AFCA to name financial firms in determinations

The Australian Financial Complaints Authority will begin naming financial firms in its published determinations to increase transparency in the financial sector and enhance consumer confidence.

The change comes following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

AFCA undertook a public consultation and submitted an application to the Australian Securities and Investments Commission (ASIC) to change the AFCA Rules. 

AFCA Chief Ombudsman and CEO David Locke said AFCA is committed to being open, transparent and accountable to the public.

“AFCA plays an important public role and we recognise that transparency in our data and decisions is essential to rebuilding trust in the financial sector,” Mr Locke said.

“We already publish decisions on our website, but we have been unable to name the financial firms involved. 

“We welcome ASIC’s approval to change our Rules, which will allow us to now name financial firms in decisions we publish on our website.

“This is an important change, and the public will now be able to access increased information about the actions of financial firms.”

AFCA is working with ASIC to determine the start date for the naming of financial firms. Further updates will be provided when available.

From ASIC:

ASIC has approved changes to the Australian Financial Complaints Authority (AFCA) Rules to allow the scheme to name financial firms in published determinations. 

In its first six months, AFCA received 35,263 complaints. About 4,500 to 5,000 complaints are currently expected to be finalised each year by way of determination. While the publication of determinations has been a longstanding feature of the external dispute resolution schemes in Australia, the names of firms involved in financial services, superannuation and credit complaints have not been published to date. 

AFCA applied for approval to change their Rules to enable identification of firms following public consultation. Consumers who are party to a complaint will continue to be anonymised in all determinations. 

In approving this change ASIC took into account stakeholder feedback to AFCA’s public consultation and the statutory approval criteria. 

ASIC’s view is that naming firms in determinations can help identify conduct or market problems within firms or affecting specific products or services, as well as highlighting where firms have done the right thing. It will also enhance transparency and accountability of firms’ performance in complaints handling and of AFCA’s own decision-making. 

To support the new Rules, AFCA will shortly be issuing updated operational guidelines which set out examples of the circumstances in which a determination naming a financial firm would not be published. This includes where naming may expose confidential information about a firm’s systems or policies. 

Naming firms in AFCA determinations is part of a broader set of reforms aimed at increasing transparency in financial services. This includes Parliament giving ASIC power to collect and to publish internal dispute resolution (IDR) data at firm level.  The UK Financial Ombudsman Service has been naming firms in published determinations since 2013

Mortgage Broker Best Interest Draft Bill Released

The Treasure has released an exposure draft of the proposed Mortgage broker best interests duty and remuneration reforms.

The National Consumer Credit Protection Amendment (Mortgage Brokers) Bill 2019 — containing a new bests interest duty obligation on mortgage brokers, as recommended by Commissioner Kenneth Hayne in the final report of the banking royal commission.   Via The Adviser.

The bill states that brokers “must act in the best interests of consumers when giving credit assistance in relation to credit contracts”, meaning:

  • where there is a conflict of interest, mortgage brokers must give priority to consumers in providing credit assistance in relation to credit contracts,
  • mortgage brokers and mortgage intermediaries must not accept conflicted remuneration — any benefit, whether monetary or non-monetary that could reasonably be expected to influence the credit assistance provided or could be reasonably expected to influence whether or how the licensee or representative acts as an intermediary.
  • employers, credit providers and mortgage intermediaries must not give conflicted remuneration to mortgage brokers or mortgage intermediaries.

The draft bill, which is open for consultation until 4 October, notes that the duty to act in the best interests of the consumer in relation to credit assistance is a “principle-based standard of conduct” and “does not prescribe conduct that will be taken to satisfy the duty in specific circumstances”.

“It is the responsibility of mortgage brokers to ensure that their conduct meets the standard of ‘acting in the best interests of consumers’ in the relevant circumstances,” the bill states.

According to the bill, the content of the duty “ultimately depends on the circumstances in which credit assistance is provided”.

Examples of such content cited in the draft bill include:

  • prior to the recommendation of a credit product, it could be expected that the mortgage broker consider a range of such products (including the features of those products) and inform the consumer of that range and the options it contain,
  • any recommendations made could be expected to be based on consumer benefits, rather than benefits that may be realised by the broker (such as commissions);
  • in cases where critical information is not obtained when inquiring about a consumer’s circumstances, the broker could be expected to refrain from making a recommendation about a loan where there is a consequent risk that the loan will not be in the consumer’s best interests;
  • a broker would not suggest a white-label home loan that has the same features as a branded product from the same lender, but with a higher interest rate, because it would not be in the best interests of the consumer to pay more for an otherwise similar product; and
  • during an annual review, a broker would not suggest that the consumer remain in a credit contract without considering whether this would be in the consumer’s best interests.

In addition to the new best interests obligation, the draft bill requires a mortgage broker to “resolve conflicts of interests in the consumer’s favour”.

The bill states that “if the mortgage broker knows, or reasonably ought to know”, that there is a conflict between the interests of the consumer and the interests of the broker or a related party, the mortgage broker “must give priority to the consumer’s interests”.

As an extension to the best interests duty, the bill builds on remuneration reforms proposed by the Combined Industry Forum, which includes:

  • requiring the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount;
  • banning campaign and volume-based commissions and payments; and capping soft dollar benefits.

The proposed regulations also limit the period over which commissions can be clawed back from aggregators and mortgage brokers to two years and prohibit the cost of clawbacks being passed on to consumers.

The new provisions are scheduled for implementation by 1 July 2020.

ABC Joins The Cash Ban Dots

Hot on the heels of their previous post comes another article from ABC news which makes the link between the $10k cash ban, negative interest rates and the IMF. It’s titled “Banning cash so you pay the bank to hold your money is what the IMF wants“.

This is something which followers will know we have been highlighting for some time.

This theory … has not been plucked out of thin air.

It is based on repeated public papers and statements by the international body in charge of financial stability — the Washington-based International Monetary Fund (IMF).

A recent IMF blog entitled “Cashing In: How to Make Negative Interest Rates Work”, explains its motive in wanting negative interest rates — a situation where instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank.

As the blog notes, during the global financial crisis central banks reduced interest rates.

Ten years later, interest rates remain low in most countries, and “while the global economy has been recovering, future downturns are inevitable”.

“Severe recessions have historically required 3 to 6 percentage points cut in policy rates,” the IMF blog observed.

“If another crisis happens, few countries would have that kind of room for monetary policy to respond.”

The article then goes on to explain that to “get around this problem”, a recent IMF staff study looked at how it could bring in a system that would make deeply negative interest rates “a feasible option”.

The answer, it said, is to phase out cash.

Victorian Liberals plans to oppose registration scheme for engineers

The construction union has slammed the Victorian Liberals plan to oppose the introduction of a registration scheme for engineers as reckless and irresponsible.

The Bill, currently before the Victorian Parliament would for the first time introduce a registration scheme for engineers in Victoria, ensuring only those properly qualified and accredited could undertake work.

CFMEU Construction and General Division National Secretary Dave Noonan said that the registration of engineers was an important first step in tackling the national crisis in the building and construction industry.

“The Liberals plans to oppose the registration of engineers in Victoria, a measure that would begin to address the national crisis in construction, is reckless and irresponsible.

“Just last week, independent research revealed the cost of repairing defects in residential apartments across Australia would cost a staggering $6.2 billion.

“Liberal opposition could cost the State and consumers billions. They’ll fight for deregulation at any cost.

“In Mordialloc, Victoria residents have just been advised that their apartments are no longer fit to occupy due to combustible cladding and significant fire risk. 

“We now have legislation that begins to address the issues of shoddy workmanship and defective construction work and the Victorian Liberals oppose it.

“Where is their commitment to helping the thousands of families who cannot live in apartments they’ve paid for, or face huge bills due to dodgy construction work and design?

Mr Noonan said that Victoria was in the extraordinary position of having no registration scheme for engineers.

“In Victoria, anyone can call themselves an engineer. Builders, electricians and plumbers all need to be registered but the people who design the buildings they construct do not.

“Construction workers who drive cranes, erect steel and build scaffold are required to have high risk licences to ensure site safety. Yet the Liberal Party doesn’t think engineers, who are crucial to site safety should be registered and accountable? They are again putting profits ahead of safety.

“The failure to register engineers and the failure of government regulation in the building and construction industry more generally goes a long way to explaining why we now have a crisis that is bringing the sector to its knees.

“It’s time for the Victorian Liberals to quit being part of the problem and start being part of the solution. Support the registration of engineers in Victoria now.”

The Future Of Cash – A Questionnaire

We look at the future of cash in the light of the emergence of a global digital currency, and the paper released for discussion by the Reserve Bank of New Zealand.

https://www.rbnz.govt.nz/notes-and-coins/future-of-cash

New Zealand viewers have until 31st August to make a submission.

Time For A New Global Currency? – The Property Imperative Weekly 24 August 2019

The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.

Contents:

Global Scene: 0.00 – Trade Wars: 1:08 – Gold: 8:00 – New Reserve Digital Currency: 10:51 – Global Markets: 15:30 Australia: 17:41 – Property Auction And Prices: 18:28 – First Time Buyers: 25:45 – Building Defects: 27:15 – Economic Data: 33:28 – Local Markets; 37:20 – Cash Ban: 43:45

Auction Results 24 Aug 2019

Domain have released their preliminary results for today.

The trends continue with higher clearance rates on lower volumes than a year ago. There were 1,605 listed then, compared with 1,175 now. The value is significantly lower also.

Canberra listed 33, confirmed 22 and sold 17, with 3 withdrawn and 5 passed in to give a Domain clearance of 65%.

Brisbane listed 74, confirmed 31 and sold 19 with 3 withdrawn and12 passed in to give a Domain clearance of 56%.

Adelaide listed 35, confirmed 16 and sold 12 with 1 withdrawn and 4 passed in to give a Domain clearance of 71%.

A New Global Currency?

Mark Carney, Bank of England Governor has given a given a significant speech at the Jackson Hole symposium in which he outlines some potential steps to a new global currency. He argues that just as Sterling transitioned to the US Dollar in the 1930s’s, something similar could occur again. But rather than having a battle of competing reserve currencies, perhaps an alternative path is possible via a Synthetic Hegemonic Currency (SHC). This might be based on a network of central bank digital currencies, rather than something like Libra.

This folks is a big deal – when aligned with the reduction in cash, the migration to digital currencies, and globalisation. The potential implications are immense!

Technology has the potential to disrupt the network externalities that prevent the incumbent global reserve currency from being displaced.

Retail transactions are taking place increasingly online rather than on the high street, and through electronic payments over cash. And the relatively high costs of domestic and cross border electronic payments are encouraging innovation, with new entrants applying new technologies to offer lower cost, more convenient retail payment services.

The most high profile of these has been Libra – a new payments infrastructure based on an international stablecoin fully backed by reserve assets in a basket of currencies including the US dollar, the euro, and sterling. It could be exchanged between users on messaging platforms and with participating retailers.

There are a host of fundamental issues that Libra must address, ranging from privacy to AML/CFT and operational resilience. In addition, depending on its design, it could have substantial implications for both monetary and financial stability.

The Bank of England and other regulators have been clear that unlike in social media, for which standards and regulations are only now being developed after the technologies have been adopted by billions of users, the terms of engagement for any new systemic private payments system must be in force well in advance of any launch.

As a consequence, it is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies.

Even if the initial variants of the idea prove wanting, the concept is intriguing. It is worth considering how an SHC in the IMFS could support better global outcomes, given the scale of the challenges of the current IMFS and the risks in transition to a new hegemonic reserve currency like the Renminbi.

An SHC could dampen the domineering influence of the US dollar on global trade. If the share of trade invoiced in SHC were to rise, shocks in the US would have less potent spillovers through exchange rates, and trade would become less synchronised across countries.

By the same token, global trade would become more sensitive to changes in conditions in the countries of the other currencies in the basket backing the SHC.

The dollar’s influence on global financial conditions could similarly decline if a financial architecture developed around the new SHC and it displaced the dollar’s dominance in credit markets. By reducing the influence of the US on the global financial cycle, this would help reduce the volatility of capital flows to EMEs.

Widespread use of the SHC in international trade and finance would imply that the currencies that compose its basket could gradually be seen as reliable reserve assets, encouraging EMEs to diversify their holdings of safe assets away from the dollar. This would lessen the downward pressure on equilibrium interest rates and help alleviate the global liquidity trap.