Category: Banking Culture

Trump to Order Dodd-Frank Review, Halt Obama Fiduciary Rule

From Bloomberg.

President Donald Trump will order a sweeping review of the Dodd-Frank Act rules enacted in response to the 2008 financial crisis, a White House official said, signing an executive action Friday designed to significantly scale back the regulatory system put in place in 2010.

Trump also will halt another of former President Barack Obama’s regulations, hated by the financial industry, that requires advisers on retirement accounts to work in the best interests of their clients. Trump’s order will give the new administration time to review the change, known as the fiduciary rule.

Taken together, the actions are designed to lay down the Trump administration’s approach to financial markets, with an emphasis on removing regulatory burdens and opening up investor options, said the White House official, who briefed reporters on condition of anonymity.

The orders are the most aggressive steps yet by Trump to loosen regulations in the financial services industry and come after he has sought to stock his administration with veterans of the industry in key positions. His plans are sure to face fierce criticism by Democrats who charge that Trump is intent on undoing changes designed to protect everything from average investors to the global banking system.

He also could face a backlash from some of his own supporters, whose distrust of big banks and the financial industry helped fuel the populist anger that propelled Trump to the White House.

Banks ‘Shackled’

Trump is scheduled to issue the directives at a signing ceremony around noon following a meeting of more than a dozen top corporate executives led by Blackstone Group LP Chief Executive Officer Steve Schwarzman. Gary Cohn, director of Trump’s National Economic Council, is meeting with House Financial Services Committee members Friday morning, said two people familiar with his schedule.

Cohn said Friday on Fox Business that the executive orders are intended to relieve restrictions and scrutiny that post-crisis regulations have put on banks, and that firms have been forced to “hoard capital” rather than lend it out to their clients.

“All banks have been shackled,” Cohn said. “We need to get banks back in the lending business.”

On Monday, Trump promised to do “a big number” on the Dodd-Frank Act during a meeting with small business owners. He said the law had damaged the country’s “entrepreneurial spirit” and limited access to needed credit.

“Regulation has actually been horrible for big business, but it’s been worse for small business,” the president said. “Dodd-Frank is a disaster.”

What’s the problem with Dodd-Frank? — a Q&A explains

Trump’s Treasury secretary nominee, Steven Mnuchin, will meet with members of the Financial Stability Oversight Council and report back on what changes the administration should take to alter Dodd-Frank, the official said. Particular attention will be paid to the Volcker Rule limits on banks making speculative bets with their own funds, a restriction promoted by former Federal Reserve Chairman Paul Volcker.

Immediate Impact

The official wouldn’t say how long the Treasury Department would have to complete its review, but did say that the administration would be looking for ways to make an immediate impact, including through administrative changes and personnel decisions.

Trump’s directive also starts the process of stalling the so-called fiduciary rule — set to take effect in April — that the Obama administration said would protect millions of retirees from being steered into inappropriate high-cost or high-risk investments that generate bigger profits for brokers.

The review will include examining making personnel changes at financial regulators as a way of accomplishing the administration’s objectives, the official said. They declined to answer a question on whether Trump would try to fire Richard Cordray, the director of the Consumer Financial Protection Bureau. The official did say the administration believed that some of the rules created under Dodd-Frank may have been unconstitutional, including the creation of new agencies, an apparent

Asked Monday about whether Trump would retain Cordray in his position, White House press secretary Sean Spicer declined to answer. Mnuchin said during his congressional testimony that he believed the CFPB as a whole should be preserved but that Congress should take more direct control of its budget.

The Trump administration doesn’t believe Dodd-Frank measures, including the Volcker Rule, addressed real issues in the financial system, the official said. The president’s team also believes the Labor Department fiduciary rule was unnecessarily restricting investor choice without providing necessary consumer protection, the official said.

Republican lawmakers and some financial firms say the fiduciary rule is deeply flawed, arguing that it will restrict options for consumers and result in some savers being denied advice on their retirements. Trump will call for the Labor Department to stop and review the regulation in its entirety.

While the review will be undertaken independently by the Labor Department, the White House aide signaled that the president was expecting significant change.

Broader Overhaul

Delaying implementation of the Labor Department rule is the first step Republicans and the finance industry are eyeing as part of a broader overhaul of the measure. GOP Lawmakers have argued that the Securities and Exchange Commission, not the Labor Department, should oversee and regulate any changes related to financial firms.

Banks, asset managers and insurers have been fighting the fiduciary rule ever since the Labor Department approved it last year, saying the regulation could raise the costs of providing advice and make it harder to serve lower-income clients. Business groups including the U.S. Chamber of Commerce and American Council of Life Insurers have sued to try to block it.

Still, representatives of some financial services companies said they planned to change practices to meet the regulation’s standard even if it is halted.

“We plan to go forward with the majority of the work we’ve done,” Bill Morrissey, managing director of business development at LPL Financial Holdings Inc., said in an interview before Trump’s order was disclosed. “What investors want is more transparency and lower fees.”

Morgan Stanley, one of the biggest U.S. brokerages, said on Jan. 26 it plans to move ahead with changes designed to comply with the rule, despite uncertainty over whether the regulation will be implemented. Insurers including American International Group Inc. and Principal Financial Group Inc. stressed after Trump’s victory that they would continue to forge ahead as though the rules would be carried out.

“My expectation is that a lot of firms are going to continue installing a best-interest standard, regardless,” said Brian Graff, chief executive officer of the American Retirement Association, a group that represents pension administrators and plan advisers.

ABA Responds To SME Banking Report

The ABA has responded to the Kate Carnell SME Banking Review, and rightly highlights the importance of the SME sector to the economic future of Australia.  They said they would respond to the findings in the report later.

Of course, talk is cheap, but if it leads to real change that benefits small business it would be a good outcome.

Among the items I think they need to address are:

  1. High prices for loans to SME’s – rates have not fallen in line with cuts in the RBA cash rate
  2. Insistence on SME’s providing collateral even for relatively small loan amounts, and the fees involved in these transactions
  3. Heavy handed dealing with small business owners who get into difficulty, not just in the agricultural sector
  4. Lack of transparency in loan agreements

This is what the ABA has said:

The Australian Bankers’ Association has welcomed the report into small business lending practices released today by the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP.

“Small businesses drive economic growth and jobs, and having access to finance is key to their success,” ABA Chief Economist Tony Pearson said.

“Banks have heard the problems raised by small businesses and farmers and are focused on making banking better for them.

“This includes being more transparent and flexible in loan arrangements, and setting new standards on appointing receivers and valuation practices.

“The ABA is also working with small business organisations to make sure they have the information they need to manage and grow their businesses, including revamping the existing Financing Your Small Business website,” he said.

“The issues raised by Australian Small Business and Family Enterprise Ombudsman Kate Carnell in this report are important. Alongside this, the Code of Banking Practice is currently being independently reviewed (Khoury Review).

“We expect the report of the Khoury Review to be published shortly, and we aim to respond to the recommendations, as well as those from the Carnell Review, by the end of this month.

“The ABA will make changes to the Code to make sure our commitments to small businesses are clearer. We’re looking at having a separate section for small business lending and how we can improve the transparency of loan terms and conditions.”

Mr Pearson said the industry supported giving more help to customers when things go wrong.

“The ABA supports simplifying the current external dispute resolution system, creating an easier ‘one-stop-shop’ model and expanding the scheme so more small businesses can have complaints heard without needing to use the courts.

“At the same time, banks are improving their own complaints handling processes and appointing new dedicated customer advocates. Six banks have already appointed their customer advocate, with the other banks committed to have theirs in place by April,” he said.

“The ABA is pleased the report recommends a national approach to farm debt mediation. We have been advocating for some time to have a nationally consistent and mandatory approach to mediation that helps farmers in financial difficulty, which is modelled on the existing NSW and Victorian schemes.

“This would make it simpler and fairer for farmers to get help when they need it most,” Mr Pearson said.

This week Australia’s leading banks launched a Better Banking program to deliver better products and services to customers, building on last year’s reforms that address concerns with the culture in banks.

Former Auditor-General, Mr Ian McPhee AO PSM, is overseeing the implementation of some of these reforms in his role as independent expert. He has been providing detailed quarterly reports to the public on where the industry is up to, including how individual banks are progressing.

“The ABA recognises the importance of customers and stakeholders having confidence in the changes the industry is making. We will ask for more detailed information in the next report about individual banks’ progress,” Mr Pearson said.

 

Change is Overdue and the Banks are on Notice

From the BankDoctor.

This is the confronting title of a report into the adequacy of the law and practices governing financial lending to small businesses released today by Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman. By way of background, in September 2016, the Minister for Small Business Michael McCormack asked the ASBFEO to undertake this inquiry which involved public hearings with executives from the four major banks and it also heard evidence from bank customers.

REPORT RECOMMENDATIONS
The report makes 15 recommendations designed to address gaps in the existing regulatory environment and with the practices of industry participants. These recommendations relate to businesses which borrow less than $5m.

What do these recommendations actually mean for small business borrowers, how will the banks respond and will anything change anyway? Here’s theBankDoctor’s take …..

More Breathing Space and Protection.
Banks would be required to:

  • Remove any loan conditions which allow banks to unilaterally trigger a default based on revaluing assets during the life of the loan and invoking financial covenants or catch-all ‘material adverse change’ clauses. That is, as long as the borrower is meeting repayments and is acting lawfully, the bank can’t trigger a default.
  • Provide a minimum 30-business day notice period to all changes to loan conditions and covenants.
  • Provide borrowers with decisions on roll over at least 90 business days before loans mature.

Greater Understanding & Transparency.
Banks would be required to:

  • Put in place a new small business standard form contract that is short and written in plain English.
  • Provide a one-page summary of the clauses and covenants that may trigger a default or other detrimental outcomes for borrowers.
  • Provide borrowers with a choice of valuer, a copy of the instructions and the valuation report. And borrowers would be provided with a copy of any instruction given to investigating accountants as well as the subsequent report;

Better Dispute Resolution Procedures.

  • The banking industry must fund an external dispute resolution one-stop-shop with a dedicated small business unit that has appropriate expertise to resolve disputes relating to a credit facility limit of up to $5 million.
  • Banks must establish a customer advocate to consider small business complaints and disputes that may or may not have been subject to internal dispute resolution.
  • External dispute resolution schemes must be expanded to include disputes with third parties that have been appointed by the bank, such as valuers, investigating accountants and receivers.

ONE SIGNIFICANT OMISSION
It was a little surprising not to see any reference to the critical issue of open access to client data. More needs to be done to ensure banks provide open access to customer data so that borrowers can use their data to get the best deal possible and they are able to change banks more easily. To date the banks have been, at best, cautious and, at worst, uncooperative in addressing this issue. The slower the banks are to respond to customer expectation the more difficult it will be to hold onto them. We used to talk about banks “owning” customers but this is changing. Failing to embrace open access to data will not help banks retain customers in the longer term.

HOW WILL THE BANKS RESPOND?
The banks have responded to the constant adverse public exposure by conducting their own reviews and marketing campaigns. Only last week the Australian Bankers Association on behalf of the banks announced a raft of commitments to make banking better under the heading of “we hear you”.

These newly announced initiatives include:

  • A renewed commitment to support customers in financial difficulty.
  • Providing more support to small businesses and farmers by introducing new best practice standards on valuation practices and how banks appoint receivers.
  • Developing financial literacy resources and tools for small businesses.
  • Helping customers better understand how they can switch accounts.

To their credit, the banks are at least saying the right things, they get that the loss of trust is a major issue which threatens their livelihoods especially as new, more flexible and user friendly alternatives are becoming more accessible. But will they actually follow through and how long is this all going to take? And who is going to hold them accountable?

ACCOUNTABILITY & FOLLOW UP.
Kate Carnell will do all in her power to hold the banks to account.

“Frankly, the banks take ‘kicking the can down the road’ to new levels.  This is no longer acceptable and I’m determined the recommendations we’ve made are adopted as quickly as possible.  This report is a living document; it’s only the beginning of our work in this area,” she said.

She didn’t hold back when she added that “the banks have consistently failed to implement changes to address persistent problems”.

To ensure accountability the ASBFEO will publish six monthly scorecards on the progress banks are making in response to the recommendations contained in the report.

The report also recommends the ABA’s undertakings are carried out by requiring the publishing of individual bank implementation plans including key milestones and deliverables with outcomes against these plans.

A Royal Commission would take years to lead to change in our banking system. Last year’s Parliamentary Inquiry provided good reality TV entertainment as a diverse group of politicians prosecuted their own agendas against the defensive and well scripted bank CEOs.  But the ASBFEO inquiry, this report and its on-going engagement with bank leaders represents the best chance yet to drive much needed change in bank practices in the SME sector.

External Dispute Resolution Review Extended

In a statement from the Independent Review Panel: Professor Ian Ramsay (Chair), Julie Abramson and Alan Kirkland, the terms of reference have been extended.

They will now be tasked with the making of recommendations (rather than merely observations) on the establishment, merits and potential design of a compensation scheme of last resort; and also consider the merits and issues involved in providing access to redress for past disputes.

Whilst we think dispute resolution is part of the problem, we think SME banking issues are more systemic, so other steps also need to be taken. Also note the consultation period is passed, so the public are not able to comment on these revised terms!

The Government has released the report of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Inquiry into small business loans, and as a result of this report has expanded the terms of reference for the review of the financial system’s external dispute resolution (EDR) and complaints framework (EDR Review).

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, has today released amended terms of reference to include:

  • the making of recommendations (rather than merely observations) on the establishment, merits and potential design of a compensation scheme of last resort; and
  • consideration of the merits and issues involved in providing access to redress for past disputes.

In order to fully consider the amended terms of reference, the Panel intends to release a separate issues paper on the additional matters and will seek the views of stakeholders.

The Government has provided a three-month extension to the initial reporting date of end March 2017 to enable the Panel to consider and consult on the issues contained in the amended terms of reference. The Panel will provide a separate report on the additional terms of reference by the end of June 2017.

Public consultation on the EDR Review Interim Report, released on 6 December 2016 and available on the Treasury website, closed on Friday, 27 January 2017. The Panel will still provide the Government with a final report on the issues contained in the original terms of reference by the end of March 2017.

Yes, SME’s ARE Getting The Damp End of the Stick from the Banks

An inquiry into small business loans by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell, has found the big four banks consistently engage in practices that have caused significant harm to some small business customers. The ASBFEO inquiry investigated a selection of cases examined as part of the Parliamentary Joint Committee Inquiry into the Impairment of Customer Loans.

This report confirms what our SME surveys show – small business has an unequal relationship with their banks, have difficulty getting the finance they need on fair terms, and find that lenders bully them especially in times of hardship. That said, SME’s often are unable or unwilling to shop around to get better deals, and feel trapped by the current arrangements. You can a video on our analysis here, and get the free copy of the DFA report here. SME’s are a critical engine in the economy, and current banking behaviour towards them is a brake on growth.

The ASBFEO report has made a significant number of recommendations.

  • Strengthen the Australian Bankers’ Association’s six-point plan;
  • Code of Banking Practice be revised to include a specific small business section, with the Code to be approved and administered by ASIC;
  • No defaults on loans below $5 million where a small business has made payments and acted lawfully;
  • A minimum 30-business day notice period for potential breach of contract conditions;
  • A minimum 90-business day notice period for bank rollover decisions for loans below $5 million (longer for rural properties and complex businesses);
  • Banks required to provide a one-page summary of loan default triggers;
  • Banks to put in place a new and clearly written small business standard form contract;
  • Borrowers be provided with a choice of valuer, vauler instructions and valuation report;
  • Borrowers be provided a copy of instructions given to investigating accountants and the subsequent report;
  • Banks to eliminate perceived conflict of interest when investigating accountants appointed as receivers;
  • An industry-funded one-stop external dispute resolution body, with a unit dedicated to resolving small business disputes regarding credit facilities of up to $5 million;
  • Bank customer advocates be made available to consider small business complaints;
  • External disputes resolution schemes be extended to include disputes with third parties appointed by the bank and to borrowers who have undertaken farm debt mediation.
  • A national approach to farm debt mediation;
  • ASIC to establish a Small Business Commissioner.

The ASBFEO inquiry – completed in just over three months – investigated the circumstances surrounding a number of cases of alleged small business mistreatment by the banks, and concluded loan contract arrangements between banks and small businesses, put the borrower at a distinct disadvantage.

“Fundamentally, what we’ve found is that small businesses who take out a loan, do so under the impression that if they keep up their payments, they will stay out of trouble.  The reality is that this is not the case; that the clauses contained in standard small business loan contracts give banks an inordinate level of power over the borrower, who has zero ability to do anything about it,” Ms Carnell said.

“Basically, the terms in these contracts allow the bank to take action to protect itself from financial risk, by inflicting added demands on the borrower.

“For example, banks may conduct a new valuation on the assets securing the loan.  Now if the value is found to have fallen, the borrower faces significantly increased – and potentially unmanageable – loan costs.  Banks also have the power to unexpectedly call in the loan, and demand repayment in an unrealistic timeframe.

“So what ends up happening is that through no fault of their own, small businesses could quickly find themselves in default, even though they’ve made each loan payment, on time, every time.

“The banks argue that they don’t use these contract clauses, however our inquiry found this is simply not true; that banks do in fact utilise these clauses, much to the surprise and heart-break of their small business borrowers,” she said.

Ms Carnell said the ASBFEO report outlines recommendations that can be implemented – many in a short timeframe – to help alleviate the vulnerability of small business borrowers when entering contracts, while not impacting on the financial viability of the banks.

“The cases we examined during our inquiry highlighted the glaring need to ensure small business bank customers are provided with simple standard contracts that are written in plain English and that get rid of the clauses giving banks all the power,” Ms Carnell said.

“It’s also clear from the cases we looked at, that current thresholds governing small business external dispute resolution are insufficient, so we will certainly support work in establishing a mechanism to provide timely and affordable access to justice for cash-strapped small businesses,” she said.

Ms Carnell said the ASBFEO will publish six monthly scorecards on the progress banks are making in response to the recommendations contained in the ASBFEO report.

“Since the GFC there have been 17 inquiries and reviews that have produced more than 40 recommendations over the years, relating to the small business sector.  Despite this, the banks have consistently failed to implement changes to address persistent problems” Ms Carnell said.

“Frankly, the banks take ‘kicking the can down the road’ to new levels.  This is no longer acceptable and I’m determined the recommendations we’ve made are adopted as quickly as possible.  This report is a living document; it’s only the beginning of our work in this area,” she said.

Ms Carnell said she hopes that as industry leaders, the four major banks will seize the opportunity to be exemplars for change, saying the ASBFEO has already secured varying levels of in–principle support from the banks on a range of issues.

“While there’s certainly a lot of work to be done, it’s important to give credit where it’s due, with the big four banks committing – albeit to varying degrees – to make changes in a number of problem areas identified during our inquiry process,” Ms Carnell said.

These include amending the Code of Banking Practice to provide greater small business protections, the creation of customer advocates and improved transparency on valuations.

Background:

On 6 September 2016, the Minister for Small Business, the Hon. Michael McCormack MP, tasked the ASBFEO with undertaking an inquiry into the adequacy of the law and practices governing financial lending to small businesses.

The ASBFEO inquiry investigated a selection of cases examined as part of the Parliamentary Joint Committee Inquiry into the Impairment of Customer Loans.

Throughout the inquiry process executives from the four major banks were summonsed to attend public hearings, with the ASBFEO using its Royal Commission-like powers to compel banks to produce required case documentation.  The inquiry also heard evidence from bank customers during private hearings, and considered the findings of previous inquiries and reviews.

Bankwest refunds $4.9 million for overcharging interest on home loans

ASIC says Bankwest, a division of the Commonwealth Bank of Australia, has refunded approximately 10,800 customers more than $4.9 million after it failed to link offset accounts to home loan accounts for some customers who had open accounts between 2007 and June 2016, resulting in customers being overcharged interest.

Following media coverage of ASIC’s work in relation to similar breaches by another bank, Bankwest undertook an internal investigation into the operation of its offset accounts. Bankwest identified issues in the linking of offset accounts with home loans and reported the matter to ASIC as a significant breach of its licence obligations.

ASIC Deputy Chairman Peter Kell said, ‘It is critical that licensees ensure that their systems work properly so that promises made to customers about their bank accounts are kept.

‘When a problem is identified, licensees not only have an obligation to report the breach, but impacted customers must be returned to the position they would have been in, had the breach not occurred.’

Bankwest has since updated its systems and processes, including the automatic linking of new offset accounts.

Bankwest has contacted those customers it has identified as being affected to explain the impact and has arranged refunds.

Customers with queries or concerns about this matter should contact Bankwest Customer Help Centre on 1300 334 805 (for retail customers), or the Bankwest Business Support Centre 13 7000 (for business customers). Alternatively, customers can complete an online form here.

Background

An offset account is a savings or transaction account that, when linked to a home loan, offsets the balance of the loan account, reducing the interest payable.

For example, a customer with a home loan of $500,000 and a balance of $20,000 in their offset account, would only pay interest on $480,000. If accounts are not properly linked, the customer would be charged interest on the full loan amount of $500,000.

NAB commissions independent Assurance Review of its superannuation business

NAB says its superannuation trustee, NULIS, has commissioned an independent Assurance Review into its superannuation business. ASIC also made a release.

This follows an agreement with the corporate regulator, the Australian Securities and Investments Commission (ASIC), that the Review will be the subject of additional conditions on the Trustee’s licence.

NAB has worked cooperatively with ASIC throughout this process, with a combined focus on doing the right thing by our customers.

Acting Executive General Manager, Wealth Products, Garry Mulcahy said: “We support the Assurance Review as it will give our customers further confidence in the systems and processes supporting our superannuation business, following a period of significant transformation.

“Over the past five years, we’ve made substantial changes to upgrade and simplify our superannuation business to better serve our customers’ needs.

“We’ve merged five of our super funds to create Australia’s largest retail super fund, the MLC Super Fund, with $70 billion funds under management, and we’ve also implemented significant regulatory change, including Future of Financial Advice (FoFA) reforms and Stronger Super.

“We have improved our structure that will allow us to continue to innovate. The Review will provide independent assurance that our fund governance is delivering for our customers,” Mr Mulcahy said.

External consultants, KPMG, will conduct the Review with the first report to be provided to ASIC and the Trustee by July 2017.

We have also updated the details of the remediation program for corporate superannuation customers in relation to Plan Service Fees, previously announced on the 27 October 2016. NAB confirms a total of $34.7 million will be paid to approximately 220,000 customer accounts, with the average compensation amount per customer account expected to be approximately $150.

In addition, we have identified ten customers in the MasterKey Business Super and Masterkey Personal Super products that were impacted when we upgraded their life insurance benefits in 2013. While approximately 400,000 customers were provided access to improved life insurance through this 2013 change, 10 customers had claims incorrectly declined and we’ve paid $1.8 million in additional insurance benefits to these customers.

Mr Mulcahy said that our focus has been to do the right thing by our customers.

“Our intention with the proactive restructuring of our corporate super products and the upgrade of insurance products was to do the right thing by our customers, and we did provide equivalent or better outcomes for customers. However, we didn’t execute the change well and we’re sorry to those customers affected,” Mr Mulcahy said.

About the Assurance Review program

The Assurance Review program is an in depth review into the superannuation business. The Review is intended to provide assurance on the continued fairness and efficiency of key aspects of the superannuation business.

The scope of the Assurance Review will include:

  • risk management procedures;
  • process for implementing product changes, disclosure and reporting to members, and

procedures for managing conflicts of interest within NAB’s superannuation business, including the assessment of related party service providers.

Here is what ASIC said:

ASIC has imposed additional licence conditions on the Australian financial services (AFS) licence of NAB’s superannuation trustee, NULIS Nominees (Australia) Limited (NULIS), following breakdowns in internal procedures.

The conditions require NULIS to engage an ASIC-approved independent expert to assess and report on the adequacy of its compliance and risk management practices for its retail and wrap superannuation funds. NULIS has agreed to the conditions, and KPMG has been appointed as the independent expert.

The conditions were imposed on NULIS following ASIC’s enquiries into a breach reports lodged by NAB’s wealth entities. The breaches involved a breakdown in risk management and communication procedures following the transfer in 2012 and 2013 of all members in a number of products to MLC MasterKey Business Super (MKBS) and MLC MasterKey Personal Super (MKPS), as well as changes made to the death and total and permanent disablement (TPD) insurance of MKBS and MKPS members. Approximately 400,000 members were impacted by the insurance changes.

System breakdowns included:

  • inadequate disclosure of insurance changes to members;
  • inadequate training for staff, and
  • insurance policies not being updated.

As a result of the breakdowns, incorrect death and TPD insurance tests were applied to MKBS and MKPS members between May 2013 and July 2015.

NAB’s wealth entities have identified that 10 members’ insurance claims were incorrectly assessed with approximately $1.6 million in members’ claims underpaid or declined. NAB has compensated affected members a total of $1.8 million, including interest.

In addition, NAB’s wealth entities identified that over 220,000 member accounts were incorrectly charged planned service fees (PSFs) of approximately $34.7 million between September 2012 and October 2016 in the MKPS and MKBS products. Fund members were charged PSFs for the provision of general advice in circumstances where no plan adviser had been appointed to provide such advice. ASIC’s report Financial advice: Fees for no service issued in October 2016 (Rep 499) included part of this amount in the estimates of compensation to be paid to consumers for such failures. Since the release of that report, NAB has confirmed that it will compensate these fund members for the incorrect charge and have also confirmed the compensation to be paid. ASIC’s inquiries into the PSF breaches are continuing.

The independent expert’s review will consider, among other things NULIS’:

  • risk management procedures;
  • process for implementing product changes, disclosure and reporting to members, and
  • procedures for managing conflicts of interest within NAB’s superannuation business, including the assessment of related party service providers.

The independent expert will report to ASIC and NULIS and provide recommendations as to any steps that should be taken by NULIS to ensure that its procedures are adequate.  NULIS is also required, under the licence conditions, to inform ASIC of any recommendations that it does not propose to implement and provide reasons.

ASIC Commissioner Peter Kell said, “The additional conditions imposed on NULIS’ AFS licence reflect ASIC’s priority of improving compliance and disclosure standards in the superannuation industry, including vertically integrated financial services licensees.”

ASIC acknowledges the cooperative approach taken by NAB and NULIS in this matter.

Background

On 1 July 2016, NAB restructured its superannuation business by transferring five superannuation funds (including the MKBS and MKPS products) into the MLC Super Fund. NULIS also became the trustee of the transferred funds.

ASIC is focussed on ensuring that AFS licensees maintain appropriate risk and compliance management frameworks. The handling of conflicts of interest within the financial services industry is an area of concern to ASIC and ASIC recently undertook a review of the practices of major industry participants in the funds management area. A summary of our findings appears in ASIC Report REP 474 Culture, conduct and conflicts in vertically integrated businesses in the funds management industry.

ASIC takes Westpac to court over alleged breaches of ‘best interests’ test

From The NewDaily.

The Australian Securities and Investments Commission is taking action against Westpac in the Federal Court on Thursday, alleging that two of the bank’s subsidiaries breached “best interests” obligations and provided personal financial advice when they were not permitted to do so.

ASIC claims that a campaign by Westpac designed to get customers to consolidate multiple super accounts breached the financial advice laws by giving advice based on personal financial information in 15 phone conversations.

The calls were made by staff of Westpac Securities Administration Limited and BT Funds Management Limited.

ASIC claims the bank specifically recommended customers roll out of their non-Westpac superannuation funds, consolidating into Westpac-related superannuation accounts. It also says the bank did not provide proper comparisons between the funds.

Westpac claims it did not give personal advice.

“In each of the 15 conversations … our customers were given a ‘general advice warning’ as is standard and a required part of our process,” BT said in a statement.

ASIC is also taking the gloves off over aggressive marketing by super funds, with the corporate regulator poised to launch enquiries with over 50 super groups.

The funds, believed to be mostly from the for-profit retail sector, will receive letters from ASIC in coming days seeking information about their marketing practices, a spokesman told The New Daily.

Were inducements offered?

ASIC is concerned that funds have been using inducements and high-pressure tactics to get employers to sign them up to lucrative default fund agreements which include insurance arrangements. These agreements channel workers into membership if they don’t actively choose another fund.

The regulator’s inquiries will investigate the quality of advice and information that is provided to employers by trustees when they are making decisions about their default funds for their employees. It will examine the funds’ responses to its questions before deciding on further action.

“We’ll be looking at all of the material around the super fund trustee relationship including the type of marketing collateral funds give to employers,” Gerard Fitzpatrick, senior executive leader of investment managers and superannuation at ASIC, told Fairfax Media.

There have been allegations of inducements offered to employers by funds and that these can result in employees being channelled into inappropriate funds.

What deals are members getting?

“We are very interested in how members are treated, and if as a result of aggressive marketing approaches or competitive drive, whether members are being disadvantaged or are being provided with information that does not allow them to make appropriate investment decisions.”

Areas that will come under ASIC scrutiny will include “advice given to employers and how this is paid for, as well as looking at disclosure material that is provided directly for employers by trustees and entities”.

Around one-third of Australians with super accounts are enrolled in default funds through their employers.

Competition for default fund status is hotting up in the $2.1 trillion super sector with employer-owned funds increasingly vacating the field and handing the business to dedicated industry and retail funds.

According to Australian Prudential Regulatory Authority data only 31 out of a total of 231 funds were identified as “corporate funds” for the year to June 2015.

The latest manifestation of this trend is news that Equip Super is set to merge with mining giant Rio Tinto’s corporate super fund later this year in a move that would see a $13.5 billion super group created to manage funds for approximately 75,000 members.

Last August the Reserve Bank of Australia moved its super balances over to Sunsuper to manage. BHP Billiton has also rolled its super fund into MLC.

ASIC is letting the banks write their own rules

From The New Daily.

The big banks are being given a free hand to reshape the industry after years of scandals, a senior banking expert has warned.

In recent days, the Australian Bankers Association has embarked on a high-profile campaign, complete with full-page newspaper ads, to market its proposed changes to its own sector.

These proposals are the culmination of several months of internal reviews, and are the industry’s response to countless reports of misconduct that sparked calls for a royal commission.

“We have heard the concerns of Australians and we are committed to taking action so that banking with all of us is a better experience,” Andrew Thorburn, chairman of the Australian Bankers Association and CEO of the National Australia Bank, said in a statement.

As proof of their commitment, the banks pointed to their $1 billion investment in Australia’s new super-fast payments system (despite the fact work on this system started back in 2014).

The ABA also promised: to employ customer advocates; more whistleblower protections; public naming and shaming of dodgy financial advisers; a simpler, better-explained complaints system; and a new industry-funded compensation scheme for victims of poor financial advice.

Dr Patrick McConnell at Macquarie University — a banking regulation expert who advised firms in the US, Europe and Australia for 30 years — said the industry is trying to “get control of the levers of power” so it can rewrite the rules to favour its members.

“The ABA are addressing some of the major issues, but from the perspective of what’s best for the banks to cover their arses, not what’s best for the consumer, the banking environment and the economy,” he told The New Daily.

“They’ve got a very vested interest and they’re pushing it. I don’t criticise them for doing it – I criticise ASIC for letting them.”

ASIC, the corporate and financial regulator, has ceded the field to the banking lobby because it is “spread too thin”, he said. “They’ve handed over the agenda lock, stock and barrel to the ABA.”

‘Treat the cause not the symptoms’

Dr McConnell took particular issue with the new consumer advocates, who will “prioritise and escalate complaints”, according to the banking lobby.

He feared these new bank employees would be used to keep complaints internal, away from the eyes of regulators and the media, rather than having them dealt with externally by an independent body.

Dr McConnell gave the example of the PPI scandal in the UK, where thousands of complaints about improperly sold insurance were dealt with internally and separately. As a result, the underlying cause did not come to light for many years.

“The customer advocate should be much more proactive in looking to head off problems to start with. They should take a look at a new product and say, ‘It’s going to give you problems here, here and here for customers’. If the product is designed well, the number of complaints will be lower.”

In the PPI scandal, British banks pressured customers to buy insurance to cover their mortgage or credit card payments if they fell ill or lost their jobs. The insurance was highly lucrative for the banks and a bad deal for customers. It was even sold to thousands of the self-employed and those with pre-existing medical conditions, despite the fact that neither could claim.

The Australian Banking Association did not respond to a request for comment.

Its members are supporting the Turnbull government’s proposal of a ‘one-stop shop’ external dispute resolution system, which is expected to combine several existing complaints bodies into a single scheme.

There are currently four complaints forums: the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO), the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), and the Superannuation Complaints Tribunal.

Four major banks face further parliamentary scrutiny

According to a media release today, the House of Representatives Standing Committee on Economics will conduct further public hearings with Australia’s four major banks in March as part of its review of the performance of Australia’s banking and financial system.

The Chair of the committee, Mr David Coleman, MP, stated that ‘these hearings provide an important mechanism to hold the banking sector to account before the Parliament.’

The committee will continue to hold public hearings with the four major banks focusing on:

  • domestic and international financial market developments as they relate to the Australian banking sector and how these are affecting Australia
  • developments in prudential regulation, including capital requirements, and how these are affecting the policies of Australian banks
  • the costs of funds, impacts on margins and the basis for bank pricing decisions, and
  • how individual banks and the banking industry as a whole are responding to issues previously raised in Parliamentary and other inquiries, including through the Australian Bankers’ Association’s April 2016 six point plan to enhance consumer protections and in response to Government reforms and actions by regulators.