Tag: ASIC

More CBA Bad News

Ian Narev, will retire by the end of the 2018 financial year it has been announced.

The Chairman of the Commonwealth Bank of Australia, Catherine Livingstone AO, said today that the Board had decided to provide details of its planned Chief Executive succession process to ensure the market is fully informed and to provide certainty for the business.

Managing Director and Chief Executive Officer, Ian Narev, will retire by the end of the 2018 financial year, with the exact timing dependent on the outcome of an ongoing comprehensive internal and external search process.

Succession planning is an ongoing process at all levels of the Bank. In discussions with Ian we have also agreed it is important for the business that we deal with the speculation and questions about his tenure. Today’s statement provides that clarity and will ensure he can continue to focus, as CEO, on successfully managing the business.

Separately, ASIC said the Commonwealth Bank (CommBank) will refund over 65,000 customers approximately $10 million, after selling them unsuitable consumer credit insurance (CCI).

CCI is a type of add-on insurance, sold with credit cards, personal loans, home loans and car loans. It is promoted to borrowers to help them meet their repayments if they become sick, injured or involuntarily unemployed.

CommBank sold ‘CreditCard Plus’, insurance for credit card repayments, to 65,000 customers who were unlikely to meet the employment criteria and would be unable to claim the insurance.

CommBank is also refunding approximately $586,000 in premiums to around 10,000 customers after it over-insured these customers for Home Loan Protection CCI taken out with a Commonwealth Bank home loan, resulting in the over-charging of premiums.

ASIC Deputy Chair Peter Kell said it was unacceptable that customers were sold insurance that did not meet their needs. ‘One of ASIC’s priorities is addressing poor consumer outcomes associated with add-on insurance, including CCI. Consumers should not be sold products that provide little or no benefit, and banks should have processes in place that ensure this.’

CommBank and CommInsure identified and reported this issue to ASIC.

CommBank will be contacting eligible ‘CreditCard Plus’ customers shortly.

Background

CreditCard Plus

CommBank will remediate customers who were sold ‘CreditCard Plus’ between 2011 and 2015 who were either:

  • unemployed; or
  • students.

They were therefore not eligible to claim for unemployment or temporary and permanent disability cover provided by the CCI.  The vast majority of customers were students with lower credit card limits.

Home Loan Protection

Between 2007 and 2015 CommBank did not adjust the amount of cover under the CCI policy where the amount the customer borrowed was less than the original loan amount they applied for.

In charging these customers premiums based on the loan amount applied for rather than the amount that was actually borrowed, CommBank charged these customers for more cover than they needed under the policy. In some cases, cover was also provided and paid for before a loan was drawn down.  CommBank will continue its review to ensure all affected customers are identified and remediated.

ANZ pays further $10.5 million to consumers for OnePath breach

The Australian Securities and Investments Commission (ASIC) has confirmed an additional $10.5 million in compensation for 160,000 superannuation customers who were affected by breaches within the OnePath group between 2013 and 2016.

ASIC has been monitoring the resolution of a number of OnePath breaches. This has resulted in ANZ (the parent company of OnePath) providing further compensation, mainly in relation to incorrect processing of superannuation contributions and failure to deal with lost inactive member balances correctly.

ASIC has also confirmed the finalisation of all recommendations made by an independent review of OnePath’s business activities. The final two recommendations were the last to be implemented after an independent review of OnePath’s compliance functions was announced in March 2016.

The independent review was sought by ASIC, following ANZ reporting a number of significant breaches. The review addressed OnePath’s life and general insurance, superannuation, and funds management activities.

OnePath has contacted the majority of affected customers and finalised the majority of these additional compensation payments. Customers who have queries about whether they are owed compensation or another form of remediation should contact OnePath on 133 665.

ASIC will continue to monitor the breaches reported to us by ANZ until the matters are resolved, including any remediation where appropriate.

Background

The ANZ Group’s subsidiaries with AFS Licences include OnePath Custodians Pty Ltd, OnePath Life Limited, OnePath Funds Management Limited and OnePath General Insurance Pty Limited.

From early 2013 to mid-2015 around 1.3 million OnePath customers were affected by breaches requiring refunds and compensation of around $4.5 million, rectifications and other remediation of around $49 million.

An ANZ spokesperson said:

In March last year we estimated we would reimburse about $4.5 million in relation to compliance breaches that affected 1.3 million customers.

Following detailed analysis this has increased $10.5 million impacting 160,000 customers.

While this work is ongoing, we don’t expect the majority of these customers to receive significant further reimbursements.

As soon as we became aware of issues in 2013 we reported these breaches to ASIC and have fully cooperated with their review of this matter.

In January 2016 we appointed PwC to conduct an independent compliance review, and reported the findings of that review in December 2016.

ASIC reports on Australian bank audits following Wells Fargo misconduct

ASIC has outlined the results of audits conducted by eight banks in Australia following the regulatory action taken in the United States against Wells Fargo Bank, N.A. (Wells Fargo) in late 2016. Overall, the audits did not find evidence of systemic misconduct involving illegal opening of accounts as seen at Wells Fargo.

While not identifying systemic unlawful conduct, the results of the audits indicated that improvements should be made to the sale of consumer credit insurance (CCI), which is leading to further action announced today (refer: 17-255MR).

Conduct at Wells Fargo

In late 2016, Wells Fargo was fined US$100 million by United States regulators after it was found that its staff had systematically and unlawfully opened as many as two million customer accounts since 2011. Many customers incurred fees and other charges as a result.

The misconduct at Wells Fargo involved widespread secret opening of accounts by employees in order hit sales targets spurred by compensation incentives. In most cases, customers were completely unaware that the accounts had been opened.

Audits by Australian banks

Although ASIC did not have information to suggest that similar systemic misconduct had been occurring in Australia, in December 2016 ASIC required eight banks to audit their sales practices. The audits were designed to identify whether aggressive sales targets had driven bank staff to act illegally by issuing products without customer knowledge or consent.

ASIC required audits of:

  • ANZ
  • Bank of Queensland
  • Citibank
  • Commonwealth Bank
  • HSBC
  • NAB
  • Suncorp
  • Westpac

The audits examined processes in relation to three common consumer banking products: basic deposit products, credit cards and CCI from 2014 to 2016. The audits reviewed:

  • Account and product onboarding processes, with a focus on customer acknowledgement and account activation controls;
  • Details of the processes in place to proactively detect potential misconduct arising from sales incentives;
  • Analysis of complaints where customers claimed they had not applied for an account or product;
  • Details of internal reporting processes to ensure senior management had visibility of potential issues; and
  • Organisational whistleblower processes and protections.

All of the audits found that the systemic misconduct that occurred at Wells Fargo had not been occurring in the banks and that, overall, controls were adequate to prevent and identify misconduct.

However, while systemic illegal misconduct was not identified, the audits highlighted CCI as a standout product for customer complaints and at heightened risk for sale without proper informed customer consent. The audits also identified potential weaknesses in account opening and activation controls, record keeping, and change of address processes in relation to CCI. The banks have commenced enhancing their controls and processes in light of the audit findings.

ASIC Deputy Chair Peter Kell said the audits were an example of ASIC proactively responding to potential issues in the market: ‘These audits were all about ensuring that banks were not – intentionally or inadvertently – encouraging illegal sales practices by staff and that the banks have processes in place to identify unlawful selling of retail banking products,’ he said.

Following the audit findings, ASIC has announced today it will be working with the banking industry and consumer advocates to improve sales practices in relation to CCI, including the introduction of a deferred sales model for CCI sold with credit cards over the phone and in branches (refer: 17-255MR).

Changes to bank sales incentives

The Retail Banking Remuneration Review conducted by Mr Stephen Sedgwick AO (published on 19 April 2017) identified that some current sales incentives could promote behaviour that is inconsistent with customers’ interests. All banks involved in the review will be moving away from a primary sales-based reward structure for frontline staff to one that reduces conflicts of interest between staff and customers.

Mr Kell welcomed the banks’ move toward sales incentives based on customer experience: ‘Sales staff should be ensuring first and foremost that consumers understand what they’re purchasing and that what they buy meets their needs. ASIC supports sales processes and incentives that are consistent with these objectives.’

MyState refunds more than $230,000 of over-charged fees and interest

ASIC said MyState Bank Limited (MyState), a Tasmanian bank, has refunded more than $230,000 in over-charged interest and fees to more than 1,040 customers with mortgage offset accounts.

Following a customer complaint, and after a review of its accounts, MyState found that some customers:

  • Did not have their offset accounts linked to their mortgages – meaning that they were over-charged interest
  • Were charged ‘offset account’ fees after their loan had been discharged or changed to a kind that could not be linked to an offset account.

This was due to errors in MyState’s manual administration processes, including failures to link loans and offset accounts, and failures to deal with offset accounts when loans were switched or discharged.

The matter was reported to ASIC by MyState. MyState has worked with ASIC to refund customers and improve its internal processes, including by ensuring employees have appropriate account administration training.

“Banks need to ensure that their products are delivering the benefits that they are promoting,” ASIC Deputy Chair Peter Kell said.

“This is another example of a single customer complaint revealing a systemic issue, and we are pleased that MyState has taken the appropriate action in response.”

MyState has contacted customers who are eligible for a refund. Customers who have questions about their accounts should contact MyState on: 138 001.

Background

MyState is a wholly owned subsidiary of MyState Limited, a national diversified financial services group headquartered in Tasmania.

The breach was detected when a customer enquired about their accounts being linked. MyState conducted a review of accounts set up in a similar manner. MyState found customers with loans and unlinked offset accounts, customers with offset accounts but no loans, and customers with offset accounts together with ineligible loan products.

ASIC consults on proposed financial benchmark regulatory regime

ASIC is seeking feedback on proposed rules for the administration of licensed financial benchmarks.

Initially and consistent with the Council of Financial Regulators (which includes ASIC (?))  advice, the following five benchmarks are likely to meet the criteria for significant benchmarks set out in the proposed legislation:

(a) the BBSW;
(b) Standard & Poor’s (S&P)/ASX 200 index;
(c) the ASX bond futures settlement price;
(d) the cash rate (including the total return index derived from the cash rate); and
(e) the consumer price index.

The proposed legislation requires administrators of significant benchmarks to hold a financial benchmark administrator licence, unless they are exempt from the requirement to hold a licence. Exemptions from the requirement to hold a licence would be rare.

Financial benchmarks are indices or indicators used to:

(a) determine the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments;
(b) determine the price at which a financial instrument may be dealt, or the value of a financial instrument; or
(c) measure the performance of a financial instrument.

As benchmarks affect the pricing of key financial products, a number of benchmarks have become critical to a wide range of users in financial markets and throughout the broader economy. This means there is a risk of financial contagion or instability, or of undermining investor confidence, if the availability or integrity of key benchmarks is disrupted.

Concerns about the integrity and reliability of financial benchmarks have prompted a number of regulatory reform initiatives. The International Organization of Securities Commissions (IOSCO) issued the Principles for financial benchmarks (IOSCO benchmarks principles) in July 2013. The Financial Stability Board (FSB) has also undertaken work on globally significant interest rate and foreign exchange benchmarks.

ASIC will establish a new licensing regime requiring administrators of significant benchmarks to obtain a new benchmark administrator licence from ASIC. Licensees would be required to comply with any conditions on the licence as well as a range of obligations imposed in the legislation.

The Government is currently consulting on draft legislation to implement financial benchmark regulatory reform. ASIC’s consultation is about the licensing regime for administrators of significant benchmarks and ASIC’s rule-making powers in the event the amendments to the Corporations Act are passed by Parliament. This early consultation and preparation will help Australia’s financial benchmark regulatory regime to be implemented more expediently.

Together, the draft legislation and ASIC’s proposals will help to ensure the robustness and reliability of financial benchmarks in the Australian economy in line with the IOSCO Principles for Financial Benchmarks. The proposals are also designed to facilitate equivalence assessments under overseas regimes including the European Benchmarks Regulation.

 

ASIC’s cost recovery framework finalised

ASIC’s cost recovery framework has been finalised, incorporating changes made after broad industry consultation.

The 2017–18 regulatory costs for operating expenditure (excluding depreciation and fee-for-service activities) and capital expenditure will be recovered from the subsectors ASIC regulate.

The levies will also include a clawback of prior year market supervision expenditure that remains unrecovered as at 30 June 2017.

ASIC will not recover the non-ongoing costs associated with the ‘Improving outcomes in financial services’ budget measures, approved in the 2016–17 Budget; these will be recovered by the Australian Prudential Regulation Authority (APRA) through the financial institutions supervisory levies until 30 June 2019. From 1 July 2019, the ongoing costs associated with this measure will be recovered through the ASIC industry funding model.

APRA will continue to recover the costs of the Superannuation Complaints Tribunal through the financial institutions supervisory levies until the 2020–21 financial year, just prior to its abolition.

APRA attributes costs to each subsector based on the amount of effort spent regulating that subsector.

The first invoices will be issued in January 2019 and will recover costs for regulatory services for the 2017–18 financial year.

The invoices will be based on the number of regulated entities in a sector and, in most cases, information provided by regulated entities via ASIC’s new online portal.

 

Report highlights per sector include:

  • Registered liquidators: The fixed component of the levy has been halved to $2,500. The graduated component of the levy will be based on:
    • the number of new and ongoing external administration appointments the liquidator accepts, and
    • the number of prescribed events notified to ASIC and the public during the year.
  • Payment product providers: a flat levy will apply in 2017–18. In 2018–19, this will be replaced by a graduated levy based on revenue from payment product provider activity with a minimum levy of $2,000 payable by all payment product providers.
  • Credit intermediaries: The graduated component of the credit intermediary levy will be charged on the number of authorised representatives the intermediary has at 30 June.
  • Superannuation trustees: The graduated component of the levy will be based on the total value of assets as at 30 June in registrable superannuation entities, excluding assets that are an interest in another registrable superannuation entity operated by the trustee.
  • Responsible entities: The graduated component of the levy will be based on the total value of assets as at 30 June in registered schemes, excluding assets that are an interest in another registered scheme operated by the responsible entity.
  • Crowd Source Funding Intermediaries and Corporate Collective Investment Vehicles: Once licence arrangements are in place, the Government will consider the most appropriate mechanism to recover the costs to regulate these industry participants.
  • Wholesale trustees: a flat levy is proposed in 2017–18. It will be replaced by a graduated levy in 2018–19, based on the value of assets as at 30 June in all unregistered managed investment schemes issued by the trustee with a minimum levy of $1,000 payable by all wholesale trustees. The value of assets that are an interest in another unregistered managed investment scheme operated by the wholesale trustee will be excluded.
  • Operators of an IDPS: a graduated levy based on revenue from IDPS activity undertaken under the entity’s licence will apply with a minimum levy of $10,000 payable by all Operators of an IDPS.
  • Australian market licensees and exchange operators: The levy for large securities exchange operators will be graduated based on the value of transactions traded on each exchange.
  • The costs to regulate market participants will now be split between large securities exchange participants and large futures exchange participants. Participants in these subsectors will be charged a fixed levy of $9,000 per exchange plus a graduated levy based on their share of the subsector’s messages sent and transactions reported on a large securities or futures exchange that are recognised by ASIC’s Market Surveillance System.
  • Securities dealers: The definition of securities dealers has been changed to exclude dealers with a transaction value of less than $250,000.
  • Investment banks: ASIC’s costs to regulate investment banks will now be split between the Corporate Advisor and OTC trading subsectors.
    • Corporate Advisors will be charged a fixed levy of $1,000 and a graduated levy based on revenue above $100,000.
    • OTC Traders will be charged a fixed levy of $1,000 and a graduated levy based on the number of full time equivalent staff engaged in OTC trading activities.
  • Financial advice sector: A fixed levy of $1,500 has been introduced for licensees authorised to provide advice on relevant products. The graduated levy for these licensees is based on the number of advisers on the Financial Adviser Register. Please note that for securities dealers, large securities exchange participants and large futures exchange participants the graduated component will exclude advisers who only provide advice on quoted products, products traded on a foreign financial market or basic banking products.
  • Insurance sector: The definition of insurance product issuers has been expanded to include Australian financial services licensees who make offers to arrange for the issue of insurance products under an intermediary authorisation with an APRA-regulated insurer that does not hold a licence.

Mortgage Broker Commissions In The Spotlight

Significant lobbying is now underway to influence Treasury in the final outcome of the mortgage broker commission changes, bearing in mind the recent ASIC review called out some fundamental conflicts in the current model, and highlighted that consumers do not necessarily get the best outcomes. Importantly, ASIC says the standard model of upfront and trail commissions creates conflicts of interest.

ASIC has put forward six proposals to improve consumer outcomes and competition in the home loan market:
(a) changing the standard commission model to reduce the risk of poor consumer outcomes;
(b) moving away from bonus commissions and bonus payments, which increase the risk of poor consumer outcomes;
(c) moving away from soft dollar benefits, which increase the risk of poor consumer outcomes and can undermine competition;
(d) clearer disclosure of ownership structures within the home loan market to improve competition;
(e) establishing a new public reporting regime of consumer outcomes and competition in the home loan market; and
(f) improving the oversight of brokers by lenders and aggregators.
The current idea appears to be to let the industry self-regulate. But that, to some appears to be a cop-out!

As we discussed in an earlier post – The Truth About Mortgage Brokers, “consumers should be using a mortgage broker with their eyes open. Ask yourself if the broker is truly working in your best interests”.

 

In a joint submission to the Treasury, consumer advocacy group CHOICE, along with the Financial Rights Legal Centre, Consumer Action Law Centre and Financial Counselling Australia, called for:

– the removal of upfront and trail commissions;
– the implementation of fixed fees (via lump sum payments or hourly rates);
– the removal of bonus commissions, bonus payments and soft dollar payments; and
– a change in law so brokers have to act in the ‘best interest’ of clients; and
– a requirement that brokers disclose ownership relationships and the lender behind any white-label loan recommended to a consumer.

CHOICE, which has strongly criticised the broker channel in the past, said it was “simply not good enough” that ASIC “has left it up to the industry to find a solution”.

The group suggested that the way mortgage brokers are currently paid “means it’s very unlikely that a customer is going to get a loan that’s best for them” and that the industry therefore needed a “major change”.

CHOICE’s head of campaigns and policy, Erin Turner said: “We’ve called for urgent action on trail commissions, monthly payments from a lender to an aggregator which is passed on to a broker over the life of a loan.

“A lender pays out an average of $750 per year for the life of a home loan through trail commissions. Trail payments are money for jam. The broker makes money for doing nothing, discouraging them from reviewing the quality of a loan long term.”

However, as reported in The Advisor, the peak broker bodies – the MFAA and FBAA have called this submission “ignorant” and “misinformed”, which perhaps is unsurprising, as these bodies are strongly aligned with the current mode of operation.  They slammed the recommendations as “detrimental” to consumer interests.

The executive director of the Finance Brokers Association of Australia (FBAA), Peter White, said the groups had “no regard for the competitive position and incredible value proposition that brokers bring to home loan borrowers”.

He went on to say it was “very concerning” when “misinformation is disseminated by those claiming to be consumer advocates, but who don’t tell the truth”.

Mr White suggested that, without the competition of brokers and non-banks, interest rates would still be around the 7.5 per cent mark (rather than 4 per cent).

He added that the suggestion of a flat fee would actually lead to a rise in interest rates.

“The average loan amount nationally is around $450,000 and the average commission is 0.60 per cent, meaning a flat fee, commercially, would be around the $2,700 mark,” he said.

“In regional markets, where loan sizes are smaller, a loan of $200,000 would (in the current structures) pay around $1,200 and not $2,700 in a flat-fee model, and lenders would never wear such a loss.”

Mr White said the groups also claim that mortgage brokers are giving advice, yet that’s not the case.

“Under the regulations that govern mortgage brokers, they give credit assistance and are doing work on behalf of the lender, which is why the lender pays them a commission and it has no bearing on the interest rate the borrower pays.

“If you don’t use a broker you go to a bank which still has the administration costs for the loan, so it’s cheaper for the bank to originate a loan through a broker than at a branch.”

He said the suggestion to abolish trail commissions is “an ignorant position to take”.

Speaking of the consumer groups in question, he said: “If they knew their subject matter, they would know that trail commission is paid to brokers to offset costs of providing ongoing customer service and to manage the borrower’s ongoing and variable lending needs as required under the national consumer credit protection regulations.

“There is absolutely no evidence to suggest trail incomes harm competition.”

Changes would ‘significantly harm the interests of consumers’

The Mortgage & Finance Association of Australia (MFAA) also released a statement, saying it was “disappointed” by the consumer groups’ submissions and comments, adding that they would “significantly harm the interests of consumers they claim to represent”.

Touching on the consumer groups’ proposals, Mike Felton, CEO of the MFAA, said: “A fee-for-service model may suit lenders, but it would drive the majority of brokers out of the industry. This removal of access to brokers for Australians would severely reduce competition in the industry, which is something we are trying to avoid for consumers.

“A single, lender-funded, fee-for-service would lead to a standardisation of all fees, which we believe ASIC itself does not support and we believe would also be considered anti-competitive by the ACCC,” Mr Felton said.

He continued: “I do not see how removing brokers from the industry, and consolidating power back in the hands of banks, serves the needs of consumers.”

Mr Felton highlighted a 2015 Ernst & Young study that found that 92 percent of consumers reported they were ‘satisfied’ or ‘very satisfied’ with their broker’s performance, and highlighted that consumers have increasingly turned to brokers to arrange their home loans – with more than 53 per cent of all mortgages written by the third-party channel.

He concluded: “This is also about access to finance for Australians. If you live in a regional or rural area, you may not have access to a bank branch – or you may have access to one bank branch. Brokers provide regional Australians the same access to finance as people who live in inner Sydney or Melbourne and it is critical that we should avoid doing anything to negatively impact that.”

Mr Felton said that the proposals also did not reflect the concerns raised by ASIC.

He commented: “ASIC understands that brokers drive competition and provide a critical service to consumers that combines choice, expertise and convenience, to help them make informed choices and get the most appropriate deal…

“When you are obtaining a mortgage, there is a lot more at stake than just the interest rate. Brokers assess the needs of their customers in detail, both now and into the future and recommend products and lenders that suit these needs.”

Both associations said that they have been actively working with ASIC, Treasury and a number of other key stakeholders on different ways to improve the commission structure to enhance consumer outcomes.

Separately, a submission from Mortgage Choice, also discussed by The Adviser, has told the Treasury that the current upfront commission structure for brokers is “sound” and should not be changed to reflect the loan-to-value ratio of mortgages.

In its submission to ASIC’s Review of Mortgage Broker Remuneration, seen by The Adviser, Mortgage Choice said it was generally “supportive” of ASIC’s review, but argued that the current, standard commission model was “sound” and some proposals may be hard to implement.

Touching on the first proposal, which focuses on “improving” the standard commission model so that brokers are not “incentivised purely on the size of the loan”, Mortgage Choice suggested that no such changes should be implemented.

Writing in the submission, company secretary David Hoskins said that Mortgage Choice believed the current model is “sound and delivers positive consumer outcomes”, adding that the upfront commission structure “appropriately compensates the broker for the time and effort required to lodge an application and take it through to approval”.

He elaborated: “The time and effort involved in this process is significant, it requires the broker to forensically assess the customer’s needs, future needs, income, asset position as well as living expenses, review the current offerings in the market and match the same with a suitable solution.

“The payment of trail commission encourages the broker to put the customer in a product that will be suitable for the consumer over the long term.”

The submission also noted ASIC’s finding that there are more interest-only loans in the broker channel, and higher LVRs and loan amounts, but emphasised that this is due to “the demographics of the customers who choose to use a broker and the more complex needs they bring to the table, as well as brokers actively looking for solutions that meet their customers long-term needs”.

“We do not believe that brokers, in general, place loans with the sole intent and purpose of receiving additional commission,” it said.

Looking at ASIC’s example of changing commissions to “reflect the LVR [loan-to-value ratio]”, Mortgage Choice said it would “not be correct” to suggest that it would be effective to change the shape or quantum of broker commissions based on LVR, interest-only or lower loan amounts.

The submissions reads: “Broker economics need to line up with lender economics and consumer outcomes. Markets already price for risk and return driving both lower LVRs and higher loan amounts through discount pricing to the end customer. Unless the regulator is intent on dictating the discounting regimes set by lenders, then the only truly effective mechanism available to the regulator is through being more prescriptive in lender underwriting policy or shaping the economics at the lender end to drive an increase in consumer pricing at the higher risk end of the market.”

When it comes to bonus commissions and bonus payments, Mortgage Choice said it did not believe that these types of payments were a “significant influencer” in terms of where a broker places a loan, and revealed that it only received such payments from two lenders.

Noting that the amount received from its bonus payments was “not significant” and is “pooled and shared with brokers based on the volume of business they write across the lender panel”, it added that it was “not opposed” to the removal of these payments in the industry as it would align it with other parts of the financial industry (bonus commissions and payments have been removed from the financial planning and life insurance sectors).

The brokerage was also supportive of the removal of soft dollar benefits that could influence broker decisions, but thought lender sponsorship and aggregator conferences and events should not be removed if they are linked to broker professional development. “These are essential to the progression and increased professionalism of brokers in our industry,” it said.

Likewise, it said that hospitality benefits “such as tickets to sporting events or concerts” should be advised to the relevant aggregators to enable appropriate monitoring.

Change lender policy and pricing

Indeed, the company position said that if ASIC wishes to change the shape and nature of mortgage lending through broking or through the lending system then there are “two significant levers that need to be used: lender credit policy and lender pricing”.

Mr Hoskins writes: “Influencing lender credit policy would ensure borrowing levels are appropriate based on servicing, LVR and repayment restructure (IO v P&I). By varying lender policy, the regulator can essentially adjust the loan portfolio characteristics…

“Brokers work with borrowers to obtain the most cost-effective lending solution. To suggest that a broker would encourage a customer to borrow more or to borrow at a higher LVR would not be an effective business outcome for a broker who would very easily lose a customer relationship if they did not find a competitively priced lending solution. Furthermore, lender pricing to consumers follows the economics of lending in that the larger the loan the larger the profit for the lender and as such, lenders typically offer larger drive discounts for larger loans. Accordingly, in certain situations, customers’ needs may be well served if they were to borrow just enough to cross the next pricing tier and then place the additional funds in an offset account.”

Mortgage Choice concluded that for commissions, the current structure is “sound”, adding that the “shape and the quantum” of initial and ongoing commission is similar to the commission structures to be adopted in the life insurance industry.

Lastly, Mortgage Choice emphasised that the remuneration review and the ASIC industry funding model review were “inextricably linked” and should be considered together if the end goal is delivering positive consumer outcomes.

It explains: “Ensuring a company has responsibility for governance and oversight is critical to providing good customer outcomes.”

The response outlines that it is “comfortable” with the idea of a new public reporting regime and requirements for more broker oversight, but warned that aggregator and lender information would need to focus on a loan, customer and broker specific level, rather than an overarching view.

NAB makes corrective disclosure to customers about relationships within its wealth management business

An ASIC investigation of a number of advice licensees within the National Australia Bank Group (NAB Group), for failing to disclose relationships between advisers, advice licensees, and other members of the NAB Group that issue investment products, has resulted in corrective disclosure being made to customers.

The non-disclosure occurred when customers were advised to acquire products issued by NAB Group-related firms, including MLC-branded products. Customers were provided with Statements of Advice (SoAs) and Financial Services Guides (FSGs) by their financial advisers that did not fully disclose the connection between each customer’s adviser, the advice licensee, and recommended investments.

Disclosing associations or relationships between advisers, employers, authorising licensees and issuers of financial products to customers in FSGs and SoAs is required under the Corporations Act.

At least 150,000 customers received deficient disclosure either in SoAs or FSGs in relation to MLC-branded products and boutique investment manager products.

The defective disclosure occurred following a failure to update template documents due to a process error.

The licensees investigated by ASIC were:

  • National Australia Bank Limited;
  • Godfrey Pembroke Limited;
  • Apogee Financial Planning Limited;
  • GWM Adviser Services Limited;
  • Meritum Financial Group Pty Ltd; and
  • JBWere Limited.

Following discussions between ASIC and the NAB Group, customers who invested in MLC-branded products will receive corrective disclosure when they log in to their accounts on the MLC website for a three month period. NAB has also agreed to write to the remainder of affected customers currently invested in related products, explicitly acknowledging the issue and providing corrective disclosure.

Customers with further concerns can contact NAB’s dedicated hotline on 1800 035 687.

ASIC’s Deputy Chairman Peter Kell said, ‘This investigation is a result of ASIC’s priority of improving compliance and disclosure standards in vertically integrated financial services licensees.’

ASIC acknowledges the cooperation of NAB in this matter.

Background

This outcome is a result of ASIC’s Wealth Management Project.

The Wealth Management Project was established in October 2014 with the objective of lifting standards by major financial advice providers. The Wealth Management Project focuses on the conduct of the largest financial advice firms (NAB, Westpac, CBA, ANZ, Macquarie and AMP).

ASIC’s work in the Wealth Management Project covers a number of areas including:

  • working with the largest financial advice firms to address the identification and remediation of non-compliant advice; and
  • seeking regulatory outcomes, where appropriate, against licensees and advisers.

You’ve been paying for ASIC since Saturday

From Mortgage Professional Australia.

User pays model applies to 2017/18 Financial Year, meaning brokers are already accumulating costs.

Brokers are at risk of being caught out by ASIC’s user-pays model, an industry expert has warned.

ASIC’s user-pays model came into effect on Saturday 1st July and could cost businesses with credit representatives thousands of dollars in extra costs. However, Greg Ashe, director of QED compliance services, warns many business owners will be taken by surprise: “it seems so far away; I’m conscious that…as of Saturday, all of us who have credit intermediary licensee businesses with credit reps are accruing this levy.”

Although the levy will not be charged until January 2019, the costs will be substantial – Ashe estimates between $400-$1300 per rep per year plus the businesses corporate license – and credit license holders now need to think about how to pass these costs onto their reps.

With the user-pays levy ultimately determined by ASIC’s costs it is likely to increase, explains Ashe: “There’s the potential there for ASIC to staff up as much as they like because guess what? We’re paying for it now. That fee is only likely to go upwards because this is why ASIC wanted the fee in the first place: because they are so, so under-resourced.”

Other unknowns

ASIC first announced the dates for fees back in October 2016, but there remains much confusion around the levy’s specifics.

At the time ASIC noted that “the levies charged in January 2019 will be based on ASIC’s actual operating expenditure regulating each subsector in 2017–18. This ensures that each industry group is only charged for the actual costs of regulating that group.” Mortgage brokers fall into a group of around 5,800 credit licensees, which includes banks and non-bank lenders.

ASIC isn’t entirely to blame for problems in user-pay system’s implementation, Ashe believes: “they are aware that there are terrible issues and flaws, not so much in the legislation but that there are so many unknowns, but there’s nothing they can do because it is still administratively with the Treasury…they’re waiting for the information just like we are.”

What can be done?

To prepare for user-pays, law firm Dentons (previously Gadens) says ASIC recommend that “licensees should review and ‘rationalise’ their AFSL by removing any authorisations that are no longer necessary in order to minimise the amount payable.”

Another solution could be acquiring your own credit license, which Ashe’s firm QED assists brokers to do. Even Ashe however admits that “ASIC waiting times are getting so long for this so it’s not a decision to be taken lightly.” Both Ashe and Dentons estimate waiting times of three months, with minimum costs of $3500, depending on business size.

Should user-pays provide ASIC with more resources that time could reduce, noted Ashe, but told MPA that he’s “pretty sure that the legislators didn’t want there to be thousands of more licensees because of this regulation.”

Japan and Australia cooperate on fintech

The Japan Financial Services Agency (‘JFSA’) and Australian Securities and Investments Commission (‘ASIC’) today announced the completion of a framework for co-operation to promote innovation in financial services in Japan and Australia.

This Co-operation Framework recognises the global nature of innovation in financial services. In this environment, this Framework enables the JFSA and ASIC to share information and support the entry of innovative fintech businesses into each other’s markets.

This Framework will help open up an important market for Australian fintechs. The Japanese economy is the third largest in the world, with services – including financial services – accounting for about three quarters of GDP.

In recent years, the JFSA has been actively involved in encouraging fintech through a range of measures including the modification of the legal system to enable financial groups to invest in finance-related IT companies more easily and establishing a legal framework for virtual currency and Open API. This Framework will encourage Japanese fintech start-ups to engage with innovative financial businesses globally.

ASIC Commissioner John Price said, ‘Japan has been a world leader in technology for a long time. As we move into a new era of financial regulation, we look forward to sharing experiences and insights with our colleagues at the JFSA.’

Shunsuke Shirakawa, JFSA Vice Commissioner for International Affairs, said, ‘We are delighted to establish this Co-operation Framework with ASIC. ASIC is one of the leading Fintech regulators that actively promote fintech by taking progressive actions including setup of the Innovation Hub.

‘We believe that this Framework further strengthens our relationship and facilitates our co-operation in further developing our respective markets.’

The Co-operation Framework will enable the JFSA and ASIC to refer innovative fintech businesses to each other for advice and support via ASIC’s Innovation Hub and the JFSA’s FinTech Support Desk.

It also provides a framework for information sharing between the two regulators. This will enable the JFSA and ASIC to keep abreast of regulatory and relevant economic or commercial developments in each other’s jurisdictions, and help to inform domestic regulatory approaches in the context of a rapidly changing global financial environment.

A formal ‘Exchange of Letters’ ceremony between Australian Ambassador to Japan, the Hon Richard Court AC and State Minister of Cabinet Office, Takao Ochi, took place in Tokyo today to seal the Framework.

This Co-operation Framework further underlines the strength and closeness of the broader Australia-Japan trade and investment relationship.

Background

ASIC is focused on the vital role that fintechs are playing in re-fashioning financial services and capital markets. In addition to developing guidance about how these new developments fit into our regulatory framework, in 2015, ASIC launched its Innovation Hub to help fintechs navigate the regulatory framework without compromising investor and financial consumer trust and confidence.

The Innovation Hub provides the opportunity for entrepreneurs to understand how regulation might impact on them. It is also helping ASIC to monitor and understand fintech developments. ASIC collaborates closely with other regulators to understand developments, and to help entrepreneurs expand their target markets into other jurisdictions.

To date, fintech referral and information-sharing agreements have been made with the Monetary Authority of Singapore, the United Kingdom’s Financial Conduct Authority, Ontario Securities Commission and Hong Kong’s Securities and Futures Commission. In addition, information-sharing agreements have been signed with the Capital Markets Authority, Kenya and Otoritas Jasa Keuangan, Indonesia.

Informally, ASIC has also met with numerous international fintech businesses referred to us by industry or trade bodies, including delegations from the United Kingdom and the United States.