ASIC – Page 29 – Digital Finance Analytics (DFA) Blog

ASIC company data should be open and free

The Australian government is planning to privatise the management of the Australian Securities and Investments Commission database of companies. This is a potentially damaging move which goes against the government’s own open data policy.

On behalf of the Australian government, ASIC currently charges businesses and individuals around A$50 million each year for company searches. The information covers everything from details of shareholders and company officers (A$19 per document) and their roles and relationships with other bodies, to financial reports and records of charges over company assets (A$38 per document).

It is undoubtedly a great money-spinner to charge members of the public more than A$1 per page for a downloaded pdf document. However, the original legislative purpose of making information about companies publicly available was surely not so that the Australian government could profit from selling that information. Indeed, there is no public policy or economic rationale for the charges.

I am yet to meet an economist who argues that levying costs on public information about companies helps markets operate more efficiently. What we’re actually doing is segregating the market into those who can afford public information about companies and those who cannot.

The movement of company data from public to private hands is likely to entrench the charges for public information about companies. The corporate database is likely to be treated as nothing more than a cash cow.

Inevitably the focus will be on how to fatten the cow. The question asked will not be should we make [so much] money from public information, but how can we make more? The adverse economic consequences and lost productivity benefits that flow from costly public data will not enter the calculations.

Malcolm Turnbull has supported open data

In March 2014 Malcolm Turnbull, then communications minister, made the following salient comments:

To be frank with you, I think it is really regrettable that ASIC’s data is behind a paywall.

I have to say as a matter of principle, I don’t think the government should be charging the public for data.

Obviously these are tough and troubled times from a budgetary point of view – and there will be all sorts of contractual issues – but really, the productivity benefits from making data freely available are so much greater than whatever revenues you can generate from them.

Our goal is … wherever possible to make that data accessible and free.

Our prime minister’s reported comments are consistent with the Australian government’s own 2015 Public Data Policy. This commits to optimising the use and reuse of public data, releasing non-sensitive data as open by default, and collaborating with the private and research sectors to extend the value of public data for the benefit of the Australian public.

I know many accounting academics who wish to conduct research to inform public policy using the financial reports on ASIC’s database. They are prevented from doing so because they do not have a spare A$50,000 lying around to buy the data.

Better corporate and tax regulation

Academics are not the only ones who would benefit from making ASIC’s public data freely available. It would also help individuals to scrutinise corporate affairs and, in doing so, make valuable contributions to the Australian regulatory authorities. This is the Jerry Maguire principle of public administration: help me, help you.

In carrying out its regulatory functions, ASIC relies heavily on complaints and reports of corporate misconduct received from individuals. Let’s do a cause and effect analysis here: the higher the charges for corporate information, the lower the scrutiny of corporate affairs by individuals, the fewer complaints made to ASIC, the weaker and more untimely corporate regulation.

The 2014 Senate inquiry report into the performance of ASIC must have had such an analysis in mind when it recommended that ASIC charges be brought into line with other jurisdictions. Searching for public information about companies is free in New Zealand and the United Kingdom.

The 2010 Senate inquiry report into insolvency practitioners is archetypal of the public policy problem. This committee found overwhelming evidence of bad and illegal practices in the insolvency industry. These practices thrived while there was low scrutiny and costly and missing financial information. ASIC was unaware of the nature and extent of what was going on.

Similar to ASIC, the Australian Taxation Office (ATO) relies on individuals to inform it of taxation misconduct by corporations. The same cause and effect analysis for complaints made to ASIC applies.

In carrying out its functions, the ATO is effectively hamstrung if individuals are unable to freely scrutinise the financial affairs of corporations and make timely complaints or reports. The heaving lifting of scrutiny and accountability in taxation falls on the few and the public purse is worse off because of it.

The 2015 Senate inquiry into corporate tax avoidance was remarkable not so much for the outlandish evidence of aggressive tax avoidance, but the incredulous expressions of senators in the Sydney hearing room as the evidence emerged. It was almost possible to read their thoughts: how could it be that we, the elected representatives of the people, could have missed this disgraceful state of tax affairs and for so long?

The answer, of course, is that there was a lack of timely genuine scrutiny by the public. It finally fell to investigative journalists such as Michael West (then of Fairfax) to blow the whistle after acquiring the financial reports of various multinational companies.

Cutting red tape for small business

Small businesses – often described as the engine room of the Australian economy – could also benefit from freely available company data. Small businesses and contractors should be able to educate themselves about the affairs of their corporate customers without having to pay the government for the privilege.

Unsecured creditors should be able to view the charges held against a company’s assets by secured creditors so they too can make informed decisions.

Employees and their representatives should likewise be able to freely access public information about corporate employers. Employees have an active and ongoing economic interest in a company, not least because of the employee benefits they accumulate such as annual leave, long service leave and superannuation contributions.

It is inefficient for the Australian government to levy charges that discourage timely regular scrutiny of large companies by employees. The social costs can be high when a company fails. Uninformed employees are likely to suffer shock and dislocation. Meanwhile the government often incurs the cost of paying out accumulated employee benefits.

In the public interest

Keeping public information about companies locked up behind paywalls and maintained by private interests is not in the public interest.

Free public information about companies in public hands will contribute to higher transparency, better governance and accountability, and less secrecy, incompetence, fraud and corruption. If the ASIC corporate database is sold, the opposite effects are virtually certain.

Author: Jeffrey Knapp; Lecturer/Accounting, UNSW Australia

ASIC reports on review of marketing practices in IPOs

ASIC has warned firms and issuers involved in initial public offerings (IPOs) in Australia to ensure their marketing campaigns comply with the letter and spirit of the law, particularly when using emerging social-media strategies.

An ASIC review of marketing practices in IPOs has found that so-called ‘traditional’ means of communication – telephone calls, emails and websites – remain more important for the marketing of an offer to retail investors. The review found that the use of social media is not yet pervasive; it is only used occasionally by small to medium-sized firms to market IPOs.

REP 494 Marketing practices in initial public offerings of securities details the review’s findings, highlights areas of concern and provides for consideration ASIC’s recommendations to improve marketing practices for IPOs in the future.

Between October 2015 and March 2016 ASIC reviewed the online and social media marketing of 23 IPOs where a prospectus was lodged. ASIC then conducted a more extensive review of the marketing practices and materials of 17 firms that were involved in 7 of the original IPOs. ASIC also monitored the marketing of other IPOs as part of its usual prospectus review work.

Key findings of the report included:

There were some oversight weaknesses in relation to marketing done via telephone calls and social media, and in ensuring that marketing material is kept up to date.

The use of forecasts in communications or the targeting of investors from a particular background means special care may need to be taken to avoid misleading investors.

Firms and issuers did not always properly control access to information about the offer to ensure retail investors base their decision on the prospectus; and

Some good practices were adopted by firms to ensure that communication was consistent with the prospectus information.

ASIC Commissioner John Price said the purpose of the review was to understand current market practices and identify areas of particular concern.

‘The way that an IPO is marketed may unduly influence the decision to invest in an IPO,’ he said.

‘We are living in more innovative times where we are seeing new interactive methods of communication and marketing used in many corporate and commercial arenas, including taking a company public. While we embrace such innovation, we also want to remind firms and issuers to ensure that their marketing practices comply with the advertising and publicity restrictions in the Corporations Act,’ he said.

ASIC releases guidance on review and remediation

ASIC has released guidance on review and remediation conducted by Australian financial services (AFS) licensees providing personal advice to retail clients.

This follows Consultation Paper 247 Client review and remediation programs and update to record-keeping requirements (CP 247), issued in December 2015 (refer: 15-388MR).

The guidance reflects work done with industry over the past several years where ASIC has worked with advice licensees with large remediation programs to shape the scope and nature of remediation arising from systemic advice issues.

The key principles set out in the guidance are:

review and remediation is likely to be appropriate where a systemic issue has occurred that may have caused loss or detriment to clients

the scope of review and remediation should ensure it covers the right advisers, the right clients and the right timeframe

the process of review and remediation should be comprehensive, timely, fair, and transparent. There should be clearly defined principles to guide the process and an appropriate governance structure

effective, timely and targeted communication is key to ensuring that clients understand the review and remediation and how it will affect them; and

clients should have access to an EDR scheme if they are not satisfied with the remediation decision made.

‘ASIC wants to ensure that advice licensees proactively address any systemic problems caused by their conduct and, where necessary, put processes in place to remediate their clients for loss suffered in a way that is timely, fair and transparent,’ ASIC Deputy Chairman Peter Kell said.

‘Advice firms that take effective and timely steps to fix problems if something goes wrong will be much better placed to retain the trust and confidence of their clients,’ said Mr Kell

In the 2015-16 financial year, ASIC secured over $200 million in compensation and remediation for financial consumers and investors across the areas it regulates.

While the guidance is directed at licensees who provide personal advice to retail clients, review and remediation takes place in many other sectors of the financial services industry. The principles set out in the guidance should be applied to other review and remediation where relevant.

ASIC will shortly release an amendment to Class Order [CO 14/923] Record-keeping obligations for Australian financial services licensees when giving personal advice together with a report summarising the key feedback ASIC received in response to CP 247, and our response to that feedback.

Managed Accounts Market Growing Fast

Further evidence of complexities in the investment sector in Australia are demonstrated by the latest estimates from The Institute of Managed Account Professionals (IMAP) which uses data from their 2016 survey. This shows that based on responses from 29 out of 37 organisations surveyed, total funds under management/administration (FUM) held in managed accounts now exceeds $30.874 billion.

The results show that managed accounts are a very significant part of the retail financial services market – already equivalent to approximately 5% of all the investment assets held on platforms.

In February 2015, IMAP had surveyed the main providers and estimated that the market size exceeded $13 billion in total FUM. Morgan Stanley recently predicted that Managed Accounts would exceed $60 billion by 2020. So there has been significant growth.

Here is the list of entities who responded. There is an interesting mix of integrated financial services players, and several stand alone organisations and start-ups. Many have fingers in multiple pies!

The results show that managed accounts are a very significant part of the retail financial services market – already equivalent to approximately 5% of all the investment assets held on platforms.

IMAP says the inflow to managed accounts services has been strong through 2015-16 and is likely to continue to grow strongly. The growth since the 2015 survey has been largely in platform based services rather than in “client own name” services, showing the extent to which financial planners and advisers have now adopted managed accounts as a way of delivering their overall advice service.

Over 85% of the FUM measured in this survey would also be counted in a survey of the retail IDPS and Superannuation platforms. Also, this 2016 result is not directly comparable to the total FUM amount measured in the 2015 survey because the survey process this year continues to add new participants. The results also show significant growth for those who have participated in both surveys. Managed Accounts are provided in a variety in legal structures and several organisations can be involved in a single service. This means that there is a risk of overlap between the returns from several organisations, so the numbers are at best indicative.

ASIC says MDA services involve a range of financial products and financial services, such as offering and trading in financial products, operating a custodial and depository service, and giving personal advice. Because of the individualised nature of the range of financial services involved, they will regulate persons contracting with retail clients to provide MDA services as providers of financial services rather than issuers of a financial product. Managed accounts are increasingly considered a mainstream investment management solution and many managed account solutions are made available using a MDA approach.

However, advisers operating a managed discretionary account (MDA) service are expecting new tighter regulations soon.

A large number of industry participants provide MDA services to retail clients using a no action letter issued back in 2004. The no action letter came about because the industry argued that unlike “full service” MDAs, many advisers primarily used discretion to rebalance managed fund portfolios via a regulated platform which took care of administration, custody and reporting. It successfully argued that it wasn’t clear whether they needed to be licensed or not. If the no action letter is removed, Limited MDA arrangements, particularly those with portfolios across a range of instruments, will probably need to gain specific MDA authorisation on their licence to continue their current approach.

ASIC has also flagged plans to increase the capital requirements for MDA
operators so that net tangible assets (NTA) of 0.5 per cent of funds under administration (FUA) up to $5 million will need to be maintained (assuming custody is outsourced).

CBA pays $180,000 in penalties and will write off $2.5 million in loan balances

ASIC says Commonwealth Bank of Australia (CBA) has paid four infringement notices totalling $180,000 in relation to breaches of responsible lending laws when providing personal overdraft facilities.

CBA reported this matter to ASIC following an ASIC surveillance. CBA conducted an internal review which identified a programming error in the automated serviceability calculator used to assess certain applications for personal overdrafts.

As a result of the error, between July 2011 and September 2015, CBA failed to take into consideration the declared housing and living expenses of some consumers.

Instead, CBA’s serviceability calculator substituted $0 housing expenses, and living expenses based on a benchmark which in some instances was substantially less than the living expenses declared by the consumer. As a result, this led to an over-estimation of the consumer’s capacity to service the overdraft facility.

CBA informed ASIC that between July 2011 and September 2015, as a result of the error, CBA approved:

9,577 consumers for overdrafts which would have otherwise been declined; and

1,152 consumers for higher overdraft limits than would have otherwise been provided.

Some consumers were approved for a personal overdraft, or an increased limit on their personal overdraft, even though their declared expenses were greater than their declared income.

ASIC was concerned that this conduct breached responsible lending laws and that affected consumers would have been unable to comply, or could only comply with substantial hardship, with their obligation to repay their personal overdraft on demand.

CBA has informed ASIC that it will write off a total of approximately $2.5 million in personal overdraft balances.

ASIC Deputy Chairman Peter Kell said, ‘Credit licensees should continuously monitor their internal processes to ensure compliance with the law. This is especially the case with automated decision-making systems where ongoing monitoring is needed to ensure that information is correctly inputted into systems.’

Background

The responsible lending obligations that prohibit lenders from entering into credit contracts which are unsuitable for the consumer are found in the National Consumer Credit Protection Act 2009 (Cth). The laws aim to ensure that credit contracts are not unsuitable for consumers (see s133(1)), and consumers are likely able to afford the credit contract (see s133(2)).

ASIC issued four infringement notices in August 2016 totalling $180,000 for the breaches outlined above.

CBA self-reported the breaches to ASIC, and has co-operated with ASIC’s investigation.

The payment of an infringement notice is not an admission of guilt in respect of the alleged contravention. ASIC can issue an infringement notice where it has reasonable grounds to believe a person has committed particular contraventions of the National Credit Act.

ASIC on mortgage brokers’ interest only loans

ASIC says the volume of interest only loan approvals rose significantly in the June 2016 quarter. But Australia’s home loans industry has improved its performance over the past year, adopting better ‘responsible lending’ practices, though there is still room for improvement.

ASIC has released its report (REP 493) ‘Review of interest-only home loans: Mortgage brokers’ inquiries into consumers’ requirements and objectives’ on the responsible lending practices of 11 large mortgage brokers with a particular focus on how they inquire into and record consumers’ requirements and objectives.

It also examined how the changes implemented by lenders in response to the findings from ASIC’s report into interest-only home loans from 12 months ago last year (refer: Report 445) have flowed through to mortgage brokers.

Since the release of Report 445 in August 2015,

the percentage of new home loans approved by lenders which are interest-only has decreased by 12%; and

the amount that can be borrowed by an individual consumer through an interest-only home loan has decreased, as lenders have adjusted their assessment of consumers’ ability to repay, in line with ASIC’s recommendation in Report 445.

Information provided by the mortgage brokers showed that for the six months from July 2015 to December 2015,

the number of new interest-only home loans fell by 16.3%, with total value of these loans reducing by 15.6%; and

the percentage of interest-only loans with a term greater than five years reduced by more than half, from 11.2% to 5.1%.

Almost 80% of applications reviewed included a statement summarising how the interest-only feature specifically met the consumer’s requirements and objectives. This compared favourably with Report 445’s finding that more than 30% of applications reviewed showed no evidence the lender had considered whether the interest-only loan met the consumer’s requirements.

‘It is vital that mortgage brokers understand consumers’ requirements and objectives to ensure they are not placed in unsuitable credit contracts,’ said ASIC deputy chairman Peter Kell.

‘ASIC is pleased that our concerns about interest-only loans and responsible lending are being acted on by the home lending industry, but there is still room for improvement.’

ASIC identified practices that place brokers at increased risk of non-compliance with their responsible lending obligations, and identified opportunities for brokers to improve their practices. Key compliance risks identified included:

Policies and procedures—Mortgage broker policies and procedures provided only general information, rather than tailored information on specific products and loan features that may impose increased financial obligations or restrict repayment flexibility (such as interest-only home loans);

Recording of inquiries—Record keeping was inconsistent and in some cases records were fragmented and incomplete;

Explaining the loan choice—More than 20% of applications reviewed did not include a statement explaining how the interest-only feature of the loan specifically met the consumer’s underlying requirements and objectives. The level of detail in these statements varied considerably and in some cases, where an interest-only loan was specifically sought by a consumer (including where this option was recommended by a third party, such as an accountant), the reason for this was not clear;

Consumer understanding of risks and costs—In some cases, where the potential benefit of the interest-only loan depended on the consumer taking specific action (for example, allocating additional funds to higher interest debt), it was unclear whether the consumer understood the potential risks/additional costs if the specific action was not taken.

The report details steps that mortgage brokers should take to improve their current practices, including:

Ensuring they understand the consumer’s underlying objectives for requesting specific loan products and features;

Recording concise summaries of consumers’ requirements and objectives and the reason why a particular product, features and lender was chosen;

Providing a statement summarising the broker’s understanding of the consumer’s requirements and objectives, which could also include the reason a particular loan is suggested, for the consumer to confirm before obtaining a loan.

Where the potential benefits of a loan feature might require the consumer to undertake specific behaviour, ensuring consumers were aware of the action they needed to take to obtain the potential benefit, as well as the potential costs should this action not be taken.

Westpac refunds $9.2 million after failing to waive bank account fees for eligible customers

ASIC says Westpac Banking Corporation (Westpac) has refunded approximately $9.2 million to 161,414 customers after it failed to waive fees on Westpac and St. George branded savings and transaction accounts over six years.

For customers aged under 21 years, Westpac previously relied on staff to manually apply the following fee waiver benefits:

a monthly service fee waiver for customers with a Westpac Choice transaction account; and

a withdrawal fee waiver for customers with a Westpac Reward Saver account.

However, between May 2007 and April 2013, 133,045 Westpac Choice and Westpac Reward Saver accounts were opened for some eligible customers without the relevant fee waivers being applied.

Westpac also discovered that there were 28,369 customers under the age of 18 who were eligible for a St. George Complete Freedom Student transaction account (which has no monthly service fee), but instead held a standard St. George transaction account which charged a monthly fee.

Westpac reported this matter to ASIC under its breach reporting obligations in the Corporations Act. ASIC acknowledges the cooperative approach taken by Westpac in resolving this matter.

Compensation and systems changes

Westpac has now provided refunds to affected customers. The refund payments included an additional amount reflecting interest.

In addition to compensating customers, Westpac is enhancing the account opening process for these Westpac and St. George products to ensure all new eligible customers receive the relevant fee waivers. This includes automated application of the relevant fee waivers based on the customer’s date of birth submitted during the application process. Westpac also monitors this activity to ensure the correct treatment of eligible accounts.

ASIC Deputy Chairman Peter Kell said, ‘Financial institutions that offer products with benefits such as fee waivers must have effective and robust systems in place to deliver the promised benefits to consumers.’

‘Businesses that rely on manual processes to apply waivers, discounts and other benefits should carefully consider how they manage the risks of processes not being followed, including having appropriate controls and procedures in place.’

ASIC puts insurers on notice to address serious failures

ASIC says they have reviewed the sale of add-on general insurance policies through car dealers and found that the market is failing consumers.

Our report released today (REP 492) finds that consumers are being sold expensive, poor value products; products that provide consumers very little to no benefit; and a sales environment with pressure selling, very high commissions and conflicts of interest.

These products are sold to consumers when they purchase a new or used car, and cover risks relating to the car itself or relating to the loan that the consumer takes out to purchase the car. Examples include consumer credit insurance and tyre and rim insurance.

ASIC Deputy Chairman Peter Kell said, ‘There are serious problems in this market that need to be immediately and comprehensively addressed by insurers.’

‘ASIC will be undertaking further work, including potential enforcement action, to ensure that this market delivers acceptable outcomes for consumers. We will also be looking at how insurers can refund consumers who have been sold inappropriate products,’ said Mr Kell.

For the three year period that we reviewed, we found that:

Consumers obtained little financial benefit from buying add-on insurance, with consumers paying $1.6 billion in premiums and receiving only $144 million in successful insurance claims – representing a very low claims payout of nine per cent. For some major add-on products, the benefit to consumers was even lower, with consumer credit insurance claims payouts representing just five cents for each dollar of premium

Car dealers earned $602 million in commissions – over four times more than consumers received in claims, with commissions paid to car dealers as high as 79 per cent

Payment for these insurance products is commonly packaged into the consumer’s car loan as a single upfront premium. This can substantially increase the cost of the product by increasing the loan amount and interest paid. Research shows that consumers are often unaware that they even have the policy when it is paid upfront as a single premium, and they may not get a premium refund if they repay their car loan early. Policies have been sold where it is impossible for the consumer to receive a claim payout that is greater than the cost of the insurance

The car sales environment inhibits good decision making about these products because of the conflicts of interest and pressure sales built into the distribution model. The consumer is focussed on purchasing a car and financing that purchase – not on the details of the complex insurance policy

Today’s report follows ASIC’s release of two reports in February this year about the sale of add-on life insurance by car dealers. ASIC stressed the need for insurers to address the high costs, poor value and poor claim outcomes of life insurance products sold this way.

ASIC is putting general insurers on notice that they need to improve consumer outcomes by making substantial changes to the pricing, design and sale of add-on insurance products or face additional regulatory action. The key commitments we are seeking from insurers are:

A significant reduction in the amount of commissions paid to anyone who sells an add-on insurance product through car dealers

A significant improvement in the value offered by these products, through substantial reductions in price and better product design and cover

A move away from single upfront premiums that are financed through the loan contract, given the adverse financial impact this has on consumers

Providing refunds to consumers who have been sold policies in circumstances that were unfair, such as where a policy has been sold to a consumer who was never eligible to claim under the policy

Insurers have notified ASIC that they intend to implement a 20 per cent cap on commissions, which is a positive step. Insurers in this market will be also providing ASIC with data on prices, premiums and claims on a regular basis so that we can monitor the impact of changes on consumers.

ASIC Deputy Chairman Peter Kell said, ‘While we welcome the initial steps taken by the insurers to improve the value of these products for consumers, there is still a long way to go. If industry does not deliver swift improvements for consumers, ASIC will take further action, including enforcement action where appropriate.’

ASIC’s review of these products is ongoing. ASIC will continue to work with insurers and consumer representatives to ensure that proposals for change deliver significantly improved value to consumers.

Westpac refunds $20 million in credit card foreign transaction fees

ASIC says Westpac Banking Corporation (Westpac) has recently refunded approximately $20 million to around 820,000 customers for not clearly disclosing the types of credit card transactions that attract foreign transaction fees.

Following a customer complaint, Westpac notified ASIC that customers may have been incorrectly charged foreign transaction fees for Australian dollar transactions processed by overseas merchants. Because Westpac’s terms and conditions did not clearly state that foreign transaction fees would be charged for such Australian dollar transactions, Westpac commenced a process to identify impacted customers and provide refunds with interest.

Westpac has updated its disclosure to clarify that Australian dollar transactions – when they are processed by overseas merchants – will also attract a foreign transaction fee.

ASIC Deputy Chairman Peter Kell said, ‘It is essential for consumers to know when fees will be charged, so that they can make an informed decision when using financial products and services.’

ASIC acknowledges the cooperative approach taken by Westpac in its handling of this matter, and its appropriate reporting of the matter to ASIC.

ASIC warning to consumers

ASIC is also issuing a warning to consumers about unanticipated credit card foreign transaction fees.

It may come as a surprise to consumers that transactions made in Australian dollars with overseas merchants, or processed by a business outside Australia, can attract a foreign transaction fee. This may even occur where the merchant’s website has an Australian address (domain name) or where a foreign business advertises and invoices prices in Australian dollars.

‘It may not always be clear to the consumer that the merchant or entity is located outside Australia, particularly in an online environment where the website uses an Australian domain name,’ said ASIC Deputy Chairman Peter Kell. ‘We urge consumers to check whether the transaction they make is with an overseas-based merchant or processed outside Australia, especially when they shop online.

‘Equally, credit card issuers need to ensure that the disclosure of such fees is clear so customers understand the fees that they are charged when using their cards.’

‘Not all cards impose foreign transaction fees. For consumers who make frequent overseas purchases, it is worth shopping around for a card that offers no foreign transaction fees,’ he said.

ASIC is working with other industry participants on this issue, including by requiring improved disclosure by a number of credit card issuers.

Overseas merchants who display prices to Australian consumers in Australian dollars will usually give consumers the choice to pay in the applicable foreign currency or in the Australian dollar equivalent, as converted by the merchant at their own exchange rate (using a process known as ‘dynamic currency conversion’). As consumers may be unable to avoid paying international transaction fees for Australian dollar transactions with overseas merchants, consumers may wish to pay in the applicable foreign currency if they expect the exchange rate to be applied by their card issuer to be more competitive than the exchange rate used by the merchant.

Customers with queries or concerns about the charging of credit card foreign transaction fees should contact their credit card issuer. ASIC has published specific information and guidance for consumers about the charging of international transaction fees by credit card issuers on its MoneySmart website.

Background

A foreign transaction fee (also known as an international transaction fee) is a fee charged by many credit card providers for transactions – including purchases and cash advances:

that are converted from a foreign currency to the Australian dollar; or

that are made in Australian dollars with merchants and financial institutions located overseas; or

that are made in Australian dollars (or other currencies) that are processed outside Australia.

A foreign transaction fee is generally calculated as a percentage of the Australian dollar value of the transaction (typically up to 3.5%). Credit card schemes (such as Visa, MasterCard and American Express) have different rules about foreign transaction fees and the percentage fees will vary depending on the card scheme.

Debit cards may also attract a foreign transaction fee, and consumers are encouraged to check the terms and conditions to find out whether this fee will be imposed by debit card issuers.

From March 2014, Westpac’s credit card terms and conditions did not clearly state that a ‘foreign transaction fee’ would be charged for transactions:

for ‘card-not-present’ transactions in Australian dollars with merchants located overseas;

in Australian dollars with financial institutions located overseas; or

in Australian dollars (or any other currency) that is processed by an entity outside Australia (together referred to as Overseas Transactions in Australian Dollars).

This may have led customers to believe that a foreign transaction fee would be charged only when a transaction was made in a foreign currency that required a conversion into Australian dollars at the time of the transaction.

Affected customers have been provided compensation, including:

a refund of the foreign transaction fee charged on the transaction;

where any credit card interest was charged on the foreign transaction fee amount, a refund of the interest component; and

an additional interest payment on the refund amount from the date the foreign transaction fee was charged until the date of refund.

ING Bank compensates Living Super customers due to potentially misleading costs and fees statements

According to ASIC, ING Bank (Australia) Limited, the promoter and investment manager of the ING Direct Superannuation Fund (Living Super), will compensate around 24,500 members approximately $5.38 million following ASIC concerns that statements made in its promotional material about the fees paid in connection with its Living Super product were potentially misleading.

In particular, ASIC was concerned that ING Bank promoted Living Super, between March 2015 and September 2016, as having ‘No Fees’ for the ‘Cash Investment Option’, ‘No Investment and Administration fees’ for the ‘Balanced Option’ and having low fees options without making it clear that customers were paid a lower interest rate on the cash portion invested with ING Bank than the rate paid by ING Bank to its Saving Maximiser customers for the relevant investment options. Some of the promotions also did not indicate the “no fees or low fees” features may not continue should ING Bank no longer be the investment manager.

ASIC discussed its concerns with ING Bank that some members of Living Super may have been misled into believing they would receive the same returns on cash investments held with ING bank as ING Direct banking customers with the Savings Maximiser product.

ING Bank has acknowledged that its communication could have been clearer and is writing to all members of Living Super to inform them that the interest rates paid on Living Super may be different to the rates paid to direct banking customers and further, that the fees for Living Super may change should ING Bank no longer be the investment manager.

ING Bank have advised ASIC they will also write to affected members informing them of the compensation paid and will not retain any of the financial benefit from the lower interest rate that was applied.

ING Bank has told ASIC that it will no longer be promoting Living Super based on No Fees or No Investment and Administration Fee. It has made changes to its internal policies and procedures to help ensure that similar potentially misleading promotions are not undertaken.

ASIC also expressed disappointment that ING Bank was promoting Living Super using product inducements to clients separate from the superannuation product such as cash payments. ASIC observes that promotions of this type are a bad practice that may encourage decisions to be made on the basis of short term considerations that may not reflect the needs of a member. ING Bank has advised ASIC that it will stop offering separate product inducements in relation to Living Super.

ASIC Commissioner Greg Tanzer said, ‘This action reflects ASIC’s ongoing focus on the disclosure of fees and costs in superannuation.

‘Consumers need to be able to make informed decisions about their superannuation and managed investments, based on accurate and consistent fees and costs disclosure.

‘Promotion of superannuation products based on low or no fees can be very influential on consumers. This makes it very important to ensure any such promotion is not potentially misleading by reducing the benefits consumers receive in exchange for the no fees or low fees features’, Mr Tanzer said.