Australia and New Zealand Banking Group Limited (ANZ) has complied
with the Court Enforceable Undertaking (CEU) entered into with ASIC in
March 2018 regarding ANZ’s fees for no service conduct for its Prime
Access service.
On 31 May 2019, ASIC received an audited attestation from ANZ signed
by Mr Michael Norfolk, Managing Director Private Banking and Advice, and
an independent expert report from Ernst & Young (EY).
ASIC is satisfied with the audited attestation and the independent
expert report. Compliance with the obligations under the CEU is now
finalised, save for the payment of some remaining refunds due to
clients, to be completed by mid-July 2019.
ANZ has attested to the following as required under the CEU:
the changes to ANZ’s systems, controls and processes that have been implemented in response to the fees for no service conduct;
subject to (c), that ANZ has provided documented annual reviews to
Prime Access customers who were entitled to such reviews in the period
from January 2014 to March 2018;
in the 1,410 instances where documented annual reviews were found to
have not been provided, ANZ is in the process of refunding those
customers (with remediation expected to be complete by mid-July 2019);
and
that ANZ now has systems, controls and processes that seek to ensure
documented annual reviews are being provided, and that instances of
non-delivery are detected and remediated.
ASIC is aware that ANZ has announced it will no longer offer the
Prime Access service to new customers and will phase it out for current
customers over the next 18 months. ASIC will monitor the phasing out of
Prime Access.
APRA says it has issued directions and additional licence conditions to AMP Superannuation Limited and N.M. Superannuation Proprietary Limited (collectively AMP Super).
APRA has imposed the directions and additional licence conditions to address a range of concerns regarding AMP Super’s compliance with the Superannuation Industry (Supervision) Act 1993 (SIS Act). The action arises from issues identified during APRA’s ongoing prudential supervision of AMP Super, along with matters that emerged during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The new directions and conditions are designed to deliver enhanced member outcomes by requiring AMP Super to make significant changes to its business practices. Areas identified for improvement include conflicts of interest management, governance and risk management practices, breach remediation processes, addressing poor risk culture and strengthening accountability mechanisms. The directions also require AMP Super to renew and strengthen its board.
Additionally, APRA requires AMP Super to engage an external expert to report on remediation and compliance with the new directions and conditions.
This is the second time APRA has used the broader directions power that was granted in April following the passage of the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2019. It also demonstrates APRA’s commitment to embedding the “constructively tough” enforcement appetite outlined in April’s new Enforcement Approach
A somewhat obscure fact about the marching orders for Australia’s Reserve Bank is that, usually, when a government is elected or re-elected or a new governor takes office, the official agreement between the government and the Reserve Bank changes.
There have been seven such agreements so far, each signed by the
federal treasurer and bank governor of the time, and each entitled “Statement on the Conduct of Monetary Policy”.
The first was signed by treasurer Peter Costello and incoming
governor Ian Macfarlane in 1996, the second when Costello reappointed
Macfarlane in 2003, and the third when Costello appointed Glenn Stevens
in 2006.
The fourth was between new treasurer Wayne Swan and Stevens on
Labor’s election in 2007, and the fifth between Swan and Stevens on
Labor’s reelection in 2010.
The sixth was between incoming treasurer Joe Hockey and Stevens on
the Coaition’s election in 2013, and the most recent one between
treasurer Scott Morrison and incoming governor Philip Lowe in 2016.
The current agreement begins this way:
The Statement on the Conduct of Monetary Policy (the Statement) has
recorded the common understanding of the Governor, as Chair of the
Reserve Bank Board, and the Government on key aspects of Australia’s
monetary and central banking policy framework since 1996.
For nearly a quarter of a century, as the statement goes on to note,
there has been a core component of how monetary policy is conducted:
The centrepiece of the Statement is the inflation targeting
framework, which has formed the basis of Australia’s monetary policy
framework since the early 1990s.
But over the years, there have been tweaks. One was this change between the 2013 and 2016 statements.
Effective management of inflation to provide greater certainty and to
guide expectations assists businesses and households in making sound
investment decisions…
The change from “low inflation” to “effective management of
inflation” sounds subtle, but was no accident. It gave the Reserve Bank
extra wiggle room around the inflation target.
And boy, did it come in handy.
The target that’s rarely met
The big question about the agreement is whether the next one (between
Frydenberg and Lowe on the Coalition’s reelection) will tweak the
target again, change it completely, or do something in between.
Because it presumably can’t remain the same.
One reason to think it will change, perhaps significantly, is the
bank’s utter inability to even get particularly close to its target
inflation band of 2-3%, let alone to get within tit, “on average, over time” as required by the agreement.
You might not think this matters too much. But it does.
The inflation target is crucial in setting stable expectations for consumers, businesses and markets.
Don’t just take my word for it.
Here is what the previous Reserve Bank governor, Glenn Stevens, said in his last official speech before handing over to Philip Lowe in August 2016:
From 1993 to 2016, a period of 23 years, the average rate of
inflation has been 2.5% – as measured by the CPI, and adjusting for the
introduction of the goods and services tax in 2000. When we began to
articulate the target in the early 1990s and talked about achieving
“2–3%, on average, over the cycle”, this is the sort of thing we meant. I
recall very well how much scepticism we encountered at the time. But
the objective has been delivered.
As I pointed out last month, expectations about price movements depend on Australians believing that the bank will do what it says it will do.
Once people lose faith in the bank’s commitment to or ability to
achieve the target, inflation expectations become unmoored. People react
to what they think what might happen rather than what they are told
will happen. This is what led to Australia’s wage-price spirals in the
1970s and 1980s, and to Japan’s lost decades of deflation.
Three possible outcomes
One possibility is the same statement, word for word. It would be
meant to signal that the bank and the government think things are under
control.
A second possibility is a tweak that further emphasises the “flexible” nature of the target, along the lines Lowe mentioned in his speech at this month’s Reserve Bank board board dinner in Sydney. It would provide more cover for the bank’s inability to hit its target.
A third option would be to add some discussion of the importance of
fiscal policy – government spending and tax policy – as a complement to
the Reserve Bank’s work on monetary policy. Lowe is keen to mention that
he is keen on it, every chance he gets.
But that would put the government under implicit pressure to run
budget deficits at times like those we are in rather than surpluses.
It’s hard to see the Morrison government signing up for that, given its
repeated talk during the election about the importance of being
“responsible”.
Or something more
At the more radical end of the spectrum would be a genuinely new framework for monetary policy.
In the United States, which has also missed its inflation target,
though by not as much as Australia, there has been much discussion of
moving to a “nominal GDP target”. The range mentioned is 5-6% a year.
Advocates of this include former US Treasury secretary Larry Summers, who outlined his rationale in a Brookings Institution report in mid-2018.
ANU economist and former Reserve Bank board member Warwick McKibbin
championed the idea along with economists John Quiggin, Danny Price and
then Senator Nick Xenophon in the leadup to the 2016 agreement between Morrison and Lowe.
Nominal GDP is gross domestic product before adjustment for prices.
In countries subject to big changes in export prices such as Australia,
it can provide a better guide to changes in income.
When nominal GDP is strong (as it is when minerals prices are high)
consumer spending is likely to be strong – perhaps too strong. When it
is weak (as it is when minerals prices collapse) consumer spending is
likely to be weak and in need of support.
But don’t get your hopes up
Given the natural caution of the bank and of this government, we
should probably expect something at the modest end of the spectrum –
even if something like a nominal GDP target would make sense.
Perhaps what’s most important isn’t what the statement says, but that
it says something and that the Reserve Bank sticks to it. It will lose
an awful lot of credibility if it sticks to nothing.
The trend unemployment rate remained steady at 5.1 per cent, for the third consecutive month. The seasonally adjusted unemployment rate remained steady at 5.2 per cent in May 2019 . But the moving parts are not so hot.
Underemployment was up, to 8.6%, while the total hours worked fell, -0.3%. There was a rise in jobs by 42,300, mainly part-time employment, which helps to explain the rising underemployment. But the results are muddied by ABS sample rotation AND temporary work associated with the election, so watch next month….
Australia’s trend participation rate increased to 65.9 per cent in May 2019, a new high, according to the latest information released by the Australian Bureau of Statistics (ABS).
ABS Chief Economist Bruce Hockman said: “Australia’s participation in the labour force continues to rise with the participation rate up 0.4 percentage points over the past year to an all-time high of 65.9 per cent.”
“The participation rate for people aged 15-64 also climbed to a record rate of 78.4 per cent, with a record 74.3 per cent of people in this age group employed,” Mr Hockman said.
The trend unemployment rate remained steady at 5.1 per cent, for the third consecutive month.
Employment and hours
In May 2019, trend monthly employment increased by around 28,000 persons. Both full-time and part-time employment increased by 14,000 persons.
Over the past year, trend employment increased by 333,000 persons (2.7 per cent) which was above the average annual growth over the past 20 years (2.0 per cent).
The trend monthly hours worked increased by 0.2 per cent in May 2019 and by 2.5 per cent over the past year. This was above the 20 year average year-on-year growth of 1.7 per cent.
Underemployment and underutilisation
The trend monthly underemployment rate rose slightly to 8.5 per cent in May, returning to the same level as May 2018. The trend underutilisation rate decreased by 0.3 percentage points over the year.
States and territories trend unemployment rate
The trend unemployment rate increased by 0.1 percentage points in the Australian Capital Territory, and remained steady in all other states and territories.
“Over the year, unemployment rates fell in New South Wales, Victoria, Queensland and Western Australia, and increased in South Australia, Tasmania, the Northern Territory and the Australian Capital Territory,” Mr Hockman said. Seasonally adjusted data
The seasonally adjusted unemployment rate remained steady at 5.2 per cent in May 2019, while the underemployment rate increased by less than 0.1 percentage points to 8.6 per cent. The seasonally adjusted participation rate increased by 0.1 percentage points to 66.0 per cent, and the number of persons employed increased by around 42,000.
The net movement of employed persons in both trend and seasonally adjusted terms is underpinned by around 300,000 people entering and leaving employment in the month.
The founder and the executive team of online mortgage marketplace HashChing have all left the company, with a new interim CEO taking the helm, via The Adviser.
The
founder and CEO of HashChing, Mandeep Sodhi, along with the key members
of the executive team – including chief operating officer Siobhan
Hayden and chief technology officer Vajira Amarasekera – all left the
company at the end of May.
It had been increasingly looking at new ways to fund its growth and was recently looking to raise funds via a crowdfunding exercise, following its failure to raise $5 million last year via the same means.
In 2018, the mortgage marketplace also sought financial assistance from Jobs for NSW in the form of a $700,000 loan to create new jobs and allow the company to invest in the resources required to continue “expanding rapidly”.
While the company appeared to be operating as usual last month (when it announced it was introducing a deposit-free home loan product), HashChing has since seen a mass exodus of its entire leadership team.
None
of the former members of the executive team were available to comment
about the reasons for their departure – but out-of-office emails show
that Mr Sodhi and Ms Hayden both ceased working at Hashching on 21 May
2019.
Future vision for the platform
A new interim CEO, Arun Maharaj, has now stepped in to head up HashChing and take it through a new “growth stage”.
HashChing
will now focus on becoming a “one-stop digital platform” for all
intermediated financial services, as part of a revamped strategy under
the new executive leadership.
It is also now looking
to a new product strategy to expand the platform’s business into
brokering small-to-medium enterprise (SME) lending.
Sapien
Ventures, together with the company’s second-largest institutional
investor, Heworth Capital, will provide funding for the business at it
expands to generate “convincing traction figures”, before going to the
wider market for fresh growth capital later this year.
HashChing’s
largest venture investor, Victor Jiang of Sapien Ventures, commented on
the platform’s new strategy: “In the aftermath of the banking royal
commission, the need to support the financing of SMEs through
non-traditional channels has increased significantly. Coupled with the
proliferation and increasing market adoption of fintech platform
businesses, we believe that the time is now ripe for HashChing to enter
into SME and commercial lending.”
“Through its online rating and
ranking algorithms that help connect its customer with the most
qualified financial service provider, HashChing has the potential to
become the ultimate destination of choice for a range of intermediated
financial services. In other words, the ‘Uberization’ of everything from
personal mortgages, through to financial advice and SME lending,” he
said.
Noting the departure of the original executive team, Mr Jiang commented: “As
a board, we are very grateful for their tremendous contributions in
getting the business to this point. Now with new capabilities, we look
forward to seeing the business reach a new level of growth and
expansion, as it is set to capitalise on a range of differentiated
market opportunities.”
The new CEO, Mr Maharaj, added: “It’s time
for a proven marketplace platform like HashChing to diversify its
offerings and to think beyond the previous boundaries,” he said.
“This
is an opportunity to evolve an emerging business like HashChing during
its next phase of growth, to transition and position the platform into a
global enterprise with multiple revenue streams.
“The scalability
of such platforms are limitless, as has been demonstrated numerous
times globally. I am thrilled to be taking on this challenge at this
time and am excited to be part of this growth journey,” he said.
Mr
Maharaj was formerly the CEO of stockbroker and wealth management firm
BBY, before its collapse in May 2015 when 10 group companies were placed
into external administration.
CBA has today entered into an agreement to sell Count Financial Limited to ASX-listed CountPlus Limited.
Commonwealth Bank of Australia (CBA) has today entered into an agreement to sell Count Financial Limited (Count Financial) to ASX-listed CountPlus Limited (CountPlus) for $2.5 million (the Transaction). CountPlus is a logical owner of Count Financial given its historical corporate relationship and equity holdings in 15 Count Financial member firms.
CBA will continue to support and manage customer remediation matters
arising from past issues at Count Financial, including after completion
of the Transaction. CBA will provide an indemnity to CountPlus of $200
million and all claims under the indemnity must be notified to CBA
within 4 years of completion. This indemnity amount represents a
potential contingent liability of $56 million in excess of the
previously disclosed customer remediation provisions that CBA has made
in relation to Count Financial of $144 million (which formed part of the
remediation provisions announced in the 3Q19 Trading Update). CBA has
already provided for the program costs associated with these remediation
activities.
The Transaction is subject to a CountPlus shareholder vote to be held
in August 2019 and completion is expected to occur in October 2019. The
Transaction is not expected to have a material impact on the Group’s
net profit after tax.
CBA currently owns a 35.9% shareholding in CountPlus and intends,
subject to market conditions, to sell its shareholding in an orderly
manner over time following completion of the Transaction.
From a financial perspective, the Transaction will result in CBA
exiting a business that, in FY19, is estimated to incur a post-tax loss
of approximately $13 million.
Implications for NewCo
Following completion of the Transaction, NewCo will comprise Colonial
First State, Financial Wisdom, Aussie Home Loans and CBA’s 16% stake in
Mortgage Choice. Consistent with the announcement in March 2019, CBA
remains committed to the exit of these businesses over time. The current
focus is on continuing to implement the recommendations from the Royal
Commission and ensuring CBA puts things right by its customers.
The Australian Prudential Regulation Authority (APRA) has released its response to the first round of consultation on proposed changes to the capital framework for authorised deposit-taking institutions (ADIs).
The package of proposed changes, first released in February last year, flows from the finalised Basel III reforms, as well as the Financial System Inquiry recommendation for the capital ratios of Australian ADIs to be ’unquestionably strong’.
ADIs that already meet the ‘unquestionably strong’ capital targets that APRA announced in July 2017 should not need to raise additional capital to meet these new measures. Rather, the measures aim to reinforce the safety and stability of the ADI sector by better aligning capital requirements with underlying risk, especially with regards to residential mortgage lending.
APRA received 18 industry submissions to the proposed revisions, and today released a Response Paper, as well as drafts of three updated prudential standards: APS 112 Capital Adequacy: Standardised Approach to Credit Risk; the residential mortgages extract of APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk; and APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk.
The Response Paper details revised capital requirements for residential mortgages, credit risk and operational risk requirements under the standardised approaches, as well as a simplified capital framework for small, less complex ADIs. Other measures proposed in the February 2018 Discussion Paper, as well as improvements to the transparency, comparability and flexibility of the ADI capital framework, will be consulted on in a subsequent response paper due to be released in the second half of 2019.
After taking into account both industry feedback and the findings of a quantitative impact study, APRA is proposing to revise some of its initial proposals, including:
for residential mortgages, some narrowing in the capital difference that applies to lower risk owner-occupied, principal-and-interest mortgages and all other mortgages;
more granular risk weight buckets and the recognition of additional types of collateral for SME lending, as recommended by the Productivity Commission in its report on Competition in the Financial System; and
lower risk weights for credit cards and personal loans secured by vehicles.
The latest proposals do not, at this stage, make
any change to the Level 1 risk weight for ADIs’ equity investments in
subsidiary ADIs. This issue has been raised by stakeholders in response to
proposed changes to the capital adequacy framework in New Zealand. APRA has
been actively engaging with the Reserve Bank of New Zealand on this issue, and
any change to the current approach will be consulted on as part of APRA’s
review of Prudential Standard
APS 111 Capital Adequacy: Measurement of Capital later this year.
APRA’s consultation on the revisions to the ADI capital framework is a
multi-year project. APRA expects to conduct one further round of consultation
on the draft prudential standards for credit risk prior to their finalisation.
It is intended that they will come into effect from 1 January 2022, in line
with the Basel Committee on Banking Supervision’s internationally agreed
implementation date. An exception is the operational risk capital proposals for
ADIs that currently use advanced models: APRA is proposing these new
requirements be implemented from the earlier date of 1 January 2021.
APRA Chair Wayne Byres said: “In setting out these latest proposals, APRA has
sought to balance its primary objectives of implementing the Basel III
reforms and ‘unquestionably strong’ capital ratios with a range of important
secondary objectives. These objectives include targeting the structural
concentration in residential mortgages in the Australian banking system, and
ensuring an appropriate competitive outcome between different approaches to
measuring capital adequacy.
“With regard to the impact of risk weights on competition in the mortgage
market, APRA has previously made changes that mean any differential in overall
capital requirements is already fairly minimal. APRA does not intend that the
changes in this package of proposals should materially change that calibration,
and will use the consultation process and quantitative impact study to ensure
that is achieved.
“It is also important to note that the proposals announced today will not
require ADIs to hold any capital additional beyond the targets already
announced in relation to the unquestionably strong benchmarks, nor do we expect
to see any material impact on the availability of credit for borrowers,” Mr
Byres said
The Swiss bank has revealed plans to launch a comprehensive strategic wealth management partnership in Japan, via InvestorDaily.
UBS
and Sumitomo Mitsui Trust Holdings Inc. (SuMi Trust Holdings) have
agreed to establish a joint venture, 51 percent owned by UBS, that will
offer products, investment advice and services beyond what either UBS
Global Wealth Management or SuMi Trust Holdings is currently able to
deliver on its own.
The JV will open UBS’s current wealth
management customer base to a full range of Japanese real estate and
trust services, while SuMi Trust Holdings’ clients – one of the largest
pools of high-net-worth (HNW) and ultra-high-net-worth (UHNW)
individuals in Japan – will be able to access UBS’s wealth management
services, including securities trading, research and advisory
capabilities.
“No wealth management firm today provides this range
of offerings to Japanese clients under a single roof. UBS expects the
new joint venture to fill this gap by offering expanded products and
services to clients from both franchises,” UBS said in a statement.
“This
is the Japanese market’s first-ever wealth management partnership
developed between an international financial group and a Japanese trust
bank. Subject to receiving all necessary regulatory approvals, the two
companies plan to begin offering each other’s products and services to
their respective current and future clients from the end of 2019. Also
subject to approvals, these activities will ultimately be incorporated
into a new co-branded joint venture company by early 2021.”
UBS Group CEO Sergio P. Ermotti said the Swiss banking giant has over 50 years of history in Japan.
“This
landmark transaction with a top-level local partner will ideally
complement our service and product offering to the benefit of clients,”
he said. “The joint venture is a blueprint for how complementary
partnerships can unlock value for clients as well as shareholders.”
Zenji
Nakamura, UBS’s Japan country head, said the transaction is a boost for
the group’s overall business in Japan, bringing reputational benefits
to its investment banking and asset management units, which fall outside
the alliance.
“It is a new milestone that sends a clear message of long-term commitment to the Japanese market.”
UBS
will contribute all of its current wealth management business in Japan
to the new company, while SuMi Trust Holdings will extend its trust
banking expertise and refer relevant clients to the new joint venture.
Sumitomo
Mitsui Trust Holdings is Japan’s largest trust banking group, with
Sumitomo Mitsui Trust Bank Limited serving as its core business. It
offers a range of services, including banking, real estate, asset and
wealth advisory to individuals and corporate clients. As of end March
2018, it held 285 trillion yen in assets under custody – Japan’s largest
such pool – and a significant portion of those assets come from HNW and
UHNW clients.
UBS boasts over US$2.4 trillion in assets under management. It operates from locations in Tokyo, Osaka and Nagoya.
The two companies have agreed not to disclose the financial details of the transaction.