Tag: ABA

ABA Rejects View That Bank Wealth Advisors Sidestep FOFA

The Australian Bankers’ Association has today strongly rejected the claim by Industry Super Australia that banks ‘sidestep’ Future of Financial Advice protections when advising customers on superannuation.

Investment-Pic2They were reacting to strong claims made today by ISA:

The big four banks have been luring people away from industry super funds and into poorer performing super products, an industry super advocacy group claims.

Industry Super Australia says there has been a significant increase in people signing up to bank-owned super funds as the major banks ramp up their over-the-counter superannuation sales advice.

Industry Super’s chief executive David Whiteley says the banks’ super products typically delivered lower investment returns than industry super funds.

“There’s a real risk now of people walking into a bank and ending up as a member of a super fund that is worse than the fund they were already a member of,” he told AAP on Tuesday.

“The implication for the consumer is that they’ll retire with less, or they may have to work longer, or they will become more reliant on the aged pension.”

Mr Whiteley said the group’s analysis of data from Roy Morgan Research found that the big four banks had doubled their over-the-counter super sales advice between 2011 and 2015.

“The figures show direct advice is growing quickly and at the expense of traditional channels including financial advisers,” he said.

The research also found that customers were being switched from funds with higher net satisfaction and performance into funds with lower satisfaction and performance, he said.

And, unlike financial advisers, bank staff, who are often given incentives to sell the super products, don’t have to meet best interest obligations, he said.

“General advice direct from a bank does not need to meet the best interest obligations and it is likely the banks are using this and linked sales incentives to funnel customers into underperforming funds.”

Industry Super Australia wants banks to be required to perform a better-off test to demonstrate a customer would not be worse off if they switched funds.

It also wants a ban on all sales incentives relating to superannuation.

ABA responds:

“It is ridiculous to claim that the increase in major banks’ superannuation market share points to ‘obvious market failure’,” ABA Executive Director – Retail Policy Diane Tate said.

“Banks have made significant investment to change their practices and systems to comply with the Future of Financial Advice laws, banning conflicted remuneration and introducing a best interest duty,” she said.

“We also support new legislation to raise education, ethical and professional standards for all financial advisers.”

Ms Tate said customers want a one-stop-shop for their basic banking and financial services.

“Banks are using technology to make sure their customers have the convenience of being able to access all their products and services in one place, like using their smartphone, and with the confidence their money is secure.

“Banks have raised the competency and ethical standards of financial advisers. For example, just last month the industry announced a new way of hiring financial advisers to stop advisers with poor conduct records moving around the industry.

“We have also established an independent review into how banks pay staff and reward them for selling products and services,” she said.

“Industry super funds are competitors with banks. If only this was a campaign about doing the right thing by customers; but really it is just a competitive play,” Ms Tate said.

Banking Industry Announces Improved Hiring Of Financial Advisers

The Australian Bankers Association says to help banks employ only competent and ethical financial advisers, the banking industry has today announced a new, improved way of hiring financial advisers.

This relates to wealth advisors only, not mortgage brokers. Why not extend it to all types of advice? You could also argue they should be doing this anyway, as part of best practice recruitment.

Piggy-Bank-3

“Sometimes a financial adviser can be removed from one financial institution for poor conduct, only to turn up working and continuing their poor practices at another,” Australian Bankers’ Association Executive Director – Retail Policy Diane Tate said.

“To help avoid this, the banking industry has developed a protocol to make it easier to check how financial advisers have performed in previous jobs.

“This will better identify financial advisers who have not met the industry’s minimum legal and ethical standards, and help employers make more informed recruitment decisions,” she said.

The protocol sets minimum standards for checking references and sharing information, through a series of standardised questions and record keeping practices.

“This is an important step by the banking industry to improve the quality of advice, support the professionalisation of the financial advice industry and build trust and confidence in banks,” Ms Tate said.

“The subscribing licensees to the protocol represent 38% of the entire financial advice market. The more widespread this is, the more effective it will be in making sure individuals with poor conduct records don’t move around the industry,” she said.

Banks and other financial advice providers can become a subscribing licensee by contacting the ABA.

Ms Tate said banks and regulators agreed on the need for financial institutions to do more to improve recruitment of financial advisers.

The protocol was developed with input from regulators and other stakeholders. Subscribing licensees will need to make changes to their recruitment practices to comply with the protocol by 1 March 2017.

“The ABA is also progressing work on establishing an industry register of conduct breaches covering all bank employees, which was announced in April as part of new initiatives to address concerns with conduct and culture in banks,” Ms Tate said.

The following table sets out the subscribing licensees to the Protocol.

Name  Subscribing licensee
AMP AMP Financial Planning (AFSL 232706)
Charter Financial Planning (AFSL 234665)
Hillross Financial Services (AFSL 232705)
ipac (AFSL 234656)
SMSF Advice (AFSL 234664)
Australia and New Zealand Banking Group ANZ Financial Planning (AFSL 234527)
Elders Financial Planning (AFSL 224645)
Financial Services Partners (AFSL 237590)
Millennium3 Financial Services (AFSL 244252)
Ri Advice Group (AFSL 238429)
Bendigo and Adelaide Bank Bendigo Financial Planning (AFSL 237898)
Commonwealth Bank BW Financial Advice (AFSL 230727)
Commonwealth Financial Planning (AFSL 231139)
Commonwealth Private (AFSL 314018)
Commonwealth Securities (AFSL 238814)
Count Financial (AFSL 227232)
Financial Wisdom (AFSL 231138)
Macquarie Group Macquarie Equities (AFSL 237504)
National Australia Bank Apogee Financial Planning (AFSL230689)
Garvan Financial Planning (AFSL230692)
Godfrey Pembroke (AFSL 230690)
JBWere (AFSL 341162)
Meritum Financial Group (AFSL245569)
MLC Financial Planning (AFSL230692)
NAB Financial Planning (AFSL 230686)
NAB Financial Planning Self Employed (AFSL 230686)
Suncorp Group Suncorp Financial Services (AFSL 229885)
Westpac Magnitude Group (AFSL 221557)
Securitor Financial Group (AFSL 240687)
Westpac Banking Corporation (AFSL 233714)

“Cosy” Terms of Reference For Big Four Banks Hearings

The Government has released the terms of reference which will govern the appearance of the big four banks before the Standing Committee On Economics.

Bank-Graphic

The Treasurer has asked the committee to hold public hearings at least annually with the four major banks focusing on:

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

Given the aim of the appearances was to counter calls for a Royal Commission on the finance sector, they do appear very gentle. Whilst there are some culture-related issues being handled by the ABA’s internal processes, sharper question about remuneration practices, complaints as well as structural and organisational issues should be on the agenda, if the sessions are to have teeth. For example:

  • How does the vertically integrated business structures, across banking, wealth and insurance, and from advice through to sales and service (both via internal and third party channels) impact consumer outcomes?
  • Do commission arrangements degrade the quality of advice, product fit and price consumers receive?
  • What are the root causes of the recent raft of poor practice and complaints. What is being done to address them?

The committee does include cross-party representation, but with a noticeable bias towards the current governing parties!

The voice of smaller competitors and consumers of bank services will not be heard though this process.

It all feels rather cosy!

ABA Welcomes Federal Government’s review into external dispute resolution

The Australian Bankers’ Association has today welcomed the release of the terms of reference of the Federal Government’s review into external dispute resolution.

Complaint-TTy

“The handling of customer complaints is a major factor in people’s trust in their financial institution,” the ABA’s Executive Director – Retail Policy, Diane Tate, said.

“Banks want to help customers work through any problems to avoid the need for external dispute resolution, however, in some instances it is necessary.

“It’s important to make sure that external dispute resolution works well. Customers need to know how and where to get a complaint or dispute resolved,” she said.

“The ABA supports broadening external dispute resolution schemes so more people have access to them if needed. This includes considering increasing the monetary limit on the claims that the Financial Ombudsman Service can assess and on the amount of compensation it can award.

“The ABA looks forward to working with the Government on this review to help ensure people have easier and greater access to get a problem resolved,” Ms Tate said.

“Banks are also taking steps to improve complaints handling processes. Banks will appoint dedicated customer advocates to offer support and give customers a greater voice when things go wrong.

“Banks are also making sure that if a dedicated program is needed to deal with a more difficult problem, these remediation programs operate effectively,” she said.

“This is part of a range of measures recently announced by the banking industry to enhance customer protections, increase transparency and accountability and build trust and confidence in banks.”

ABA Responds To Government’s Invitation To Brief On Interest Rate Decisions

The Australian Bankers’ Association today responded to the Federal Government’s invitation for banks to brief a parliamentary committee on interest rate decisions.

Piggy-Bank“The Federal Government is entitled to call the banks before a parliamentary committee, however no other businesses are required to justify their commercial pricing decisions in this way,” ABA Chief Executive Steven Münchenberg said.

“We are confident banks can explain why the interest rates they set for borrowers are determined largely by the costs of funds and the pressures of a highly competitive market, not the Reserve Bank cash rate,” he said.

“Since the start of the global financial crisis, over eight years ago, the Reserve Bank’s cash rate has not mirrored the actual funding costs of banks. Banks have explained repeatedly why the Reserve Bank does not set interest rates.”

The ABA has pointed out that one example of higher bank funding costs comes from the recent announcements by a number of banks that they are raising deposit interest rates.

“About two-thirds of bank funding comes from deposits and banks have raised interest rates on a range of those deposits, even as the Reserve Bank cut the cash rate,” Mr Münchenberg said.

“This is great news for the many Australians, in particular seniors, who rely on their savings in retirement and who are being squeezed by low interest rates. At the same time, those Australians with a mortgage continue to enjoy the lowest interest rates in over 50 years,” he said.

“As well as higher deposit costs, we have seen increases in banks’ short-term funding in wholesale markets. Banks are also having to build their capital to withstand any future shocks, which adds further pressure on their margins.

“In making interest rate decisions, banks have to balance the needs of borrowers and savers, and shareholders in banks, most of whom are also ordinary Australians.

“The industry welcomes the opportunity to discuss the international and domestic context for banks, and how we are responding to concerns around bank practices.”

ABA released details of the independent review of the Code of Banking Practice

The Australian Bankers’ Association has today released details of the independent review of the Code of Banking Practice, which sets standards of good conduct for banks.

The Code of Banking Practice (the Code) is the banking industry’s code of conduct which sets standards of good banking practice for banks to follow when dealing with their individual and small business customers and their guarantors. The latest version for the Code is known as the Code of Banking Practice (2013).

The Code provides for a review of the Code every five years or earlier if the member banks of the Australian Bankers’ Association (ABA) request the ABA to do so. As part of the industry initiatives announced on 21 April 2016, the ABA’s member banks have requested the ABA to commission an independent review of the Code and to complete this review by 31 December 2016. The ABA commissions this Code review on 7 July 2016. Here are the terms of reference.

Objectives

The banking industry recognises that customers and the wider community expect banks to make sure they have the right culture, the right practices, and the right behaviours.

The Code review will make sure the offer of banking products and services is done in a way that further lifts standards, accessibility and transparency across banking and bolsters the existing strength of the regulatory framework.

Banks are committed to improving their practices and continuing to meet customer needs and community expectations. We want to make sure our Code of Banking Practice is effective in enhancing banks’ capacity to serve consumer interests and to building trust and confidence in banks.

To achieve this, the independent review will:

  • Consider the effectiveness of the Code and identify the relevance and operation of the Code and changes which have occurred in the legal and regulatory environment, including self-regulation, and changes anticipated in banking services
  • Understand and collate views about banking practices to ensure the Code continues to set standards for good banking practices building on banks’ legal obligations and other relevant industry codes, standards and guidelines and reflecting consumer needs and behaviour and community expectations
  • Make recommendations on how the banking industry can strengthen the operation of the Code and promote informed and effective relationships between banks and their individual and small business customers
  • Give attention to the initiatives contained in the industry announcement on 21 April 2016 and other recent initiatives and the extent to which these commitments should be contained in the Code, and
  • Ensure banks and consumers are clear about their rights and responsibilities and that the Code articulates the standards of behaviour expected of banks, including promotion of the Code.

Scope

The review will cover all provisions of the Code and any additional matters considered relevant to be included in the Code.

The Code reviewer will give specific attention to assessing and considering:

  1. Purpose and role of the Code in setting the standards for good banking practices and the benefits that the Code provides to banks and their individual and small business customers.
  2. Structure of the Code and clarity in communicating the standards for good banking practices to banks and their individual and small business customers.
  3. The extent to which the Code demonstrates banks’ commitment to putting their individual and small business customers first.
  4. The effectiveness of the key commitments of banks and whether these commitments meet consumer and community expectations to:
    1. Promote better informed decisions about banking services.
    2. Provide information about the rights and obligations of banks and their individual and small business customers in relation to banking services, including raising awareness of the legal and regulatory frameworks governing banks.
    3. Act fairly and reasonably towards individual and small business customers in a consistent and ethical manner.
    4. Comply with all relevant laws and regulations relating to banking services.
    5. Take reasonable measures to provide relevant information and enhance accessibility for people in remote Indigenous communities, older persons and customers with a disability.
    6. Provide hardship assistance to individual and small business customers experiencing financial difficulties.
    7. Resolve complaints and disputes between banks and their individual and small business customers.
    8. Provide appropriate staff training, including on discharging their functions, providing banking services and knowledge of the Code.
    9. Promote the existence of the Code.
  5. The role and mandate of the Code Compliance Monitoring Committee (CCMC), the appropriateness of the differences between the CCMC mandate and clause 36 of the Code, and incentives for compliance by banks with the Code.
  6. The operation of the Branch Closure Protocol, taking into account the recent review and changes made to ensure the effective operation of the Protocol.

In addition, the Code reviewer will have regard to the following:

  1. Definitions, including practical definitions of banking services and small business.
  2. Recognition of the needs of communities in remote, rural and regional areas.
  3. Dealing with the particular needs of agricultural small businesses with respect to banking services.
  4. Direct debits and recurring payments made using a debit or credit card.
  5. Notice provided by banks with regards to any changes with a banking service.
  6. Guarantees provided by a person for the purpose of securing finance or a facility for another individual or small business customer and joint debts.
  7. Laws and regulations covering banking services to individual and small business customers and the extent to which new legal obligations to act in the client’s best interest and responsible lending principles are addressed or require any amendment to the Code.
  8. Treatment of disclosures and communications between banks and their individual and small business customers about products, services, and the costs of these products and services and the evolving technological developments in banking services and electronic communications, including the provision of bank statements to customers.
  9. Sales and distribution and advertising and marketing practices of banks.
  10. The extent the Code covers the practices and qualifications of intermediaries and others banks use in the course of providing banking services.
  11. Commitments to accessibility and financial inclusion, including account suitability and basic bank accounts, financial literacy and the implications of technology developments on banking services.
  12. The desirability for the Code to provide for banks to develop standards for communicating and dealing with vulnerable customers including older persons, customers with a disability and Indigenous customers.
  13. The desirability of the Code to include minimum standards for working with small business customers in financial distress. For example, customer communication; notice period for enforcement actions; on request by the customer, disclosing independent valuation reports of its small business customer obtained by the bank and paid for by their customer; and ethical standards of receivers/ managers (particularly for rural properties with livestock).
  14. The desirability of the Code to set a reasonable compliance timeframe for a small business customer to comply with a bank’s notice of demand and circumstances in which a minimum timeframe should not apply having regard to the provisions of clause 28 of the Code for the bank to work with the customer to try and help their customer overcome its financial difficulties with its credit facility.
  15. The desirability of the Code to include minimum standards for the offer of credit cards, and specifically whether minimum repayment requirements or alternatives should be prescribed.

In addition, the Code reviewer is asked to consider whether the Code ought to comply, and whether it does comply with, ASIC’s Regulatory Guide 183: Approval of financial sector codes of conduct [RG 183]2.

Clause 14.3 of the CCMC mandate requires the CCMC to arrange a periodic review of its activities to coincide with a review of the Code. The Code reviewer is also asked to conduct a review of the activities of the CCMC concurrently with this review. This separate and independent review is given under instructions from the CCMC. More information about this review can be found at www.ccmcreview.cameronralph.com.au.

Independent Reviewer

The ABA has appointed Mr Phil Khoury, Managing Director, Cameron Ralph Pty Ltd, an independent person with relevant qualifications and experience to conduct this review.

In commissioning this Code review and identifying the Terms of Reference, the ABA has sought the views of the ABA’s Consumer Stakeholder Forum and a number of other stakeholders.

The Code reviewer will conduct the review publicly in consultation with:

  1. consumer and small business organisations

  2. financial services industry representatives

  3. Finance Sector Union and employees of banks

  4. relevant regulatory bodies

  5. member banks, and

  6. other interested stakeholders.

The ABA says:

“The Code of Banking Practice (the Code) is important in helping individual and small business customers understand how they can expect to be treated by their bank,” ABA Chief Executive Steven Münchenberg said.

“The independent review will determine if the Code continues to serve customers’ interests and it will make recommendations on how it could be improved,” he said.

Following consultation with stakeholders and banks, Mr Phil Khoury, Managing Director of Cameron Ralph Pty Ltd, has been appointed to conduct the review of the Code.

Mr Khoury will consult with banks, consumer and small business organisations, the Finance Sector Union and employees of banks, regulators and other stakeholders.

In April this year the ABA announced a review of the Code as part of major industry initiatives to build trust and confidence in banks. Mr Ian McPhee AO PSM is independently overseeing the industry initiatives, including this review.

Background:

The Code sets standards of good banking practice when dealing with individual and small business customers and their guarantors. The Code covers obligations for banks in areas including the offer of banking services, information and disclosure, complaints handling, customers with special needs and customers experiencing financial difficulty.

Banks that adopt the Code must reflect this in their contracts with their individual and small business customers and are therefore contractually bound by their obligations.

More information on the Code, including FAQ’s, is available on the ABA website.

Bank Fees Rose More than 3% Over The Year

According to the Australian Bankers Association, total bank fees paid by households and businesses were $12.5 billion in 2015. This is an increase of 3.4 per cent over the year, (which is significantly higher than inflation). The ABA report, Fees for banking services, was released, on the same day as the latest analysis from the RBA.

The mix of fees has changed, with more drawn from loans and payments, whilst fees on transaction accounts – a product used by virtually every household – are now at the lowest level in 15 years. Fees have fallen by $1 billion or 51 per cent since the peak in 2008, yet the number of transactions has increased by around 60 per cent over that same time.” “Households are paying an average of $9 a week in bank fees – the same as what we were paying in 2004”

The ABA highlighted the increased volumes of products and services accessed. “Banks provide around six million housing loans and last year alone approved more than 900,000 new home loans. The number of credit card accounts also increased last year by more than half a million to 13.5 million. So, the growth in fees paid on home loans and credit cards is low given many more of these products are in the market”

The RBA data, contained in the latest Bulletin, shows overall growth of 3.5%.

Bank-Fees-2016Banks’ fee income from households grew by 2.9 per cent in 2015, the third consecutive year of positive growth. Higher fee income largely reflected growth in fee income from credit cards, which grew strongly for the second consecutive year. Growth in housing and personal lending fees was moderate, while fee income from deposit products declined in 2015. Fee income from credit cards, the largest single source of fee income from households, increased strongly in 2015. The increase in fee income from credit cards was due to both more instances of fees being charged and an increase in unit fees on some products. An increase in currency conversion fees incurred by households for overseas purchases was largely a result of an increase in the number of foreign currency transactions, with only a small increase in average unit fees. Banks increased some unit fees during 2015, in particular those relating to credit card annual fees and cash advances. Several banks also increased fee income from credit cards through the acquisition of existing credit cards from other providers.

Bank-Fees-2016-2The main drivers of modest growth in fee income on personal lending were higher unit fees and increased turnover. Some banks also increased lending volumes, resulting in higher establishment and loan registration fee income. Exception fees and transaction fees on personal lending declined. Growth in fee income from housing loans was consistent with housing credit growth during 2015. Higher fee income was due to a higher volume of new loans, more instances of early repayment fees and, to some extent, higher unit fees on home loan packages. The major banks and large regional banks recorded the highest growth in housing loan fee income, while some smaller regional banks reported declines in fee income as a result of lower volumes of loans.

Fee income from deposit accounts declined further over 2015. The decline in fee income was broad based across most types of deposit fees, but there were notable declines in fee income relating to non-transaction accounts such as term deposits and online savings accounts.

Total fee income from businesses increased by 3.9 per cent, primarily reflecting higher fee income from small businesses. By product, growth in fee income from businesses continued to be driven by merchant fees and business loans. Fee income from bank bills declined sharply in 2015, similar to previous years. Fee income from other business products was little changed. The increase in loan fee income was mainly due to increases in unit fees for small business loans, although lending volumes also increased. Loan fee income from large businesses declined over 2015 as several banks lowered their unit fees due to increased competitive pressures.

Bank-Fees-2016-3Growth in merchant fee income over 2015 was evenly spread across small and large businesses. The increase in income from merchant fees was largely a result of growth in the number and value of transactions, resulting from a higher number of merchant terminals on issue and increased use of contactless payments. This partially offset a decline in fees earned on cash payment services, via ATM and deposit account withdrawals. A few banks also increased unit fees on merchant services, although the ratio of merchant fee income to the value of credit and debit card transactions continued to decline during 2015. Fee income from business deposit products also declined slightly. This was mainly due to a reduction in deposits held by these customers; however, the decline in fee income was also the result of customer switching between deposit accounts in order to make use of lower fee products.

SME’s Get New Loan Information Portal

A new website – financingyoursmallbusiness.com.au – has been developed the by ABA, in conjunction with CPA Australia and with the support of the Council of Small Business Australia (COSBOA) and NSW Business Chamber. It features a step-by-step guide to completing a loan application, including the do’s and don’ts, with particular emphasis on preparing a business plan

ABA Chief Executive Steven Münchenberg said.

Banks approved $88 billion in new small business loans last year, which is $11 billion more than two years ago. While banks’ lending to the small businesses sector is strong, we recognise that for some small businesses being able to access finance is still a concern. To help with this, we have developed a new website that explains what banks look for in assessing loan applications. It also shows how different types of finance may suit different small businesses. We realised that small businesses would benefit from guidance on how to present information in a loan application that goes beyond just providing the company accounts.

CPA Australia Chief Executive Alex Malley said the ability of small business to articulate the how and why of their venture is extremely important to the success of their loan application.

If we have small businesses growing, spending on new plant and equipment and expanding their markets, then they are sustaining and creating jobs and that’s precisely what our nation needs.

COSBOA CEO Peter Strong said:

This is a great initiative by the banking industry and will help people who want to start, buy or expand a business save time and stress.

NSW Business Chamber Chief Executive Stephen Cartwright said:

For small to medium businesses having access to finance is crucial to their success. Having this resource for SMEs to understand the right type of finance for their needs will help maximise their potential and in turn, help Australia’s economy to grow.

They also released a report on small business lending. Their key findings on small businesses in Australia and banks’ lending to the sector are below. The full economic report is available on the ABA website.

  • There are just over two million small businesses in Australia.
  • The rate of formation of small businesses is strong while the exit of businesses due to financial difficulty has fallen from its post global financial crisis (GFC) highs.
  • Small businesses employ 4.7 million people equating to 44.0 per cent of all jobs in Australia.
  • Small businesses contributed about one third of all industry value-added over 2013-14.
  • About 30 per cent of small businesses have no debt.
  • About half of small businesses have a business loan facility other than a credit card.
  • There are about 1 million loans provided to small businesses.
  • Bank loans to small businesses (where the loan amount is under $2 million) totalled $261 billion in December 2015.
  • Almost half of all small business loan outstandings are less than $100,000.
  • The interest rates on small business loans are at generational lows.
  • Almost nine in every ten small businesses say they do not see access to finance, or the capacity to finance further growth in their business, as an ‘issue’.