifying the breach.

This report should include: a description of the breach and how it occurred; the steps that will be taken to ensure that it does not occur again; the names of the senior executives responsible for the team/s where the breach occurred; and the consequences for those senior executives and, if the relevant senior executives were not terminated, why termination was not pursued.

Recommendation 3

The committee recommends that the Australian Competition and Consumer Commission, or the proposed Australian Council for Competition Policy, establish a small team to make recommendations to the Treasurer every six months to improve competition in the banking sector.

If the relevant body does not have any recommendations in a given period, it should explain why it believes that no changes to current policy settings are required.

Recommendation 4

The committee recommends that Deposit Product Providers be forced to provide open access to customer and small business data by July 2018. ASIC should be required to develop a binding framework to facilitate this sharing of data, making use of Application Programming Interfaces (APIs) and ensuring that appropriate privacy safe guards are in place. Entities should also be required to publish the terms and conditions for each of their products in a standardised machine-readable format.

The Government should also amend the Corporations Act 2001 to introduce penalties for non-compliance.

Recommendation 5

The committee recommends that the Government, following the introduction of the New Payments Platform, consider whether additional account switching tools are required to improve competition in the banking sector.

Recommendation 6

The committee recommends that by the end of 2017: the Government review the 15 per cent threshold for substantial shareholders in Authorised Deposit-taking Institutions (ADIs) imposed by the Financial Sector (Shareholdings) Act 1998 to determine if it poses an undue barrier to entry; the Council of Financial Regulators review the licensing requirements for ADIs to determine whether they present an undue barrier to entry and whether the adoption of a formal ‘two-phase’ licensing process for prospective applicants would improve competition; and APRA improve the transparency of its processes in assessing and
granting a banking licence.

Recommendation 7

The committee recommends that the major banks be required to engage an independent third party to undertake a full review of their risk management frameworks and make recommendations aimed at improving how the banks identify and respond to misconduct. These reviews should be completed by July 2017 and reported to ASIC, with the major banks to have implemented their recommendations by 31 December 2017.

Recommendation 8

The committee recommends that the Government amend relevant legislation to give the Australian Securities and Investments Commission (ASIC) the power to collect recurring data about Australian Financial Services licensees’ Internal Dispute Resolution (IDR) schemes to: enable ASIC to identify institutions that may not be complying with IDR scheme requirements and take action where appropriate; and enable ASIC to determine whether changes are required to its existing IDR scheme requirements.

The committee further recommends that ASIC respond to all alleged breaches of IDR scheme requirements and notify complainants of any action taken, and if action was not taken, why that was appropriate.

Recommendation 9

The committee recommends that the Australian Securities and Investments Commission (ASIC) establish an annual public reporting regime for the wealth management industry, by end-2017, to provide detail on: the overall quality of the financial advice industry; misconduct in the provision of financial advice by Australian Financial Services Licence (AFSL) holders, their representatives, or employees (including their names and the names of their employer); and consequences for AFSL holders’ representatives guilty of misconduct in the provision of financial advice and, where relevant, the consequences for the AFSL holder that they represent.

The committee further recommends that ASIC report this information on an industry and individual service provider basis.

Recommendation 10

The committee recommends that, whenever an Australian Financial Services Licence (AFSL) holder becomes aware that a financial advisor (either employed by, or acting as a representative for that licence holder) has breached their legal obligations, that AFSL holder be required to contact each of that financial advisor’s clients to advise them of the breach.

ASIC cancels credit licence of Rent To Own Appliances

ASIC says it has cancelled the Australian credit licence of S & S Enterprises Pty Ltd, trading as appliance rental business Rent To Own Appliances, after ASIC found it had entered into credit contracts where it charged consumers an annual interest rate higher than the 48 per cent maximum allowable under the National Credit Act.

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ASIC found that Rent To Own Appliances charged consumers an effective rate of interest as high as 208 per cent.

In response to ASIC’s concerns, Rent To Own Appliances has agreed to stop collecting payments on all current contracts and to allow consumers under these ‘rent to buy’ contracts to keep the goods being purchased under the contracts.

ASIC Deputy Chair Peter Kell said, ‘Credit licensees must understand their obligations under the law and take compliance with those obligations seriously. This includes understanding the limits in the law about maximum interest rates which they can charge consumers.

‘As this case demonstrates, ASIC will remove those licensees from the industry which fail to meet their obligations under the law’.

Rent To Own Appliances has agreed to maintain its membership with an external dispute resolution scheme, the Credit & Investments Ombudsman (CIO), for a period of at least 12 months after its’ credit licence is cancelled.

Consumers who entered into a contract with Rent To Own Appliances and have any questions should contact Rent To Own Appliances on (03) 5964 6512 or 0433 585 130 to discuss the matter. Any consumer who is not happy with Rent To Own Appliances’ response should contact CIO on 1800 138 422.

Background

Rent To Own Appliances’ credit licence (credit licence number 392764) was cancelled with effect from 26 October 2016.

A ‘rent to buy’ contract is an arrangement where you agree to purchase an item (for example, a fridge or television) by ‘renting’ that item for a set period of time. You make regular payments, for example, every month, over the agreed period (say 3 years). Under the terms of the agreement, you are not actually hiring the goods but you are making a commitment to buy them. At the end of the rental period, you own the goods.

Rent to buy contracts are treated under the law as credit contracts and have a maximum allowable annual interest rate of 48 per cent. For more information, refer to the Rent to buy factsheet on ASIC’s MoneySmart website.

Rent To Own Appliances entered into credit contracts with consumers for furniture and household appliances. It operated a website (www.renttoownappliances.com.au) and traded from Lilydale in Victoria.

NAB Financial Planners Restructured

NAB Financial Planning has announced changes “to deliver better customer outcomes, provide greater support to advisers, and position the business for future growth”.

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In September this year, NAB reaffirmed its commitment to financial advice through the creation of its Consumer & Wealth division, and the announcement of a $300 million investment in its Wealth business.

Following from this, NAB Financial Planning (NAB FP) is proposing to realign its business from 1 February 2017.

“The changes we’re making demonstrate our commitment to face-to-face advice, and ensure we have a customer-focused business that’s positioned for growth,” General Manager of NAB FP, Tim Steele, said.

Under the changes, NAB FP will offer enhanced support to its financial advice practitioners from both their leaders and support staff, and the leadership team will be aligned geographically.

“These changes will enable our business to build deeper local relationships with our customers,” Mr Steele said.

As it realigns its business, NAB FP has had to make some difficult decisions that affect its people, including the decision to reduce the number of entry-level advisor roles from 90 to 35. However, 30 new roles will also be created within NAB FP, and the business will continue to grow its Senior Financial Planner ranks, including supporting eligible advisers to successfully transition into our self-employed franchise business.

“Decisions that affect our people are always the most difficult to make, but we expect that these 30 new roles and other available roles across the wider NAB Group will be attractive to many of the affected advisers, and will present opportunities for career progression and development,” Mr Steele said.

“We’re making these changes so that we can deliver better outcomes to more customers, and position our advisers – and, through it, NAB FP – to succeed,” Mr Steele said.

Federal Reserve Board orders JPMorgan Chase & Co. to pay $61.9 million civil money penalty

The US Federal Reserve Board on Thursday ordered JPMorgan Chase & Co. to pay a $61.9 million civil money penalty for unsafe and unsound practices related to the firm’s practice of hiring individuals referred by foreign officials and other clients in order to obtain improper business advantages for the firm.

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In levying the fine on JPMorgan Chase, the Federal Reserve Board found that the firm’s Asia-Pacific investment bank operated an improper referral hiring program. The firm offered internships, trainings, and other employment opportunities to candidates who were referred by foreign government officials and existing or prospective commercial clients to obtain improper business advantages.

The Federal Reserve found that the firm did not have adequate enterprise-wide controls to ensure that referred candidates were appropriately vetted and hired in accordance with applicable anti-bribery laws and firm policies.

The Federal Reserve’s order requires JP Morgan Chase to enhance the effectiveness of senior management oversight and controls relating to the firm’s referral hiring practices and anti-bribery policies. The Federal Reserve is also requiring the firm to cooperate in its investigation of the individuals involved in the conduct underlying these enforcement actions and is prohibiting the organizations from re-employing or otherwise engaging individuals who were involved in unsafe and unsound conduct.

The Federal Reserve is imposing the fine and requiring the firm to modify its practices concurrently with actions by the U.S. Department of Justice and the Securities and Exchange Commission.

CommSec pays $200,000 in infringement notice penalty

ASIC says Commonwealth Securities Limited (“CommSec”) has paid a penalty of $200,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (“MDP”).

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The MDP had reasonable grounds to believe that CommSec contravened subsection 798H(1) of the Corporations Act by reason of contravening rules 2.1.3 and 3.3.1 of the ASIC Market Integrity Rules (ASX Market) 2010.

Rule 2.1.3 generally requires a market participant to have appropriate supervisory policies and procedures to ensure compliance with the market integrity rules.

Rule 3.3.1 generally prohibits a market participant from entering into a market transaction for a client, and from allocating a market transaction to a client’s account, except in accordance with the instructions of the client or of a person authorised by the client.

No instructions from client

On 25 March 2014, CommSec received formal notification of the death of one of its clients, who held two accounts with CommSec — an equities account and a margin loan account. At that time, CommSec failed to apply a holder record lock to either of the accounts.

Between 25 March 2014 and 14 October 2014, CommSec entered into 59 market transactions on behalf of the deceased client on the instructions of a family member of the deceased client through CommSec’s online trading portal. Although the family member was authorised in relation to trading on the margin loan account in the event of a margin call, the family member was not authorised to provide instructions to enter into any of the market transactions. CommSec allocated the market transactions to the deceased client’s accounts.

The MDP was satisfied that CommSec entered into the market transactions for the deceased client, and allocated them to the deceased client’s accounts, without the instructions of the deceased client or of a person authorised by the deceased client.

Inadequate supervisory policies and procedures

During the relevant period, CommSec’s deceased estate area were in the process of undergoing an internal restructure. In October 2014, CommSec became aware that the restructure had resulted in a backlog of deceased estate work involving failures to apply holder record locks to a number of accounts of deceased clients, including the deceased client.

The MDP was satisfied that, although CommSec had written deceased estate policies and procedures designed to prevent unauthorised trading on deceased client accounts, they were not properly implemented and integrated into the business or appropriately monitored.

The compliance with the infringement notice is not an admission of guilt or liability, and CommSec is not taken to have contravened subsection 798H(1) of the Corporations Act.

80% Of Main Retail Banks’ Profits – $25.6 billion – Returned to the Community – ABA

According to a release from the Australian Bankers Association, eighty per cent of the main retail banks’ profits – $25.6 billion – were returned to the community, primarily through dividend payments to everyday Australians who own bank shares directly and indirectly through their superannuation savings.

Piggy-Business

Banks again paid more tax than any other industry – $12.8 billion in 2016 – providing a valuable revenue stream to help fund the Federal Government’s provision of essential infrastructure such as schools and hospitals.

Banks continued to invest in initiatives to improve customer service, including a $6.9 billion spend on technology. This included a $1 billion investment in a new payments platform launching in 2017 that will allow customers to transfer money online between accounts in real time.

Australian Bankers’ Association Chief Executive Steven Münchenberg said banks needed to continue to perform well for Australia to have a strong and well-functioning economy.

“Given ongoing economic uncertainty here in Australia and overseas, it is as important as ever that our banks remain strong, stable and profitable,” Mr Münchenberg said.

“Bank profits provide an income stream for Australians through dividends, superannuation payments and interest on bank deposits and bonds; as well as to the Federal Government. Profitable banks also help fund economic growth through lending to business customers and homeowners, and in their role as significant employers.”

In 2016, $25 billion in wages was paid to the 140,000 people employed by the main retail banks. Households earned $66 billion in interest on bank deposits and bonds.

$600 million was provided in donations and ‘in-kind’ support to the not-for-profit sector and other community initiatives.

Mr Münchenberg said, like most industries, banks were facing tougher operating conditions in a low interest rate, low growth environment.

“In addition to finding growth in a challenging market, banks are also responding to increasing regulation and the challenges associated with rapid advances in technology and new market entrants,” he said.

“In this environment, it will be more important than ever that banks work hard to get the balance right between looking after their customers, shareholders, employees and the community.”

The profitability of the main retail banks declined in the 2016 reporting year.

Return on equity for the major banks dropped from 15.6 per cent in 2015 to 13.6 per cent, while net interest margins for the major banks fell to a record low of 202 basis points

Cash Converters to pay over $12M following ASIC probe

Following an ASIC investigation, payday lender Cash Converters will refund $10.8 million to consumers who received small amount loans under approximately 118,000 small amount credit contracts. Cash Converters has paid a $1.35 million penalty following the issuing of infringement notices by ASIC.

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ASIC has agreed to accept an enforceable undertaking from Cash Converters following concerns that, in respect of small amount loans processed via its online website at www.cashconverters.com.au, Cash Converters failed to make reasonable inquiries into consumers’ income and expenses, particularly in situations where the small amount loan was presumed by the credit legislation to be unsuitable.

In addition, ASIC had concerns that Cash Converters did not take reasonable steps to verify consumers’ expenses in accordance with its responsible lending obligations. Instead of assessing the actual expenses recorded in a consumer’s bank statements, Cash Converters applied an internally-generated assumed benchmark that had no relationship to the real expenses of the individual consumer.

For the small amount loans that were likely to be unsuitable because of the consumer’s circumstances, ASIC was concerned that Cash Converters failed to assess the loans as unsuitable for the particular consumers and subsequently entered into them in breach of the credit legislation.

Cash Converters has paid penalties totalling $1.35 million following the issue of 30 infringement notices by ASIC, under the National Consumer Credit Protection Act 2009 (National Credit Act), where ASIC had reasonable grounds to believe that Cash Converters failed to assess small amount loans as unsuitable, and entering into those unsuitable loans, when the loans were presumed to be unsuitable under the credit legislation.

Under the Enforceable Undertaking accepted by ASIC, Cash Converters is required to:

  • refund eligible consumers $10.8 million in fees through a consumer remediation program overseen by an independent expert who will report to ASIC; and
  • engage that same independent expert to review its current business operations and compliance with the consumer credit regime and report to ASIC

‘ASIC is seeking to protect financially vulnerable consumers, many of whom are recipients of welfare payments, from falling victim to unsuitable payday loans.” said ASIC Deputy Chairman Peter Kell. “Payday lending is a high priority area for ASIC, and we will continue to pursue lenders who do not follow their responsible lending obligations.’

Consumers who had two or more small amount loans in the 90 days before taking out another small amount loan through Cash Converters’ website during the period 1 July 2013 to 1 June 2016 should expect to be contacted in due course with information about their refund.

ASIC report highlights a deep culture problem in Australia’s banks

From The Conversation.

In it’s latest report, the Australian Securities & Investments Commission (ASIC) found the big four banks sold products to some customers through their adviser network, with a fee for ongoing advice, but the advice was never given.

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None of this came to light until the banks were asked by ASIC to look at adviser compensation, following the introduction of the Future of Financial Advice (FOFA) legislation in 2013.

No wonder the banks were wary of their practices being investigated. Not only has it come to light that many customers (176,000 at the last count) were being charged for services they were not receiving but, in many cases, the banks didn’t have the data they needed to find out whether customers had been dudded or not.

And ASIC is pretty sure why such systemic issues emerge at regular intervals, stating:

Cultural factors in the banking and financial services institutions covered by this report may have contributed to the systemic failures we observed.

The ASIC report details the reason for the cultural failings it observed in the wealth management businesses of the major banks:

Some advice licensees prioritised advice revenue and fee generation over ensuring that they delivered the required services.

ASIC found that the IT systems in wealth management in the major banks were stone-aged at best. The banks appear to have no idea what they don’t know, but are all working to identify how many more customers need to be compensated.

ASIC also found that some banks failed to keep complete or accurate records to enable compliance to be analysed. And in some cases, authorised representatives had taken customers’ files with them when they left the firms, making it impossible to check whether or not advice was given.

It appears that every time a question is asked of the big banks, another example of bad behaviour is unearthed.

Australia’s big four banks (CEOs pictured) are facing further criticism from regulatory bodies. Lukas Coch/AAP

In the recent questioning of bank CEOs by the House Economics Committee, questions were raised with all CEOs about systemic issues. The answers were generally evasive and short on specifics.

For example, when talking about a different but related, financial planning scandal, Andrew Thorburn, NAB CEO, said:

“We did a review and we had an independent party come and do that review with us, and we concluded and we stand by that, that it was not a systemic issue.”

What Mr Thorburn and other CEOs neglected to mention was that the banks had, as revealed in ASIC’s report, all already been in the middle of deep discussions about so-called “fee-for-services failures” . The regulator wrote:

Of particular concern is that many of the banking and financial services institutions covered by this review publicly state that their core values include being customer focused, “doing what is right” for customers, and acting with integrity. We encourage the institutions reviewed in this report to consider how their culture may have supported these systemic failures, and why their stated commitment to providing excellent service to customers is not translating into good outcomes for customers in the many instances we identified in this report.

At long last, ASIC has highlighted cultural issues across the industry that the boards and management of the largest banks have long refused to acknowledge.

The regulator has done its job and found compelling evidence that the culture of the banks is rotten.

It’s over to the politicians now.

Author: Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie University