Tag: ASIC

ASIC briefs O’Dwyer on remuneration review

From Australian Broker.

The Australian Securities and Investments Commission (ASIC) has briefed Financial Services Minister Kelly O’Dwyer about its broker remuneration review, suggesting a shift away from volume-based commissions and soft dollar incentives.

 

As reported by the Australian Financial Review, the regulator also recommended increased disclosure by banks with vertically integrated business models.

ASIC handed the report over to O’Dwyer on Wednesday (15 March).

The regulations are likely to eliminate volume-based incentives from the industry as they have the potential to encourage brokers to write more loans then necessary.

Soft incentives such as sponsorships, overseas trips and prestigious industry events for high end brokers will also be on the chopping block.

Despite these recommendations, AFR said that the ASIC report endorses the core commission-based remuneration system used by brokers.

ASIC accepts enforceable undertakings from Westpac and ANZ to address inadequacies within their wholesale FX businesses

ASIC says it has today accepted enforceable undertakings (EUs) from Westpac Banking Corporation (Westpac) and Australia and New Zealand Banking Group Limited (ANZ) in relation to the banks’ wholesale foreign exchange (FX) businesses.

As a result of ASIC’s investigation, ASIC is concerned that between 1 January 2008 and 30 June 2013, both banks failed to ensure that their systems and controls were adequate to address risks relating to instances of inappropriate conduct identified by ASIC.

ASIC Commissioner Cathie Armour said, ‘The foreign exchange market is a systemically important market that depends on all participants acting with integrity and fairness. ASIC is committed to ensuring that major financial institutions have the systems in place to ensure that financial services are provided fairly, honestly and efficiently.’

Westpac

ASIC identified the following conduct by employees of Westpac in its spot FX business between 1 January 2008 and 30 June 2013:

  • on several occasions, Westpac employees disclosed confidential details of pending client orders to external traders in the spot FX market, including on a few occasions identification of the client by use of code names;
  • on at least one occasion, a Westpac employee acted together with an external party to share confidential information and enter and cancel offers on a trading platform other than in the ordinary course of hedging or market making;
  • on several occasions, Westpac employees inappropriately received and/or disclosed confidential information about Westpac’s or another institution’s orders in the course of fix order management and execution;
  • on one occasion, a Westpac employee altered a proprietary position prior to the fix upon receipt of confidential and potentially material information in relation to other institutional fix orders; and
  • on at least one occasion, a Westpac employee inappropriately disclosed confidential Westpac fix order information to an external party to inform their joint personal account trading strategy.

ASIC is concerned that Westpac did not ensure that its systems, controls and supervision were adequate to prevent, detect and respond to such conduct, which had the potential to undermine confidence in the proper functioning and integrity of the market.

Under the EU, Westpac will develop a program of changes to its existing systems, controls, monitoring and supervision of employees within its spot FX business to prevent, detect and respond in relation to:

  • disclosure of confidential information to external market participants;
  • inappropriate order management and trading, including fix orders and the entry or cancellation of offers on an electronic trading platform other than in the ordinary course of hedging or market making activities; and
  • inappropriate personal trading.

The program and its implementation will be assessed by an independent consultant appointed by ASIC. The program will incorporate changes already made by Westpac as part of an existing review of its spot FX business.

Upon implementation of that program, for a period of three years, Westpac will provide to ASIC an annual attestation from a senior executive that the systems and controls in its spot FX business are appropriate and adequate to effectively prevent, detect and respond to specified matters. The program will also be subject to annual internal reviews and assessment by the independent consultant for a period of three years.

Westpac will also make a community benefit payment of $3 million to support the financial capability of vulnerable people including women experiencing family violence, the elderly and youth at risk.

ANZ

ASIC identified the following conduct by employees of ANZ in its spot FX business between 1 January 2008 and 30 June 2013:

  • on a number of occasions, ANZ employees disclosed specific confidential details of pending customer orders to external third parties including the identification of the customer through the use of code names;
  • on at least one occasion, a former ANZ spot FX trader exchanged with an external market participant confidential and potentially material information about other institutions’ customer flow or proprietary positions, including information concerning likely directional flow at the WM/R London 4pm fix, which was potentially inconsistent with a proper approach to market making or hedging. Following the receipt of such information, the ANZ trader acquired a proprietary position in a currency prior to the WM/R London 4pm fix; and
  • on a number of occasions, ANZ employees who were responsible for managing particular client orders traded in a manner which was potentially inconsistent with a proper approach to market making or hedging.

ASIC is concerned that ANZ did not ensure that its systems, controls and supervision were adequate to prevent, detect and respond to such conduct, which had the potential to undermine confidence in the proper functioning and integrity of the market.

Under the EU, ANZ will develop a program of changes to its existing systems, controls, training, guidance and framework for monitoring and supervision of employees in its spot FX and non-deliverable forwards businesses to prevent, detect and respond to:

  • disclosures of confidential customer and potentially material information; and
  • inappropriate order management and trading while in possession of confidential and potentially material information.

The program and its implementation will be assessed by an independent consultant appointed by ASIC. The program will incorporate changes already made by ANZ as part of ongoing reviews of its businesses.

Upon implementation of that program, for a period of three years, ANZ will provide to ASIC an annual attestation from its senior executives that the systems and controls in its spot FX and non-deliverable forwards businesses are appropriate and adequate to effectively manage conduct risks relating to specified matters. The program will also be subject to annual internal reviews and assessments by the independent consultant for a period of three years.

ANZ will also make a community benefit payment of $3 million to Financial Literacy Australia.

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ASIC encourages market participants to adhere to high standards of market practice, including those set out in the Global Code of Conduct for the Foreign Exchange Market, published by the Bank of International Settlements (BIS Global FX Code). The BIS Global FX Code provides a global set of practice guidelines to promote the integrity and effective functioning of the wholesale FX market. Phase 1 of the Code was published in May 2016, and Phase 2 is due for publication in May 2017.

ASIC is grateful for the assistance of our international regulatory counterparts in progressing our investigation, including the UK Financial Conduct Authority, the NZ Financial Markets Authority and the Monetary Authority of Singapore.

Background

Prior to accepting these EUs from ANZ and Westpac, ASIC’s FX investigation has seen ASIC accept enforceable undertakings from each of the National Australia Bank Limited and the Commonwealth Bank of Australia (refer: 16-455MR). The institutions also made voluntary contributions of $2.5 million each to fund independent financial literacy projects in Australia.

The wholesale spot FX market is an important financial market for Australia. It facilitates the exchange of one currency for another and thus allows market participants to buy and sell foreign currencies. As part of its spot FX business, Westpac and ANZ entered into different types of spot FX agreements with its clients, including Australian clients.

Spot FX refers to FX contracts involving the exchange of two currencies at a price (exchange rate) agreed on a date (the trade date), and which are usually settled two business days from the trade date.

Non-deliverable forwards refer to FX forward contracts which, at maturity, are settled by calculating the difference between the agreed forward rate and a settlement rate (which is usually determined by reference to a benchmark published exchange rate). A FX forward contract is an agreement between two counterparties to exchange currencies at a future date at a rate agreed upon in advance.

Payday lenders fined $730,000 for diamond trading ‘sham’

ASIC says, following ASIC action, the Federal Court has today fined payday lenders Fast Access Finance Pty Ltd, Fast Access Finance (Beenleigh) Pty Ltd and Fast Access Finance (Burleigh Heads) Pty Ltd (the FAF Companies) a total of $730,000 for breaching consumer credit laws by engaging in credit activities without holding an Australian credit licence.

The FAF Companies operated under a business model where consumers seeking small value loans (of amounts generally ranging from $500 to $2,000) were required to sign documents which purported to be for the purchase and sale of diamonds in order to obtain a loan.

ASIC alleged in its claim that the purchase and sale of diamonds was a pretence, because there were no diamonds involved in the transaction and consumers had no intention of buying or selling diamonds. Rather, the diamond purchase and sale contracts were designed to camouflage what, in reality, were loan transactions to which the National Consumer Credit Protection Act 2009 (National Credit Act) applied.

The Court handed down today’s penalty following its decision on 30 September 2015 that the arrangements for the sale of diamonds ‘comprised a pretence or sham, brought into existence as a mere piece of machinery, to conceal the true nature of the transaction, which was the provision of credit. Neither side intended that the Sales Agreement should create the relationship of vendor and purchaser….’

The Court also found that that the FAF Companies ‘intended to conceal the true nature of the transaction from those responsible for enforcing the interest cap’ (refer: 15-278MR).

In handing down the penalty, the Federal Court stated that ‘Although the excessive interest paid by each customer may not have been large in absolute terms and by some standards, it was no doubt substantial for the customer in question. Such customers have little chance of recovering anything from any of the respondents. The most heinous aspect of the case is the deliberate and pre-meditated exploitation of these vulnerable people.’

In determining the appropriate penalties, the court took into account that:

  • the diamond model was designed to conceal the true nature of money-lending transactions. The underlying reason for such concealment was to circumvent the limit upon the rate of interest which was 48%.
  • FAF, and its controlling officers must have had at least a strong suspicion that the diamond model was contrary to the relevant legislation.
  • There had been little or no cooperation with ASIC.
  • As between FAF Beenleigh and FAF Burleigh Heads, any difference in penalty should reflect the small number of transactions which have been proven against FAF Beenleigh as compared to the number proven against FAF Burleigh Heads. FAF was the designer of the diamond model and encouraged its use by its franchisees. It must be seen as being more culpable for each of the contraventions in which it was involved, than was either FAF Beenleigh or FAF Burleigh Heads.

Deputy Chairman Peter Kell said, ‘ASIC will continue to crack down on lenders who use avoidance models in an attempt to deprive consumers of these important protections.’

ASIC and ASBFEO join forces to ensure bank lenders meet unfair contract laws

ASIC says Australian lenders including the country’s big four banks have substantial work to do to eliminate unfair terms from their loan agreements, a joint review of small business standard form contracts undertaken by ASIC and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has revealed.

ASIC and the ASBFEO reviewed small business loan contracts from eight lenders and found there’s been a failure to take sufficient steps to comply with their new obligations under unfair contract terms (UCT) legislation.

This is despite being provided with a one year transition period, ahead of last year’s November implementation deadline.

ASIC and the ASBFEO are sending a very clear message that lenders need to immediately take steps to ensure their standard form loan agreements fully comply with the new legislation.

In their initial review ASIC and the ASBFEO found lenders continue to use clauses of concern such as:

  • Terms that give lenders a very broad discretion to unilaterally vary terms and conditions of the contract;
  • Terms that provide for loan ‘default’ (such as non-monetary default) in a very broad range of circumstances, rather than where the borrower has materially defaulted on their obligations;
  • Terms that absolve the lender from responsibility for conduct, statements or representations that the lender makes to borrowers outside of the contract (otherwise known as ‘entire agreement clauses’); and
  • Terms that too broadly indemnify the lender against losses, costs, liabilities and expenses.

Both ASIC and the ASBFEO have also reiterated their support for the recommendations made by the independent review of the Code of Banking Practice – undertaken by Mr Phil Khoury – in relation to small business loan contracts.

The additional protections for small business borrowers proposed by the Code Review are long overdue and consistent with the recent ASBFEO inquiry into small business loans. Banks must move quickly to implement:

  • A prohibition on non-monetary default clauses where the borrower is meeting their obligations under the contract;
  • 90 days’ notice period where a loan facility will not be extended; and
  • More comprehensive access to the Financial Ombudsman Service.

ASIC Deputy Chair Peter Kellsaid: ‘ASIC is committed to ensuring the UCT provisions help to raise small business lending standards. Where we identify a potentially unfair term we will work with the lender to remove or amend the term, and we have already started to raise these issues with lenders. If the lender refuses to do so we will consider all regulatory options, including taking the matter to court as ultimately a court can decide whether or not a term is unfair.’

ASBFEO Kate Carnell said: ‘I’m firmly of the belief that the loan contract terms as they currently stand, fail to comply with the UCT law.

‘Once again, repeated calls for the banks to amend their practices are falling on deaf ears, despite inquiry after inquiry highlighting major flaws in the way they treat their small business customers.’

Background

The unfair contract term protections for consumers in the Australian Securities and Investments Commission Act 2001 (ASIC Act) were extended to cover standard form small business contracts entered into, or renewed, on or after 12 November 2016.

In February 2016, ASIC released Information Sheet 211Unfair contract term protections for small businesses (INFO 211). This information sheet gives guidance to assist small businesses understand how the law deals with unfair terms in small business contracts for financial products and services, and the protections that are available for small businesses.

In INFO 211, ASIC also outlined its expectations that financial product issuers review their standard form small business contracts to remove any terms that could be considered to be unfair to ensure compliance by 12 November 2016.

ASIC is responsible for enforcing the unfair contract terms law in relation to financial products and services. For other goods and services, enforcement of the unfair contract terms law is shared between the Australian Competition and Consumer Commission (ACCC) and the State and Territory consumer protection agencies.

ASIC and the ACCC have worked together to help small businesses understand the unfair contract term protections. On 16 March 2016, the two agencies hosted a webinar to provide practical guidance about the protections for small businesses, including a discussion of the types of terms that may be unfair and what action small businesses can take if they receive a contract that contains an unfair term.

Small businesses that are concerned about whether a contract term is unfair can make a complaint directly to their financial services provider or to the relevant external dispute resolution scheme if the dispute is not resolved, or directly to ASIC.

The Code of Banking Practice is a voluntary code of conduct which sets standards of good banking practice for member-banks of the Australian Bankers’ Association.

While it is not ASIC’s role to endorse contract terms or to state that they are unfair, ASIC may apply to a court to have a term declared unfair if it is in the public interest to do so. Any party to the contract may also apply to the court if they are not satisfied with the outcome of the dispute resolution process.

Only a court or tribunal can decide whether a term is unfair.

If a court or tribunal finds that a term is ‘unfair’, the term will be void—that is, it is not binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.

ASIC acts to address flex commissions

ASIC announced today that it will prohibit ‘flex commissions’ in the car finance market. The prohibition will still allow lenders to pay other types of commissions to car dealers.

Flex commissions are common in car finance but not generally found in other markets. Flex commissions allow car dealers to arrange car loans at a higher interest rate than the lowest available rate (700 basis points higher – or more), and thereby earn a much higher commission. As a result, some consumers can end up paying thousands of dollars more in interest charges over the life of the car loan.

ASIC is implementing the prohibition because of these poor outcomes for consumers and because flex commissions operate in a way that is unfair under the National Consumer Credit Protection Act 2009 (National Credit Act).

ASIC’s Deputy Chair Peter Kell said, ‘Most consumers would be surprised to learn that when you are buying a car on finance, the car dealer can, for example, decide whether you will be charged an interest rate of 7% or one of 14% – regardless of your credit history. Flex commissions do not operate in a fair and transparent way, and ASIC’s action will ensure that consumers are not charged excessive interest rates.’

Mr Kell said ASIC has conducted two rounds of written consultations with targeted stakeholders, including industry bodies, lenders, car dealers and their associations and consumer groups on various options to respond to the harm caused by flex commissions. Based on this consultation, ASIC has decided on a prohibition as a comprehensive, industry-wide solution that will deliver broad changes for the benefit of consumers.

‘There was a broad recognition that flex commissions create poor consumer outcomes. However, lenders who cease paying flex commissions unilaterally risk putting themselves at a competitive disadvantage. It is therefore necessary to implement the change through an industry wide approach that would ensure a level playing field for all lenders,’ Mr Kell said.

ASIC proposes to use its statutory power to modify provisions of the National Credit Act to prohibit the use of flex commissions so that the amount paid in commissions is not linked to the interest rate, and therefore that the lender has responsibility for determining the interest rate that applies to a particular loan.

ASIC acknowledges that it is desirable to allow car dealers some flexibility to reduce interest rates in order to secure a deal. It is therefore proposing to allow a limited capacity for car dealers to discount the interest rate and receive lower commissions, as this will benefit consumers through a lower cost of credit.

ASIC has prepared a draft legislative instrument to implement the prohibition and is conducting a three-week consultation on technical aspects of the instrument (see the Consultation Paper below).

Mr Kell said, ‘We are confident this prohibition will benefit consumers by removing incentives that increase the interest rates they are charged. We consider that average interest rates on car loans will fall as a result of more efficient pricing models and lower losses through defaults. We expect lenders will work with car dealers in moving to fairer and more sustainable models’.

Download Consultation Paper 279 (CP 279) Flex commission arrangements in the car finance industry and attachments

Westpac just one of 11 Lenders in ASIC home loan investigation

As reported by the ABC, ASIC says it has been investigating up to 11 banks over their home lending practices, amid concerns loans are being given to people that cannot afford to repay them.

Appearing before Senate Estimates, the Australian Security and Investments Commission (ASIC) was questioned about its Federal Court action against Westpac, announced yesterday.

ASIC’s senior executive responsible for banking, Michael Saadat, said the inquiries have been underway for a couple of years.

“It started really when we conducted our review of interest only loans in 2015,” he said.

“We looked at the conduct of 11 lenders.

“We have announced action against Westpac but we have been in discussions with other lenders and we hope to make an announcement about the work that we’ve been doing with other lenders in the next few weeks.”

Mr Saadat added that Westpac had changed its lending practices after the regulator made its concerns known in 2015.

“Despite the fact that they stopped the practice … we’ve decided to bring this action because of the importance of the issues that it raises,” he said.

Westpac not alone

It’s a fair bet all four major banks are facing ASIC scrutiny over poor home loan approval practices.

In a statement yesterday, Westpac said the loans identified by ASIC are all meeting or ahead on repayments.

However, ASIC said its action is intended to head-off possible future risks for consumers and the financial system.

“One of the aims of the responsible lending legislation is to enable ASIC to take action before the problems manifest themselves,” explained the regulator’s deputy chairman Peter Kell.

ASIC’s chairman Greg Medcraft said a key motivation for the regulator was to get other banks to change their ways.

“The issues is deterrence, and when you lodge a case it’s not just for that party, it’s to send a message to the broader sector,” he said.

ASIC said the maximum civil penalty that a court could award for breaches of the responsible lending laws is $1.7 million per contravention.

Westpac currently stands accused of seven contraventions of the law.

Here is Westpac’s media release about the matter:

Westpac will defend Federal Court proceedings commenced by ASIC in relation to a number of home loans entered into between December 2011 and March 2015, including specific allegations made by ASIC regarding seven loans. The court action does not concern Westpac’s current lending policies or practices.

Of the seven specific loan applications ASIC references in its proceedings, all loans are currently meeting or ahead in repayments.

Westpac Group, Chief Executive, Consumer Bank, George Frazis said Westpac takes its responsible lending obligations seriously and has confidence in its lending standards and processes. Our objective is to help more Australian families into their homes in a responsible way.

“It is not in the bank’s or customers’ interests to put people into loans that they cannot afford to repay. It goes hand in hand that we have robust credit approval processes while helping customers purchase their home.

“Our credit policies are informed by our deep experience and understanding of the mortgage market.

“They include a consideration of customers’ specific circumstances, including income and expenditure, previous repayments history and the overall customer relationship. We build into our processes a range of conservative inputs, including the addition of buffers to take into account possible future interest rate increases.”

Mr Frazis said Westpac uses sophisticated systems as part of its rigorous credit approval process. This includes utilising benchmarks such as the Household Expenditure Measure (HEM), published by the Melbourne Institute for Social and Economic Research, which provides broad analysis of customer expenditure based on demographic criteria.

“In our experience this survey is a useful input into our loan assessment process, in combination with our understanding of customers’ circumstances.”

Westpac disputes ASIC’s claims that Westpac relied solely on the HEM benchmark and did not have regard to a customer’s declared expenses in its unsuitability assessment.

“The Australian residential market is dynamic and we are constantly reviewing and refining our credit policies.”

“Importantly, interest-only mortgages were assessed in the same way as a standard principal and interest loan, and did not increase how much a customer could borrow.

“We are committed to meeting our responsible lending obligations and servicing the needs of customers, including prompt credit approval, which enables our customers to responsibly purchase their home with confidence,” Mr Frazis said.

 

ASIC commences civil penalty proceedings against Westpac for breaching home-loan responsible lending laws

This is a big deal. Westpac is the largest investment mortgage lender, and it  highlights the need for “microprudential” analysis of loans. But in 2011 other lenders were doing the same. The question of interest only repayments is certainly a live issue.

ASIC says it has today commenced civil penalty proceedings in the Federal Court against Westpac Banking Corporation (Westpac) for a number of contraventions of the responsible lending provisions of National Consumer Credit Protection Act 2009 (Cth) (the National Credit Act).

ASIC alleges that in the period between December 2011 and March 2015 Westpac failed to properly assess whether borrowers could meet their repayment obligations before entering into home loan contracts.

Specifically, ASIC alleges that Westpac:

  • used a benchmark instead of the actual expenses declared by borrowers in assessing their ability to repay the loan
  • approved loans where a proper assessment of a borrower’s ability to repay the loan would have shown a monthly deficit
  • for home loans with an interest-only period, Westpac failed to have regard to the higher repayments at the end of the interest-only period when assessing the borrowers’ ability to repay.

The National Credit Act provides consumer protections to ensure that credit providers make reasonable inquiries about a borrower’s financial situation and assess whether a loan contract will be unsuitable for the borrowers.

The first hearing for the proceedings will be on 21 March 2017 at 9.30am in the Federal Court in Sydney.

ASIC will be making no further comment at this time.

Download

Background

The proceedings follow ASIC’s review of interest-only home loans (REP 445) in which ASIC reviewed the responsible lending practices of 11 lenders (refer: 15-220MR).

Former Westpac Home Finance Manager sentenced to 3 years imprisonment

ASIC says following an a former Westpac Home Finance Manager, has been sentenced in the Southport District Court to 3 years imprisonment, to be released after 6 months on a recognisance order.

On 2 November 2016, he pleaded guilty to three counts of dishonest use of his position, with the intention of directly or indirectly gaining an advantage for himself or others.

ASIC alleged that between July 2008 and June 2010, he dishonestly used his position and submitted loan applications for approval when he knew they contained false information and false documents.

He obtained over $2.5 million for Westpac customers, that they invested with a now failed Tasmanian property development scheme, operated by Capital Growth International Club Pty Ltd (CGIC) and All About Property Developments Pty Ltd (AAPD) (refer: 15-137MR).

In delivering the sentence, Judge Kent QC remarked that his behaviour was described accurately in his opinion by the Crown as calculated, elaborate, determined and not a fleeting mistake.

ASIC Commissioner Peter Kell said: “his actions betrayed the trust of his clients and caused them significant financial harm. This sentence showed such behaviour will not be tolerated.’

The matter was prosecuted by the Commonwealth Director of Public Prosecutions.

His recognisance is in the sum of $1000, conditioned that he be of good behaviour for a period of 3 years.

Background

ASIC’s investigation found that the customers to whom the loan applications related were elderly and vulnerable and with limited financial means, yet in spite of this, he encouraged them to borrow against their homes, some of which were unencumbered, to invest with CGIC and AAPD, which promised returns of 12–20% per annum.

The customers received monthly interest payments from CGIC and AAPD after they invested, however the interest payments stopped shortly before a liquidator was appointed on 28 February 2011.  This left customers without sufficient income with which to repay their loans to Westpac.

Westpac has compensated customers who obtained loans from Westpac through him in relation to amounts they invested in CGIC.  Westpac has also compensated investors who did not borrow funds from Westpac but claimed to have had some direct contact with him before making their investment in CGIC. ASIC acknowledges Westpac’s commitment to achieving a resolution for the benefit of CGIC investors. (refer: 14-264MR).

In March 2014, ASIC permanently banned him from engaging in credit activities and providing financial services (refer: 14-043MR).

ASIC’S investigations into CGIC, AAPD and its officers are ongoing.

Bankwest refunds $4.9 million for overcharging interest on home loans

ASIC says Bankwest, a division of the Commonwealth Bank of Australia, has refunded approximately 10,800 customers more than $4.9 million after it failed to link offset accounts to home loan accounts for some customers who had open accounts between 2007 and June 2016, resulting in customers being overcharged interest.

Following media coverage of ASIC’s work in relation to similar breaches by another bank, Bankwest undertook an internal investigation into the operation of its offset accounts. Bankwest identified issues in the linking of offset accounts with home loans and reported the matter to ASIC as a significant breach of its licence obligations.

ASIC Deputy Chairman Peter Kell said, ‘It is critical that licensees ensure that their systems work properly so that promises made to customers about their bank accounts are kept.

‘When a problem is identified, licensees not only have an obligation to report the breach, but impacted customers must be returned to the position they would have been in, had the breach not occurred.’

Bankwest has since updated its systems and processes, including the automatic linking of new offset accounts.

Bankwest has contacted those customers it has identified as being affected to explain the impact and has arranged refunds.

Customers with queries or concerns about this matter should contact Bankwest Customer Help Centre on 1300 334 805 (for retail customers), or the Bankwest Business Support Centre 13 7000 (for business customers). Alternatively, customers can complete an online form here.

Background

An offset account is a savings or transaction account that, when linked to a home loan, offsets the balance of the loan account, reducing the interest payable.

For example, a customer with a home loan of $500,000 and a balance of $20,000 in their offset account, would only pay interest on $480,000. If accounts are not properly linked, the customer would be charged interest on the full loan amount of $500,000.

ASIC takes Westpac to court over alleged breaches of ‘best interests’ test

From The NewDaily.

The Australian Securities and Investments Commission is taking action against Westpac in the Federal Court on Thursday, alleging that two of the bank’s subsidiaries breached “best interests” obligations and provided personal financial advice when they were not permitted to do so.

ASIC claims that a campaign by Westpac designed to get customers to consolidate multiple super accounts breached the financial advice laws by giving advice based on personal financial information in 15 phone conversations.

The calls were made by staff of Westpac Securities Administration Limited and BT Funds Management Limited.

ASIC claims the bank specifically recommended customers roll out of their non-Westpac superannuation funds, consolidating into Westpac-related superannuation accounts. It also says the bank did not provide proper comparisons between the funds.

Westpac claims it did not give personal advice.

“In each of the 15 conversations … our customers were given a ‘general advice warning’ as is standard and a required part of our process,” BT said in a statement.

ASIC is also taking the gloves off over aggressive marketing by super funds, with the corporate regulator poised to launch enquiries with over 50 super groups.

The funds, believed to be mostly from the for-profit retail sector, will receive letters from ASIC in coming days seeking information about their marketing practices, a spokesman told The New Daily.

Were inducements offered?

ASIC is concerned that funds have been using inducements and high-pressure tactics to get employers to sign them up to lucrative default fund agreements which include insurance arrangements. These agreements channel workers into membership if they don’t actively choose another fund.

The regulator’s inquiries will investigate the quality of advice and information that is provided to employers by trustees when they are making decisions about their default funds for their employees. It will examine the funds’ responses to its questions before deciding on further action.

“We’ll be looking at all of the material around the super fund trustee relationship including the type of marketing collateral funds give to employers,” Gerard Fitzpatrick, senior executive leader of investment managers and superannuation at ASIC, told Fairfax Media.

There have been allegations of inducements offered to employers by funds and that these can result in employees being channelled into inappropriate funds.

What deals are members getting?

“We are very interested in how members are treated, and if as a result of aggressive marketing approaches or competitive drive, whether members are being disadvantaged or are being provided with information that does not allow them to make appropriate investment decisions.”

Areas that will come under ASIC scrutiny will include “advice given to employers and how this is paid for, as well as looking at disclosure material that is provided directly for employers by trustees and entities”.

Around one-third of Australians with super accounts are enrolled in default funds through their employers.

Competition for default fund status is hotting up in the $2.1 trillion super sector with employer-owned funds increasingly vacating the field and handing the business to dedicated industry and retail funds.

According to Australian Prudential Regulatory Authority data only 31 out of a total of 231 funds were identified as “corporate funds” for the year to June 2015.

The latest manifestation of this trend is news that Equip Super is set to merge with mining giant Rio Tinto’s corporate super fund later this year in a move that would see a $13.5 billion super group created to manage funds for approximately 75,000 members.

Last August the Reserve Bank of Australia moved its super balances over to Sunsuper to manage. BHP Billiton has also rolled its super fund into MLC.