Nonbank online lenders are becoming more mainstream alternative providers of financing to small businesses. In 2018, nearly one-third of small business owners seeking credit reported having applied at a nonbank online lender. The industry’s growing reach has the potential to expand access to credit for small firms, but also raises concerns about how product costs and features are disclosed. The report’s analysis of a sampling of online content finds significant variation in the amount of upfront information provided, especially on costs. On some sites, descriptions feature little or no information about the actual products or about rates, fees, and repayment terms. Lenders that offer term loans are likely to show costs as an annual rate, while others convey costs using terminology that may be unfamiliar to prospective borrowers. Details on interest rates, if shown, are most often found in footnotes, fine print, or frequently asked questions.
The report’s findings build on prior work,
including two rounds of focus groups with small business owners who
reported challenges with the lack of standardization in product
descriptions and with understanding product terms and costs.
In addition, the report finds that a number of websites require prospective borrowers to furnish information about themselves and their businesses in order to obtain details about product costs and terms. Lenders’ policies permit any data provided by the small business owner to be used by the lender and other third parties to contact business owners, often leading to bothersome sales calls. Moreover, online lenders make frequent use of trackers to monitor visitors on their websites. Even when visitors do not share identifying information with the lender, embedded trackers may collect data on how they navigate the website as well as other sites visited.
Australia’s population grew by 1.5 per cent during the year ending 30 June 2019, according to the latest figures released by the Australian Bureau of Statistics (ABS).
ABS Demography Director Beidar Cho said: “The population at 30 June 2019 was 25.4 million people, following an annual increase of 381,600 people.”
Natural increase accounted for 37.5 per cent of annual population growth, while net overseas migration accounted for the remaining 62.5 per cent.
There were 303,900 births and 160,600 deaths registered in Australia during the year ending 30 June 2019. Natural increase during this period was 143,300 people, an increase of 0.5 per cent from the previous year.
There were 536,000 overseas migration arrivals and 297,700 departures during the year ending 30 June 2019, resulting in net overseas migration of 238,300 people. Net overseas migration did not change compared to the previous year.
Annual population change
The preliminary estimated resident population of Australia at 30 June
2019 was 25,364,300 people. This is an increase of 381,600 people since
30 June 2018 and 75,600 people since 31 March 2019.
The annual population growth rate for the year ended 30 June 2019 was 1.5%.
Annual population growth rate (a)(b), Australia
(a) Annual growth rate calculated at the end of each quarter.
(b) All data to 30 June 2016 is final. Estimates thereafter are preliminary or revised.
Components of population change
The growth of Australia’s population is comprised of natural increase (births minus deaths) and net overseas migration (NOM).
The contribution to population growth for the year ended 30 June 2019
was higher from NOM (62.5%) than from natural increase (37.5%).
Components of annual population growth (a), Australia
(a) Annual components calculated at the end of each quarter.
Natural increase
The preliminary estimate of natural increase for the year ended 30 June 2019 was 143,300 people, an increase of 0.5%, or 700 people, compared with natural increase for the year ended 30 June 2018 (142,600 people).
Births
The preliminary estimate of births for the year ended 30 June 2019 (303,900 births) was lower by 700 births from the year ended 30 June 2018 (304,600 births).
Deaths
The preliminary estimate of deaths for the year ended 30 June 2019 (160,600 deaths) was lower by 1,400 deaths from the year ended 30 June 2018 (162,000 deaths).
Net overseas migration
For the year ended 30 June 2019, Australia’s preliminary net overseas migration estimate was 238,300 people. This was 100 people higher than the net overseas migration estimated for the year ended 30 June 2018 (238,200 people).
NOM arrivals increased by 1.6% (8,500 people) between the years ended 30 June 2018 (527,500 people) and 30 June 2019 (536,000 people).
NOM departures increased by 2.9% (8,400 people) between the years ended 30 June 2018 (289,300 people) and 30 June 2019 (297,700 people).
The preliminary NOM estimate for the June quarter 2019 (34,900 people) was 26.7% (12,700 people) lower than the June quarter 2018 (47,600 people).
States and territories
At the state and territory level, population growth has three main components: natural increase, net overseas migration and net interstate migration (NIM).
Although majority of states and territories experienced positive population growth in the year ended 30 June 2019, the proportion that each of these components contributed to population growth varied between the states and territories.
For the year ended 30 June 2019, natural increase was the major contributor to population change in Western Australia and the Australian Capital Territory. Net interstate migration loss was the largest component of population change in the Northern Territory. NOM was the major contributor to population change in New South Wales, Victoria, Queensland, South Australia and Tasmania.
NIM gains occurred in Victoria, Queensland and Tasmania. All other states and territories recorded net interstate migration losses.
Natural increase
Births
Compared with the previous year, the number of births registered for the year ended 30 June 2019 decreased in half of the states and territories.
The largest percentage decrease was in Western Australia at 2.7%. This was followed by Victoria (2.2%), The Northern Territory (1.9%) and Queensland (0.5%).
The largest increase was in Tasmania at 4.0%, followed by the Australian Capital Territory (2.1%), New South Wales (1.8%) and South Australia (1.6%).
For more information, see table 10.
Deaths
Compared with the previous year, the number of deaths registered for the year ended 30 June 2019 decreased in half of the states and territories.
Tasmania had the largest percentage decrease at 5.2%. This was followed by the Australian Capital Territory (4.7%), Queensland (2.7%) and New South Wales (1.0%).
Increases occurred in Western Australia at 2.1% followed by the Northern Territory (1.7%) and Victoria (0.1%). South Australia had no change.
For more information, see table 11.
Preliminary estimates of births and deaths are subject to fluctuations caused by lags or accumulations in the reporting of birth and death registrations (for more information see Explanatory Notes 10-11).
Net overseas migration
Compared with the previous year, NOM decreased the most in New South Wales (4,800 people), followed by Victoria (3,700 people), the Australian Capital Territory (1,500 people) and the Northern Territory (100 people).
The largest increase was in Queensland (5,200 people), followed by Western Australia (3,900 people), South Australia (1,100 people) and Tasmania (10 people). For more information, see table 13.
NOM arrivals
The number of NOM arrivals for the year ended 30 June 2019 increased in Tasmania (9.1%), Queensland (5.5%), South Australia (5.1%), Western Australia (3.9%), Victoria (1.8%) and the Northern Territory (1.2%).
The largest percentage decrease in NOM arrivals was in the Australian Capital Territory (11.4%), followed by New South Wales (0.7%). For more information, see table 13.
NOM departures
Compared with the previous year, the number of NOM departures for the year ended 30 June 2019 increased in Tasmania (19.7%), Victoria (9.0%), the Northern Territory (3.8%), the Australian Capital Territory (3.6%), New South Wales (3.4%) and South Australia (1.5%).
The largest percentage decrease was recorded in Western Australia at 6.7%, followed by Queensland (1.0%). For more information, see table 13.
Net interstate migration
In the year ended 30 June 2019, Victoria, Queensland and Tasmania had net interstate migration gains. Queensland had the highest net gain with 22,800 people. This was followed by Victoria (12,200 people) and Tasmania (2,000 people). Net losses from interstate migration were in New South Wales (22,100 people), Western Australia (6,500), the Northern Territory (4,400 people), South Australia (4,000 people) and the Australian Capital Territory (200 people). For more information.
Annual interstate migration – arrivals, departures and net
ASIC says that the Federal Court of Australia has today ordered Westpac Banking Corporation to pay a penalty of $9.15 million in respect of 22 contraventions of section 961K of the Corporations Act (the Act), and to pay ASIC’s costs of the proceeding.
The court case relates to poor financial
advice provided by a former Westpac financial planner, Mr Sudhir Sinha,
in breach of the best interests duty and related obligations under the
Act. Westpac is directly liable for these breaches, which attracts a
significant civil penalty, because the law imposes a specific liability
on licensees for the breaches of their financial advisers.
The decision comes as a result of civil penalty proceedings brought by ASIC against Westpac in June 2018 (18-175MR).
ASIC’s investigation revealed internal Westpac reviews, including an
internal bank investigation in 2010, had raised concerns about Mr
Sinha’s compliance history yet he continued to receive several ‘high
achievement’ ratings from Westpac. It was not until 2014 that Mr Sinha
was dismissed by Westpac and March 2015 that Westpac reported Mr Sinha’s
conduct to ASIC.
The trial took place before Justice Wigney
in April 2019, during which Westpac admitted that, as Mr Sinha’s
responsible licensee, it had contravened the Corporations Act. The exact
number of contraventions and penalty that should be imposed were
contested by ASIC and Westpac.
In its decision, the Court found Mr Sinha
failed to act in the best interests of his clients, provided
inappropriate financial advice, and failed to prioritise the interests
of his clients, in four sample client files identified by ASIC. Westpac
is directly responsible for the breaches of the best interests
obligations by Mr Sinha under section 961K of the Act.
‘Westpac, as Mr Sinha’s
responsible licensee, failed to properly monitor and supervise Mr Sinha
for a period of time. This meant his customers were not provided with
advice in their best interests. ASIC brought this case as a result of
Westpac’s suspected contraventions of the law and failures to observe
its duties. The court has found that Westpac contravened the law in this
regard’ ASIC Deputy Chair Daniel Crennan QC said.
In the judgment, Justice Wigney observed:
‘The
relationship between Westpac and Mr Sinha was structured so that Mr
Sinha was able to share in the commissions and fees earned or derived
when, as a result of his advice or recommendations, clients signed-up
for financial products in which Westpac or associated companies had an
interest. As will be seen, that rather cosy arrangement turned out to
be fruitful for both Mr Sinha and Westpac, but not always for their
clients.
…
Unfortunately
for four couples, it was subsequently discovered that the
recommendations that Mr Sinha made, and the circumstances in which he
made them, were deficient and defective, both as a matter of process and
in substance. That should not have been a complete surprise to Westpac
because Mr Sinha’s less than satisfactory conduct as a financial
adviser had previously come to the attention of certain senior officers
of Westpac as a result of various internal compliance reviews, audits or
investigations.’
His Honour further found that Westpac
ought reasonably to have known, from 1 July 2013, that there was a
significant risk that Mr Sinha would not comply with the best interests
obligations and that it failed to do all things necessary to ensure that
the financial services covered by its licence are provided efficiently,
honestly and fairly, and to comply with financial services laws. In
doing so Westpac also contravened sections 912A(1)(a) and (c) of the
Act.
Justice Wigney noted:
‘Westpac
also stood to gain from Mr Sinha’s actions. That perhaps explains why Mr
Sinha was permitted to continue as Westpac’s representative and partner
despite the serious compliance breaches which were exposed by the 2010
investigation. It is tolerably clear that, at least prior to the
commencement of the FoFA reforms, some officers or employees at Westpac
were either unable or unwilling to terminate the services of a
representative who achieved high achievement ratings and was plainly
proficient and successful at promoting the financial products of Westpac
and its associates. It may readily be inferred that Westpac’s
compliance systems and practices were less than rigorously applied, at
least in Mr Sinha’s case.’
The Bank of England released a discussion paper and scenarios for the finance sector to consider the risks of climate change (whatever the cause). They conclude that financial assets are at risk and these risks need to be recognised and accounted for.
Thanks to rises in the valuation of shares, and a bounce in property values, on paper households are now more wealthy, with the value of total assets growing faster than borrowing, and aided by overall population growth. Households were net lenders of $54.3b, depositing $23.8b and accruing $16.1b in net equity in reserves of pension funds (superannuation).
According to data released by the Australian Bureau of Statistics, household net worth (wealth) increased $318.0b (3.0%) in September quarter 2019, driven by a $322.3b increase in total assets, partly offset by a $4.3b increase in total liabilities.
The increase in total assets was driven by residential land and dwellings. The value of residential land and dwellings increased 2.9%, driven by total holding gains of $174.4b. This represents the first quarter of real holding gains on residential land and dwellings following six consecutive quarters of losses.
Household wealth per capita has increased $10,698.6 to $428,573.5, the largest increase since December 2016. With quarterly growth in household wealth at its highest in nearly two years, through the year growth in household wealth has made a recovery from the negative results seen over the 2018-19 year.
The value of household financial assets increased 2.3%, a moderate result relative to the record growth in the previous two quarters. This reflects smaller holding gains on financial assets, while net financial transactions were steady. While holdings in pension fund assets are at a high of 55.6% of total household financial assets, the share of deposits remain at a nine year low of 19.5%. This is in line with record low interest rates as the RBA board reduced the cash rate a further 25 basis points at its July meeting, following a 25 basis point cut in June.
Graph 1. Household net worth through the year growth
The growth in financial asset was driven by superannuation assets, which are made up of reserves of pension funds and unfunded superannuation claims. Reserves of pension funds increased $68.3b, of which $52.2b were due to positive revaluations as 77.1% of reserve assets were invested in shares, and therefore influenced by the performance the Australian stock market.
Household liabilities grew 0.2% and is the softest growth since March quarter 1993. Total household sector liabilities were $2,471.7b, 92% of which were long term loans. The growth in long term loans of 0.3% was due to weakness in owner occupier loans, and falls in investor, unincorporated business and fixed term loans.
Long term loans by authorised deposit taking institutions (ADIs) and securitisers made up $3.3b of the transactions of the long term loans. Net transactions in long term loans from rest of world (-$2.0b) detracted from growth. Short term loan borrowing by households decreased 2.3%, with net transactions of -$18b driven by households paying off their short term loans with ADIs. Net transactions in short term loans borrowed from ADIs is the strongest negative result for a September quarter in five years.
Household transactions in net worth were $61.8b. Financial transactions were the largest component contributing $54.1b, driven by a net acquisition of financial assets of $53.5b, and partly offset by a net incurrence of liabilities of -$0.6b. Net capital formation contributed $7.7b to household transactions in net worth and was driven by land and dwellings ($9.4b), partly offset by other non-financial assets (-$1.7b).
Household debt to assets ratios
The household debt to assets ratio gives an indication of the extent to which the overall household balance sheet is geared. The household debt to assets ratio decreased from 18.9 to 18.5, as growth in household assets (2.5%) outgrew household debt (0.2%).
The mortgage debt to residential land and dwellings ratio decreased from 29.2 to 28.6, indicating the value of residential land and dwellings outgrew mortgage debt. The decrease in the ratio is driven by the strongest increase in the value of residential land and dwellings since December quarter 2016, combined with the weakest growth in mortgage debt since September quarter 2013.
The household debt to liquid assets ratio reflects the ability of households to quickly extinguish debts using liquid assets (currency and deposits, short and long term debt securities, and equity). The household debt to liquid asset ratio decreased from 112.0 to 110.0, as growth in household liquid assets (2.1%) outweighed growth in household debt (0.2%). Growth in liquid assets was driven by increases in household deposit assets which contributed 1.1 percentage points to the 2.1% increase. Growth in household debt was weak, driven by a 0.3% increase in long term loan borrowing.
Graph 2. Mortgage debt to residential land and dwellings ratio breakdown
The wealth effect
Household net saving increased from -$3.3b to $10.7b in September quarter 2019. The $13.9b increase was drivenby
an increase in gross disposable income ($45.5b), partly offset by
increases in final consumption expenditure ($3.6b) and consumption of
fixed capital ($0.3b). The increase in gross disposable income was
driven by a $11.9b increase in dividends received and a $23.5b decrease
in income tax payable.
Household gross disposable income adjusted for other changes in real net
wealth (wealth effect) increased from $467.6b to $529.2b and household
net saving adjusted for other changes in real net wealth increased from
$165.1b to $222.8b. The increases in gross disposable income and
household net saving when adjusted for other changes in net wealth are
due to total real holding gains of $181.1b, the strongest result since
March quarter 2017.
Graph 3. Net saving plus other changes in real net wealth, original
Demand for credit Demand for credit ($42.8b) continued to slow this quarter, following 2018-19 which had the weakest annual demand for credit since 2012-13. Demand for credit this quarter was driven by the public sector, with subdued demand by the private sector and households. Households’ demand for credit (-$1.3b) was negative for the first time since March quarter 1993. Net bond issuances by National general government were $12.1b, while state and local general government borrowed $8.9b. While other private non-financial corporations borrowed $10.4b, equity raising by the sector was only $1.0b.
Demand for credit by household continues to be impacted by the slowing growth in loans for residential property, reflecting the weak housing market. Households transactions in loans were negative for the first time since December quarter 2014, with $12.2b of household loans being securitised. Growth in owner occupier loan balances continued to soften, while investor loans balances fell. Household short term loan balances also continued to drop.
Demand for credit by other private non-financial corporations was the second weakest demand in 7 years ( first being December 2018). This is in line with the lowest equity raising by the sector since December quarter 2012. National general government’s demand for credit was the highest since June quarter 2017, corresponding with a strong increase in net bond issuances this quarter. State and local general government’s demand for credit was the highest since June quarter 2012, driven by loans from central borrowing authorities, with the sector’s credit demand over the past year the strongest since 2012.
Graph 1. Demand for credit
Valuations increases in bonds and equities drive credit market outstanding
Despite subdued demand for credit over the past year, significant
valuation increases have pushed through the year growth in credit market
outstanding of non-financial domestic sectors to 5.7%. Strong price
increases in the Australian stock market and falling bond yields,
particularly over the last 3 quarters, were the main contributors to the
growth.
Credit market outstanding rose 1.3% this quarter, following last
quarter’s 2.3% increase. There were significant valuation increases in
the equity of other private non-financial corporations and government
bonds, reflecting the rise in the Australian stock market and falling
bond yields during the quarter.
Graph 2. Credit market outstanding
National investment falls in September quarter
National investment decreased by $5.1b to $110.5b this quarter.
Graph 1. Total capital formation, current prices
The general government sector invested $16.7b over the quarter, down
from $23.8b in June. A fall is typical for the September quarter.
Household investment decreased by $0.5b, falling to $38.4b overall. This
was driven by declines in machinery and equipment and dwelling
investment, partly offset by an increase in ownership transfer costs.
Private non-financial corporations investment increased by $3.5b this
quarter to $46.5b. This was driven by a build up of inventories leading
into the Christmas period.
Australia continues to be a net lender
National net lending was $7.7b in September quarter 2019 as gross saving of $119.1b was used to fund national investment.
During the quarter, residents acquired $19.7b of shares and other equity
issued by the rest of world, with non-money market financial investment
funds and pension funds acquiring $11.3b and $8.2b respectively. The
rest of the world borrowed $20.9b in loans from domestic authorised
deposit taking institutions (ADIs).
ADIs settled $20.9b of their derivative contracts with rest of the
world. The rest of the world acquired $17.4b of shares and other equity
issued by residents.
Graph 2. Net financial investment (net lending (+) / net borrowing (-))
Non-financial corporations were net borrowers of $7.7b, driven by loan
borrowings ($17.6b) and issuance of equity ($4.8b) partly offset by
maturities of $3.7b in debt securities.
The general government was a net borrower of $17.9b, driven by issuances
of long term debt securities ($11.8b) and loan borrowings ($9.3b).
Households were net lenders of $54.3b, depositing $23.8b and accruing
$16.1b in net equity in reserves of pension funds (superannuation).
Australia’s trend unemployment rate decreased by less than 0.1 percentage points to 5.2 per cent in November 2019, according to the latest information released by the Australian Bureau of Statistics (ABS) today.
ABS Chief Economist Bruce Hockman said: “In November 2019, the trend unemployment rate decreased slightly to 5.2 per cent, the same level it was six months ago.”
“Over the past six months, the trend unemployment rate, participation rate and employment to population ratio have all remained relatively stable,” said Mr Hockman.
Employment and hours
In November 2019, trend monthly employment increased by around 17,000 people. Full-time employment increased by around 8,000 people and part-time employment increased by around 9,000 people.
Over the past year, trend employment increased by around 269,000 people (2.1 per cent), which continued to be above the average annual growth over the past 20 years (2.0 per cent). Full-time employment increased at the same rate as the past 20 years (1.6 per cent), and part-time employment (3.2 per cent) was above the average annual growth over the past 20 years (3.0 per cent).
The trend monthly hours worked increased by 0.1 per cent in November 2019 and by 1.6 per cent over the past year. This was slightly below the 20 year average annual growth of 1.7 per cent.
Underemployment and underutilisation
The trend monthly underemployment rate remained steady at 8.4 per cent in November 2019, an increase of 0.1 percentage points over the past year. The trend monthly underutilisation rate also remained steady at 13.6 per cent in November 2019, an increase of 0.3 percentage points over the past year.
States and territories trend unemployment rate
The monthly trend unemployment rate remained steady in Victoria, Queensland, South Australia and the Australian Capital Territory in November 2019. The unemployment rate increased in New South Wales, Western Australia and the Northern Territory, and decreased in Tasmania.
Over the year, unemployment rates fell in Western Australia and the Australian Capital Territory. The unemployment rate increased in all other states and the Northern Territory, except Tasmania where the rate was the same as it was 12 months ago.
Over the past year, trend employment increased by 268,900 people (or 2.1%), which was above the average annual growth rate over the past 20 years of 2.0%. Over the same 12 months, the trend employment to population ratio, which is a measure of how employed the population (aged 15 years and over) is, increased by 0.3 percentage points (pts) to 62.6%.
Dynamic Market changes
Trend employment increased by 17,400 people (0.13%) between October and November 2019. This was below the monthly average growth rate over the last 20 years of 0.16%.
Underpinning these net changes in employment is extensive dynamic change, which occurs each month in the labour market. In recent months there has been more than 300,000 people entering and leaving employment. There is also further dynamic change in the hours that people work, which results in changes in the full-time and part-time composition of employment.
Trend full-time employment increased by 8,300 people between October and November 2019, and part-time employment increased by 9,000 people. Compared to a year ago, there were 140,800 more people employed full-time and 128,100 more people employed part-time. This compositional change has led to an increase in the part-time share of employment from 31.4% to 31.8%.
The trend estimate of monthly hours worked in all jobs increased by 2.3 million hours (0.1%) to 1,782.8 million hours in November 2019. Over the past year, monthly hours worked in all jobs increased by 1.6%, below the 2.1% increase in employed people. In November, the average hours worked per employed person was around 137.5 hours per month or around 31.7 hours per week.
The trend unemployment rate decreased by less than 0.1 pts to 5.2% in November 2019. The number of unemployed people decreased by 1,200 in November 2019 to 716,300 people, and by 44,000 people since November 2018.
The trend participation rate remained steady at 66.1% in November 2019, and was 0.5 pts higher than in November 2018. The female participation rate remained steady at 61.2% and the male participation rate remained steady at 71.1%.
The labour force includes the total number of employed and unemployed people. Over the past 12 months, the labour force increased by 312,900 people (2.3%). This rate of increase was above the rate of increase for the total Civilian Population aged 15 years and over (1.6%).
The trend participation rate for 15-64 year olds, which controls (in part) for the effects of an aging population, remained steady at 78.7%. The gap between male and female participation rates in this age group was less than 10 pts, at 83.2% and 74.2% respectively, continuing the long term convergence of male and female participation.
The trend participation rate for 15-24 year olds (who are often referred to as the “youth” group in the labour market) remained steady at 68.1%. The unemployment rate for this group remained steady at 11.7% from October to November 2019, and has increased by 0.3 pts since November 2018.
Seasonally adjusted data
The seasonally adjusted unemployment rate decreased by 0.1 percentage points to 5.2 per cent in November 2019, while the underemployment rate decreased by 0.2 percentage points to 8.3 per cent. The seasonally adjusted participation rate remained steady at 66.0 per cent, and the number of people employed increased by around 40,000.
The net movement of employed in both trend and seasonally adjusted terms is underpinned by around 300,000 people entering and leaving employment in the month
Rotational Data
In original terms, the incoming rotation group in November 2019 had a lower employment to population ratio than the group it replaced (62.5% in November 2019, compared to 63.2% in October 2019), and was lower than the sample as a whole (62.8%). The incoming rotation group had a lower full-time employment to population ratio than the group it replaced (42.5% in November 2019, compared to 43.8% in October 2019), and was lower than the sample as a whole (42.9%).
The unemployment rate of the incoming rotation group was higher than the group it replaced (5.2% in November 2019, compared to 4.8% in October 2019) and was higher than the sample as a whole (4.8%). The participation rate of the incoming rotation group was lower than the group it replaced (66.0% in November 2019, compared to 66.4% in October 2019) and higher than the sample as a whole (65.9%).
In looking ahead to the December 2019 estimates, in original terms, the outgoing rotation group in November 2019, that will be replaced by a new incoming rotation group in December 2019, had a lower employment to population ratio in November 2019 (62.3%) compared to the sample as a whole (62.8%). The outgoing rotation group in November 2019 had a lower full-time employment to population ratio (42.7%) than the sample as a whole (42.9%).
The outgoing rotation group had a higher unemployment rate in November 2019 (4.9%) compared to the sample as a whole (4.8%). The participation rate of the outgoing rotation group in November 2019 (65.5%) was lower than the sample as a whole (65.9%).
The Australian Prudential Regulation Authority (APRA) has published a document outlining its governance arrangements, along with accountability statements for its senior executives.
The paper, titled Governance and Senior Executive Accountabilities, describes APRA’s internal governance and accountability arrangements and is supported by individual accountability statements for senior executive roles and an accountability map. The accountability statements cover all four APRA Members, as well as APRA’s six Executive Directors, APRA’s Chief Risk Officer and Chief Internal Auditor.
Today’s release responds to recommendation 6.12 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry: that “each of APRA and ASIC should internally formulate and apply to its own management accountability principles of the kind established by the Banking Executive Accountability Regime (BEAR).”
APRA accepted the recommendation and committed to meeting it by 31 December 2019.
Steve Weston, fresh back from 4 years with Barclays in the UK
was listening to the May 2017 budget speech, and his world changed. The budget
contained a plethora of banking reforms, including Open Banking, big bank
levies, the BEAR (cultural reform) and the potential to allow new Fintech bank
start-ups an on-ramp in terms of regulation and capital to foster innovation
and competition in the banking sector.
The announcements opened the door on the potential to create a digital bank and platform business, akin to Starling Bank in the UK. Starling was founded in 2014 by industry-leading banker Anne Boden, who not only recognised how technology could transform the way people manage their money and serve customers in a way that traditional banks hadn’t, but also how a platform business can accelerate scale. They have since surpassed one million accounts, raised £263 million in backing and were voted Best British Bank two years running. Their customers also rate them Excellent on Trustpilot.
Throughout 2017 Steve developed the concept, built a team and by January 2019, Volt Bank was Australia’s first neobank to receive an unrestricted ADI licence. It has now begun on-boarding sections of its 40,000-strong waitlist and is announcing a ‘no catches’ ongoing base interest rate of 2.15 per cent on savings, ahead of a public launch planned for early 2020. Volt’s ‘no catches’ interest rate is not subject to an introductory period, or conditions that lead to many consumers not actually receiving a higher rate, like minimum monthly deposits or a minimum number of transactions.
Volt’s unique digital solution was designed to help consumers
‘save often’ and ‘spend wisely’ after CEO & Co-Founder, Steve Weston, noted
a distinct absence of personal finance products that actually help to make
Australian consumers better off.
Steve Weston, Volt Bank’s CEO and Co-Founder
“What I find troubling is banks saying they are putting
customers at the heart of what they do but that isn’t reflected in actual
practice. As an example, banks should say what percentage of their savings
account customers get the higher advertised interest rates rather than the
often very low base rates. The same applies to home loan interest rates. Why is
it that new customers get a better deal than loyal customers?
“Banking needs to be done in a better way. Volt’s first
product, our savings account, offers a highly competitive rate without any
conditions. I challenge other banks to do the same.
“We are taking our
time to build every product and feature in a prudent fashion, including by
seeking feedback through our co-creation app, Volt Labs. When we launch to the
public in 2020, Volt will be a viable, well-understood, and trusted option for
everyday Australians,” concluded Mr. Weston.
So, what’s under the hood?
Well first there are no branches, but it has also been built
digital first. and at the heart of the concept is the desire to truly assist
customers reach the outcomes they’re seeking and is aiming to help shift
behaviours. For example, the Volt app will
also support savings discipline, helping to create a savings habit. This is
decidedly NOT a product push.
Customers can onboard in less than 3 minutes and Volt will
deliver a customer experience not provided by incumbent banks.
But Volt is also a platform, where providers of digital finance services can connect. Indeed, Volt already has an agreement with PayPal (after Citi, Barclays etc). Via their API they plan to offer best in class digital services on their platform.
They plan to grow via what Steve called Viral Advocacy and the 40,000 wait-list is part of that plan.
And Volt is a fully fledged ADI (in APRA speak) and so can
offer deposit and savings accounts protected by the Government’s Financial
Claims Scheme up to $250k, just like other Australian licenced banks.
They have a road map already laid out ahead, tackling other
customer needs, and whilst initial funding for the venture has come mainly from
high-net worth investors, they will be tapping a broader investor base to raise
the capital they will need to commence lending quite soon.
So, I see this as more than just another upstart Fintech.
Volt has the pedigree, the vision and the capability to become a significantly
disruptive player in the Australian market. And frankly, as their Deposit rate
is no holds barred higher than others in the field, it will be interesting to
see how the incumbents respond. But this could just be the start of the long
awaited and needed banking revolution here. Perhaps like Aussie Home Loans disrupted
mortgage lending a generation ago?
Things could get very interesting indeed!
Note: DFA has no commercial relationship with Volt Bank. This article is one in our series on digital banking disruption – Fintech Spotlight.
I discuss the intersection between politics, economics and housing with journalist Tarric Brooker, who uses the handle @AvidCommentator on Twitter.
Given the current political ideology, are we likely to see any change of trajectory given some of the issues we are facing into? Will the surplus remain sacrosanct?
According to the Bank of England, climate change creates risks to both the safety and soundness of individual firms and to the stability of the financial system. These risks are already starting to crystallise, and have the potential to increase substantially in the future. There is a pressing need for central banks, regulators and financial firms to accelerate their capacity to assess and manage these risks.
So, the Bank of England has published a discussion paper which sets out its proposed framework for the 2021 Biennial Exploratory Scenario (‘BES’) exercise.
The objective of the BES is to
test the resilience of the largest banks and insurers (‘firms’) to the
physical and transition risks associated with different possible climate
scenarios, and the financial system’s exposure more broadly to
climate-related risk.
They say, conducting a climate stress test poses distinct challenges compared to conventional macrofinancial or insurance stress tests. To ensure it is effective in light of these challenges, the Bank is using this discussion paper to consult relevant stakeholders on the design of the exercise. This includes financial firms, climate scientists, economists, other industry experts, and informed stakeholder groups.
Whilst climate-related risks will materialise over decades, actions today will affect the size of those future risks. It is therefore important that firms, and other stakeholders such as the Bank, continue to develop innovative approaches to measure climate-related risks before it is too late to ensure resilience to them. The BES will use exploratory scenarios to size these future risks and to explore how firms might respond to them materialising, rather than testing firms’ capital adequacy.
The key features of the BES are:
Multiple Scenarios that cover climate as well as macro-variables: to test the resilience of the UK’s financial system against the physical and transition risks in three distinct climate scenarios. These range from taking early, late and no additional policy action to meet global climate goals.
Broader participation: both banks and insurers are exposed to climate-related risks, and the action of one will spill over to affect the other. For insurers, this exercise builds on the scenarios developed for this year’s insurance stress test.
Longer time horizon: is needed as climate-related risks crystallise over a much longer timeframe than conventional risks. The BES proposes a modelling horizon of 30 years. This is because climate change, and the policies to mitigate it, will occur over a much longer timeframe than the normal horizon for stress testing. To make these scenarios credible and tractable, the Bank proposes that the BES examine firms’ resilience using fixed balance sheets, focusing on sizing the risks and the scale of business model adjustment required to respond to these risks, rather than testing the adequacy of firms’ capital to absorb those risks.
Counterparty-level modelling: a bottom up, granular analysis of counterparties’ business models split by geographies and sectors is proposed to accurately capture the exposure to climate-related risks.
Output: the Bank will disclose aggregate results of the financial sector’s resilience to climate-related risk rather than individual firms.
The Governor Mark Carney said: “The BES is
a pioneering exercise, which builds on the considerable progress in
addressing climate related risks that has already been made by firms,
central banks and regulators. Climate change will affect the value of
virtually every financial asset; the BES will help ensure the core of
our financial system is resilient to those changes.”
Sarah Breeden the Executive Director
sponsor for climate change said “None of us can know exactly how climate
change will unfold, but we do know that it will create risks to the
financial system. I am excited that this ground-breaking exercise will
for the first time allow us to quantify this risk and so determine the
actions we need to take today if we are to minimise these future risks.”
The Bank is consulting on the design of the exercise and welcomes feedback on the feasibility and the robustness of these proposals from firms, their counterparties, climate scientists, economists and other industry experts by 18 March 2020. The final BES framework will be published in the second half of 2020 and the results of the exercise will be published in 2021.
The Banks concludes, there are many challenges involved in designing such an exercise and this proposal seeks to balance various trade-offs. These include providing a comprehensive description of the potential risks while also creating a tractable exercise for firms, and providing sufficient detail in the scenarios to allow results to be aggregated consistently while also providing scope for firms to assess the risks in a granular way.
