ASIC says Suncorp Life and Superannuation Limited (Suncorp) has recently completed a remediation program, which impacted over 4,000 clients of Suncorp-owned GuardianFP Limited (Guardian Advice).
Suncorp paid $1,431,167 in compensation to Guardian Advice clients who had received poor advice.
Suncorp undertook the remediation program after ASIC imposed
additional licence conditions on the Australian financial services (AFS)
license of Guardian Advice because a surveillance uncovered
deficiencies in the life insurance advice provided by Guardian Advice to
retail clients (15-003MR).
ASIC was concerned that Guardian Advice had failed to comply with its
general obligations as an AFS licensee, including monitoring and
supervising its representatives and ensuring they were adequately
trained or competent. A number of clients suffered harm a result of
these failures.
When Suncorp announced that it would exit the financial planning
business carried on by Guardian Advice in November 2015, ASIC obtained a
commitment from Suncorp that it would complete the remediation program
provided for in the additional licence conditions and fund the
compensation of Guardian Advice clients (15-353MR).
Additionally, Suncorp undertook to compensate clients who may have
been at risk of having received poor advice from ‘high-risk’ advisers,
who were identified using a range of risk metrics applied to all
advisers in the Guardian Advice network. Affected clients were also
compensated under this remediation program.
Suncorp’s remediation program was overseen by independent experts.
The largest quarterly goods and services surplus on record at $19.9 billion and a narrowing net income deficit to $13.9 billion, contributed to Australia recording a seasonally adjusted $5.9 billion current account surplus for the June quarter 2019, according to latest information released by the Australian Bureau of Statistics (ABS). This is Australia’s first current account surplus since the June quarter 1975.
This is thanks to the high iron ore price, which of course has now dropped back significantly. The RBA’s expectation of a 0.8% GDP number tomorrow still seems far fetched, but we might just escape a negative quarter…
The ABS shows this quite clearly.
ABS Chief Economist Bruce Hockman said: “Six consecutive quarters of goods and services surpluses, broadly commodity driven, have laid the foundation for our first current account surplus in 44 years.
“The surplus is both a price and volume story. Similar to the March quarter 2019, continued global supply interruptions have maintained high iron ore prices into the June quarter, boosting our export receipts to record levels.
“Export volumes for the key bulk commodities of liquid natural gas, coal and iron ore were up, while volumes fell across several import categories resulting in an increased June quarter trade surplus.”
Contribution to Gross Domestic Product In seasonally adjusted chain volume terms, the balance on goods and services surplus increased $2.7 billion, widening the surplus to $6.4 billion. The rising exports and falling imports resulted in an expected contribution of 0.6 percentage points to growth in the June quarter 2019 Gross Domestic Product.
International Investment Position Australia’s net international investment position was a liability of $1,001.6 billion at 30 June 2019, an increase of $9.2 billion on the revised 31 March 2019 position of $992.3 billion.
Australia’s net foreign debt liability position increased $19.4 billion to $1,143.5 billion. Australia’s net foreign equity asset position increased $10.2 billion to $141.9 billion at 30 June 2019.
This follows a rise of 0.4 per cent in June 2019. The trend estimate for Australian retail turnover rose 0.1 per cent in July 2019, following a 0.2 per cent rise in June 2019. Compared to July 2018, the trend estimate rose 2.4 per cent.
“There were falls in four of the six industries and six of the eight states and territories in July,” said Ben James, Director of Quarterly Economy Wide Surveys. “Cafes, restaurants and takeaway services (-0.6 per cent) led the falls. There were also falls in Clothing, footwear and personal accessory retailing (-1.0 per cent), Other retailing (-0.4 per cent), and Department stores (-0.2 per cent). Food retailing (0.3 per cent), and Household goods retailing (0.1 per cent) rose this month”.
In seasonally adjusted terms, there were falls in Queensland (-0.2 per cent), New South Wales (-0.1 per cent), South Australia (-0.5 per cent), Victoria (-0.1 per cent), the Australian Capital Territory (-0.5 per cent), and Tasmania (-0.1 per cent). There were rises in Western Australia (0.6 per cent), and the Northern Territory (0.3 per cent).
Online retail turnover contributed 6.1 per cent to total retail turnover in original terms in July 2019. This is unchanged from June 2019. In July 2018, online retail turnover contributed 5.5 per cent to total retail.
For the first time since 2015 the overall level of mortgage stress did not rise significantly in August, according to the latest research from Digital Finance Analytics, based on our rolling 52,000 household survey.
That said, the proportion of households whose cash flow is under pressure when servicing their mortgages remains elevated at 32.1% of borrowing households. This is still a record high. And average household debt to income ratios continue to rise – reaching 189.7 according to recent RBA data. This ratio, reported quarterly, includes all households, not just borrowing ones, and SME’s as well. For the one third of households borrowing the average ratio is at 550 according to our data. Banks are still willing to write loans above six times income in some circumstances.
The combination of lower mortgage rates and the tax refunds, plus some more significant wage increases in some sectors helped to stabalise the results.
The total number of households in stress is now 1,082,000, compared with 1,080,000 last month. We continue to see households across our segments coping with the financial pressures resulting from large mortgages, flat incomes and rising costs. There are a growing number of older households in difficulty.
Across the states, pressure is rising in NSW and VIC, as the broader economic trends deteriorate. The trajectory of unemployment and underemployment will be critical ahead. Relatively speaking losses remain higher in WA, where the economy has been in the doldrums for several years, but it is plausible we will see economic weakness spreading. The construction sector is under pressure, and job losses are to be expected ahead.
Mortgage stress is not just concentrated in the main urban centres, we continue to see signs in regional centres as well.
The current top 20 post codes by mortgage stress shows that Liverpool 2170 has the highest count, followed by post code 6065 in WA.
Another way to look at the top 20 is by defaults. Here Cranbourne in VIC, 3977 comes at the top of the list followed by 6210 in WA, which includes Mandurah.
Many on the list are in the urban fringe where there has been high rates of construction, often on small plots. The peak of distress is from the 2015 and 2016 cohorts, before the lending standards were tightened, but it is also the case that the journey many households take from stress, severe stress to default is one which can play out over years, not months.
AMP Capital chief economist Shane Oliver says the latest resurgence in property prices will be tempered by weak economic conditions and lending constraints. Via InvestorDaily.
There
are plenty of positive indicators to suggest property prices will soon
be booming again. The boost from the election result which removed the
threats to negative gearing and the capital gains tax discount, RBA rate
cuts, positive headlines around the relaxation of the 7 per cent
mortgage rate serviceability test and tax cuts have helped provide a
bounce in home buyer demand at a time of low listings.
“This is
clearly evident in a continuing rebound in auction clearance rates where
August saw the best monthly average clearance rates in Sydney since
March 2017 and in Melbourne it was the best month since August
2017,” Mr Oliver said.
While this has come on very low volumes,
it’s usually the case that improved clearance rates lead a pick-up in
volumes and this may already be starting to be seen with listings
picking up in recent weeks and is likely to become more evident through
the spring selling season.
Australian capital city dwelling prices
rose 1 per cent in August, according to CoreLogic. After a 10.2 per
cent decline over 22 months average prices have now had their second
rise in a row and their strongest since April 2017. However, dwelling
prices are still down 5.9 per cent from a year ago.
Sydney
dwelling prices rose a strong 1.6 per cent, which is their third gain
in a row and Melbourne prices rose 1.4 per cent, which is also their
third gain in a row.
“Based on past relationships the current
level of clearances points to annual house price growth rising to around
10 [per cent] to 15 per cent over the next 9 [months] to 12 months,” Mr
Oliver said. However, he added that AMP Capital’s base case remains
that house price gains will be far more constrained than this.
“Compared
to past recovery cycles household debt-to-income ratios are much
higher, bank lending standards are much tighter such that a return to
rapid growth in interest only and investor loans is most unlikely, the
supply of units has surged with more to come and this has already pushed
up Sydney’s rental vacancy rate well above normal levels and
unemployment is likely to drift up as overall economic growth remains
weak,” he explained.
“So notwithstanding the bounce in Sydney and
Melbourne prices seen in August we don’t see a return to boom time
conditions and expect constrained gains through 2020.”
But the
fact remains that the rapid rebound in Sydney and Melbourne property
prices to annualised gains around 15 per cent in August has raised the
risk that we may see much stronger gains, Mr Oliver said.
Going
forward, the chief economist is keeping an eye on three key indicators:
the spring selling season, housing finance commitments and the jobless
rate.
“Much higher unemployment is something the RBA is keen to
avoid – in fact it wants unemployment to fall to 4.5 per cent or below –
so our view remains for further cash rate reductions in November and
February next year taking the cash rate to 0.5 per cent.
An
obvious issue though is whether the rebound in the Sydney and Melbourne
property markets will present a problem for the RBA in terms of cutting
interest rates further.
“This will no doubt cause some
consternation at the bank,” Mr Oliver said. “But as we saw over the
2011-17 period the RBA will do what it believes is right for the
‘average’ of Australia as opposed to one sector or a couple of cities,”
he said.
“However, it may have to return to tighter regulatory
controls again if it needs to cool the Sydney and Melbourne property
markets once more for financial stability reasons.
“In
other words, we don’t see the rebound in the Sydney and Melbourne
property markets as a barrier to further monetary easing, but if it
continues to gather pace then expect a tightening of the screws again
from bank regulators.”
Australian
consumers are paying too much for foreign currency conversion (FX)
services because of confusing pricing and a lack of robust competition, a
new ACCC report has found.
The final report of the ACCC’s Foreign Currency Conversion Services Inquiry
highlights important competition and consumer issues affecting
individuals and small businesses who use international money transfers
(IMTs), foreign cash, travel cards, and credit cards or debit cards for
transactions in foreign currencies.
The ACCC found that it can be challenging for consumers to shop
around and make informed decisions about FX services. As a result, many
consumers continue to use the big four banks for FX services despite the
availability of much cheaper alternatives.
It is difficult for consumers to compare prices because some
suppliers do not disclose their total price up front. In addition,
consumers pay unexpected fees for some services. Finally, complex prices
can deter consumers from shopping around because of the time and effort
required to do so.
During 2017-18, individual consumers who used the big four banks to
send IMTs in US dollars and British pounds could have collectively saved
about AUD150 million if they had instead used a lower priced IMT
supplier.
“Shopping around could save Australian consumers hundreds of millions of dollars each year,” ACCC Chair Rod Sims said.
“Consumers and small businesses tend to default to their usual bank
to send money overseas, but this may not be the cheapest option. This is
another example where consumers may end up paying more for their
loyalty.”
Guidance for consumers using FX services
The ACCC has released a guide to
help consumers shop around. For example, the guide gives tips on
sending money overseas and avoiding fees when making overseas purchases
online.
“The guide will help consumers to shop around, carefully select where
and how they pay for their purchases and to identify fees so they can
get the best deal,” Mr Sims said.
“For example, the guide explains how foreign exchange services with low or no fees are not always the best value for money.”
“We have also tried to clear up a few misconceptions, such as the
assumption that paying in Australian dollars when shopping overseas is
always best, when that is not the case.”
The final report warns that travellers can pay a high price for
leaving their purchase of foreign cash to the last minute and buying at
the airport.
Consumers should also consider whether their existing credit or debit
card may be cheaper than using foreign cash or a travel money card for
overseas purchases. Some credit and debit providers offer cards with no
international transaction fees which can be a much cheaper option than
many other products.
Consumers should be aware that some commercial comparison sites may
not be independent and that suppliers may pay for their services to be
promoted by these sites. There are, however, two government-funded
comparison websites for international money transfers (IMTs): www.sendmoneypacific.org and www.saverasia.com, which compare prices of IMT services available to a number of South-East Asian and Pacific Island countries.
Savings to be made
The ACCC inquiry found:
Foreign cash is more expensive at airport locations than at other
locations. When buying USD200 in February 2019, consumers could have
saved AUD40 by purchasing from the cheapest supplier at a non-airport
location, compared with the most expensive supplier at the airport.
Consumers and small businesses who used the most expensive bank to
transfer USD7000 would have paid more than AUD500 more than if they had
used the cheapest supplier.
If customers of the big four banks used a debit or credit card
without international transaction fees instead of a travel money card,
they could save up to AUD13 on a USD200 purchase.
Customers of the big four banks could save up to AUD5 on a USD200
purchase if they used a ‘regular’ debit or credit card instead of a
travel money card.
Guidance for businesses
The report includes best practice guidance for businesses supplying
FX services. It explains how they should disclose prices to consumers.
The guidance focuses on ensuring that businesses clearly disclose the
full price of an FX service to consumers upfront.
“We consider businesses who ignore this best practice guidance may be
at risk of breaching the Australian Consumer Law,” Mr Sims said.
“The ACCC will take action against businesses who do not make appropriate disclosures to consumers.”
New entrants providing lower prices, more advanced services
The ACCC has found that recent competition from newer entrants is
delivering better outcomes for consumers making use of IMTs, including
through lower prices and more advanced services.
These new entrants often rely on obtaining services from banks, their
vertically integrated competitors, to provide IMTs to their customers.
However, the inquiry found that some non-bank IMT suppliers had been
denied access to bank services, such as bank accounts.
“Banks need to comply with Australia’s anti-money laundering and
counter terrorism financing laws, and this is one reason banks have
given for withdrawing banking services to IMT providers,” Mr Sims said.
“The withdrawal of banking services from non-bank IMT suppliers
represents a significant threat to competition that could ultimately
result in less choice and higher prices for consumers.”
To address this issue, the ACCC recommends development of a scheme to
facilitate continued and efficient access to banking services by
non-bank IMT suppliers. This would include addressing the due diligence
requirements of the banks, including in relation to anti-money
laundering and counterterrorism financing requirements.
This scheme should be operational by the end of 2020.
Background
The inquiry was preceded by:
findings by the World Bank
in June 2018 that the cost of sending money overseas from Australia was
approximately 11 per cent higher than the G20 average, 13 per cent
higher than the UK and almost 40 per cent higher than the US
the Productivity Commission’s Report on Competition in the Australian Financial System
which recommended that the ACCC, in consultation with ASIC, investigate
what additional disclosure methods could be used to improve consumer
understanding and comparison of fees for foreign transactions.
On 2 October 2018,
the Treasurer approved the ACCC holding an inquiry into the supply of
FX services in Australia. On the same day, the ACCC released an issues
paper for the inquiry. In response, the ACCC received 63 written
submissions from a mix of consumers, FX services suppliers, small
businesses and other stakeholders.
The final report focuses its competition analysis primarily on IMTs. IMTs are significant for a number of reasons including:
prices in Australia are high by global standards and IMTs are a
significant outlay for Australians with an estimated AUD21 billion in
personal IMTs sent from Australia each year
IMTs are regularly used by groups of potentially vulnerable and disadvantaged consumers such as migrants and temporary workers
the average transaction size for IMTs is much larger than the other services considered in the inquiry.
The inquiry is the second inquiry undertaken by the ACCC’s Financial
Services Competition Branch (FSCB). The FSCB proactively monitors and
promotes competition in Australia’s financial services sector by
assessing competition issues and undertaking market studies.
But, the Reserve Bank of Australia has pointed to Australia’s high debt levels as a factor in its decision making for the cash rate, fearing that it will make the economy more vulnerable to shocks.
Just remember this in the context of APRA reducing the lending standards recently! And in APRA’s Corporate plan Australia’s banking watchdog will stress test the country’s banks every year, instead of the current three-year cycle, ramping up oversight of a sector that has been marred by misconduct.
In the most recent series of stress tests in 2017, all 13 of the country’s largest banks passed the “severe but plausible” scenarios applied by the regulator, despite projected losses of about A$40 billion in home loans alone.
The RBA published its four-year corporate plan on Friday, pointing to the banks’ exposure to housing loans and cyber security in financial institutions as the largest risks to the country’s financial stability.
In Australia, wages growth is low, reflecting spare capacity in the labour market as well as some structural factors.
The
central bank expects the unemployment rate will remain around 5.25 per
cent for a time, before declining to around 5 per cent in 2021, with
wages growth expected to remain stable and then increase modestly from
2020.
Consumer price inflation is forecast to increase to be a
little under 2 per cent over 2020 and a little above 2 per cent over
2021.
The
RBA noted over the next four years, “movements in asset values and
leverage may be more important for economic developments than in the
past given the already high levels of debt on household balance sheets.
“Especially
in the context of weak growth in household income, high debt levels
could complicate future monetary policy decisions by making the economy
less resilient to shocks,” the RBA said.
The central bank noted
policymakers in the US and other countries employing quantitative easing
as a result of intensifying trade and technology disputes.
Globally,
the RBA reported, labour market conditions remain tight in major
advanced economies, although unemployment rates are at multidecade lows.
“Global
interest rates and measures of financial market volatility both remain
low compared with historical experience,” the RBA said in its corporate
plan.
“The future path of global monetary policy and financial
conditions more generally remain subject to substantial uncertainty.
These global factors significantly influence the environment in which
monetary policy in Australia is conducted,” the RBA said.
Last
week, RBA governor Philip Lowe reflected on the RBA’s decision on the
cash rate during an address to Jackson Hole Symposium in Wyoming.
“So
the question the Reserve Bank Board often asks itself in making its
interest rate decision is how our decision can best contribute to the
welfare of the Australian people,” Mr Lowe said.
“Keeping
inflation close to target is part of the answer, but it is not the full
answer. Given the uncertainties we face, it is appropriate that we have a
degree of flexibility, but when we use this flexibility we need to
explain why we are doing so and how our decisions are consistent with
our mandate.”
He said a challenge the central bank is facing is elevated expectations that monetary policy can deliver economic prosperity.
“The
reality is more complicated than this, not least because weak growth in
output and incomes is largely reflecting structural factors,” Mr Lowe
commented.
“Another element of the reality we face is that
monetary policy is just one of the levers that are potentially available
for managing the economy. And, arguably, given the challenges we face
at the moment, it is not the best lever.”
The RBA is due to deliver its cash rate decision tomorrow.
The approval by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) of the newly updated Volcker rule will ease compliance with the requirements that prevent banks from engaging in proprietary trading, and, in doing so, would enhance their role as market makers and aid market liquidity, according to Fitch Ratings.
The revamped Volcker rule — or Volcker 2.0 — reduces the onus on banks to prove that their trading activities are not proprietary in nature. In addition, and consistent with the aim to tailor regulatory rules, banks with between $1.0 billion and $20.0 billion in trading assets would be subject to a simplified compliance program, while community banks, defined as banks under $10.0 billion in assets with minimal trading assets and liabilities (under 5% of total assets) were already exempted from the Volker rule as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act.
While
most recent regulatory easing initiatives have been aimed at the
smaller banks, Fitch views this change as more impactful for the larger
banks. Relaxing the Volcker rule does not help smaller banks as they
generally do not engage in the type of trading activities the
regulations restrict.
The final rule changed in one important
aspect from the original proposal. Under the initial proposal, the rule
would have encompassed all of a bank’s fair-valued trading assets and
liabilities — the so-called “accounting prong”. However, the final rule
did not retain this test, which would have been more restrictive for
banks and would have scoped-into over $400 billion of available-for-sale
assets. Instead, the rule continues to define a trading account based
on a modified version of the existing rule — as to whether there is a
short-term trading intent — which is more subjective than the
accounting-based test. The new rule also eliminates the presumption that
trading positions held for 60 days or less constitutes prop trading,
thereby freeing up some of the compliance burden associated with
short-tenor trades.
Volcker 2.0 also provides more leeway for
banks to effectively self-police their compliance with the rule as they
will not be required to automatically notify supervisors when internal
risk limits are exceeded. Previously, the rule required banks to
promptly report limit breaches or increases to the regulators.
“Under
the prior rule, banks were presumed guilty unless proven innocent. With
Volcker 2.0, banks are more generally presumed to be innocent unless
proven guilty” said Christopher Wolfe, Managing Director at Fitch
Ratings.
The new rule also modifies the liquidity management
exclusion from the proprietary trading restrictions, permitting banks to
use a broader range of financial instruments to manage liquidity. It
adds new exclusions for error trades, offsetting swap transactions,
certain customer-driven swaps, hedges of mortgage servicing rights, and
purchases or sales of instruments that do not meet the definition of
trading assets/liabilities. It also eliminates the extra-territoriality
reach of the rule for foreign banking entities covered fund activities,
where the risk occurs and remains outside of the U.S.
The
relaxation of the compliance burden potentially opens up some avenues
for banks to engage in what can be viewed as proprietary trading, under
the guise of legitimate market making or liquidity management. The
original rule barred the execution of bank algorithmic trading
strategies that only trade when market factors are favorable to the
strategy’s objectives, or otherwise not qualify for the market-making
exception. In Fitch’s view, the new rule could allow banks to re-engage
in some algorithmic trading that previously did not comply and to some
degree, more effectively compete in market-making activities against
high frequency trading firms (HFTs).
Fitch views the general
prohibition against proprietary trading as a positive from a ratings
perspective. Thus, while there are no immediate rating impacts from
these changes to the Volcker rule, we would negatively view any bank
that increases directional trading activities that can be construed as
proprietary trading or fails to self-police their trading activities
appropriately. Moreover, given still heightened capital and liquidity
standards, potentially including the finalised Basel Market Risk (FRTB)
standard and compressed margins in trading businesses, any increase in
perceived proprietary trading may not generate adequate returns on
capital nor be reflected in better stock valuation.
“The
regulators have opened the door for the larger U.S. banks to engage in
selective risk taking, potentially with an eye toward enhancing market
liquidity and levelling the playing field against HFTs” said Monsur
Hussain, Senior Director at Fitch Ratings.
The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.
Contents:
1:11 – US Markets 4:25 – Bond Rates 5:29 – Q2 Earnings 6:40 – UK 7:51 – Europe 8:49 – Argentina
9:44 – Australian Section
10:00 – GDP Guidance
11:12 – Home Prices
16:56 – Auction Results
18:16 – Credit
19:52 – Construction
20:41 – Australian Markets
23:28 – Cash Ban
