Robbie Barwick from the Citizens Party and I discuss the potential inquiry into ASIC after the Sterling First debacle and the broader issues of financial oppression which hits so many.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
In today’s show we look at liar loans, the rise in hardship loan assistance, criminal charges at ME Bank, the trophy homes boom and ASIC turning from a watchdog to a lapdog. So, let’s get started.
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Robbie Barwick from the Citizens Party and I discuss the deliberate dis-empowering of ASIC by the Government, under the guise of driving economic growth. In truth, we need a regulator which fearlessly drives market participants to do the right thing. Currently, they have failed, as illustrated by the Sterling First charade.
We are calling for a Senate Inquiry into the role and purpose of ASIC, with the opportunity to lobby Senators during the last sitting week.
Contact details for Senators: https://www.aph.gov.au/Senators_and_Members/Senators
The Aussie battler standing up to a giant bank https://citizensparty.org.au/aussie-battler-standing-giant-bank
The Sterling First scam: another example of Australia’s widespread financial corruption
We have found another example of power pushing out those who are trying to control the banks, and the playbook is PRECISELY the same as the Aussie Post Affair.
I discuss this with Robbie Barwick from the Citizens Party, in the context of the planned removal of Responsible Lending protections and a response to try to remove this risk. You will not believe this…
APRA and ASIC have some out with more relief for the banks as they wrestle with mortgage payment suspensions. Can firmly being kicked, but what are the implications?
In coordination with the Council of Financial Regulators, ASIC will focus its regulatory efforts on challenges created by the COVID-19 pandemic. Until at least 30 September 2020, the other matters that ASIC will afford priority are where there is the risk of significant consumer harm, serious breaches of the law, risks to market integrity and time-critical matters.
ASIC is committed to working
constructively and pragmatically with the firms we regulate, mindful
they may encounter difficulties in complying with their regulatory
obligations due to the impact of COVID-19.
ASIC has immediately suspended a number of
near-term activities which are not time-critical. These include
consultation, regulatory reports and reviews, such as the ASIC report on
executive remuneration, updated internal dispute resolution guidance
and a consultation paper on managed discretionary accounts. Stakeholders
will shortly be notified of deferred consultation and publications
relevant to them.
ASIC will also suspend its enhanced on site supervisory work such as the Close and Continuous Monitoring Program.
In issuing information-gathering notices,
ASIC has provided new guidance to our staff – mindful that many notice
recipients may be facing significant disruption.
By taking these actions, industry
participants will be better placed to focus on their immediate
priorities and the needs of their customers at this difficult time.
Where warranted, relief or waivers from regulatory requirements will also be provided. This will include requirements on listed companies associated with secondary capital raisings and audits. ASIC has already indicated a ‘take no action’ stance in relation to the timing of AGMs until 31 July and the conduct of AGMs by electronic means.
ASIC will also work with financial institutions to further accelerate the payment of outstanding remediation to customers.
ASIC will take account of the
circumstances in which lenders, acting reasonably, are currently
operating when administering the law.
ASIC will maintain its enforcement
activities and continue to investigate and take action where the public
interest warrants us to do so against any person or entity that breaks
the law. However, it will focus on action necessary to prevent immediate
consumer harm, egregious illegal conduct and other time critical
matters.
Key business as usual functions will be
maintained including registry operations and services, receipt of
whistleblower, breach and misconduct reports and general contact points
for industry.
Australian equity markets have seen record
trading volumes in the last two weeks. ASIC, along with the other
Council of Financial Regulators agencies, have been closely monitoring
financial markets to ensure they remain fair and orderly. Australian
markets have been strong and resilient over this period, and this action
is pre-emptive and intended to maintain those high standards.
In addition to increasing volumes,
Australia’s equity markets have seen exponential increases in the number
of trades executed, with a particularly large increase in trades last
Friday, 13 March. While there was no disruption to market operations on
Friday, there was a significant backlog of work required to be
undertaken over the weekend by the exchanges and trading participants.
If the number of trades executed continues to increase, it will put
strain on the processing and risk management capabilities of market
infrastructure and market participants.
Accordingly, ASIC has issued directions
under the ASIC Market Integrity Rules to a number of large equity market
participants, requiring those participants to limit the number of
trades executed each day until further notice. These directions require
those firms to reduce their number of executed trades by up to 25% from
the levels executed on Friday. This action will require high volume
participants and their clients to actively manage their volumes. We do
not expect these limits to impact the ability of retail consumers to
execute trades.
ASIC will continue to closely monitor market conditions and take action where needed to ensure markets remain fair and orderly.
ASIC has today started a four week consultation on draft guidance about the new best interests duty for mortgage brokers.
The new obligations were legislated by the Parliament in response to Recommendation 1.2 of the Royal Commission.
From 1 July, the obligations will require mortgage brokers to act in
the best interests of consumers and to prioritise consumers’ interests
when providing credit assistance.
Announcing the
consultation, ASIC Commissioner Sean Hughes said, ‘The obligations
properly align the interests of mortgage brokers with the interests and
expectations of their clients – the borrowers. Consumers should feel
confident that their broker is offering the best loan for their
circumstances and we expect that consumer outcomes will improve as a
result of this reform.’
‘We have released this
draft guidance for consultation as early as possible, to help promote
certainty for mortgage brokers as industry prepares for the new
obligations to commence in July’ Mr Hughes added.
ASIC’s proposed approach to the guidance is outlined in Consultation Paper 327 Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty
(CP 327). Consistent with the legislation, the draft guidance is
high-level and principles-based, but also incorporates practical
examples. The purpose of the guidance is to explain the obligations
introduced by the Government, it does not prescribe conduct or impose
additional obligations.
The draft guidance is
structured around the key steps common to the credit assistance process
of brokers, such as gathering information, considering the product
options available and presenting options and a recommendation to the
consumer.
ASIC welcomes views from
all interested stakeholders on the proposals in CP 327, as well as the
draft guidance. This will allow ASIC to understand how the guidance can
best assist brokers to meet these new legal obligations. ASIC expects
that the new obligations will also improve competition in the home
lending market.
ASIC seeks public comment on the draft guidance by 20 March 2020.
ASIC intends to publish final guidance before the obligations commence on 1 July 2020.
Download
Consultation Paper 327: Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty
Background
In February 2019, Parliament passed the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures) Act 2020,
which introduces a best interests duty for mortgage brokers in response
to Recommendation 1.2 of the Royal Commission. The duty is a statement
of principle which seeks to align the interests of the mortgage broker
with the interests and expectations of the consumer.
ASIC’s proposed guidance
will assist mortgage brokers to comply with these new legal obligations
by setting out ASIC’s views on what the best interests duty provisions
require and steps that can minimise the risk of non-compliance.
The best interests duty
introduced by the Government applies in addition to the responsible
lending obligations. ASIC’s draft guidance explains the interaction of
these two obligations, including that information gathered for the
purpose of complying with the responsible lending obligations may help
brokers to comply with the best interests duty.
ASIC’s draft guidance follows research we published last year in Report 628Looking for a mortgage: Consumer experiences and expectations in getting a home loan. Key findings from this research included:
consumers who visit a mortgage broker expect the broker to find them the ‘best’ home loan;
mortgage brokers were inconsistent in the
ways they presented home loan options to consumers, sometimes offering
little (if any) explanation of the options considered or reasons for
their recommendation; and
first home buyers were more likely to take out their loan with a mortgage broker.
ASIC says that the Federal Court of Australia has today ordered Westpac Banking Corporation to pay a penalty of $9.15 million in respect of 22 contraventions of section 961K of the Corporations Act (the Act), and to pay ASIC’s costs of the proceeding.
The court case relates to poor financial
advice provided by a former Westpac financial planner, Mr Sudhir Sinha,
in breach of the best interests duty and related obligations under the
Act. Westpac is directly liable for these breaches, which attracts a
significant civil penalty, because the law imposes a specific liability
on licensees for the breaches of their financial advisers.
The decision comes as a result of civil penalty proceedings brought by ASIC against Westpac in June 2018 (18-175MR).
ASIC’s investigation revealed internal Westpac reviews, including an
internal bank investigation in 2010, had raised concerns about Mr
Sinha’s compliance history yet he continued to receive several ‘high
achievement’ ratings from Westpac. It was not until 2014 that Mr Sinha
was dismissed by Westpac and March 2015 that Westpac reported Mr Sinha’s
conduct to ASIC.
The trial took place before Justice Wigney
in April 2019, during which Westpac admitted that, as Mr Sinha’s
responsible licensee, it had contravened the Corporations Act. The exact
number of contraventions and penalty that should be imposed were
contested by ASIC and Westpac.
In its decision, the Court found Mr Sinha
failed to act in the best interests of his clients, provided
inappropriate financial advice, and failed to prioritise the interests
of his clients, in four sample client files identified by ASIC. Westpac
is directly responsible for the breaches of the best interests
obligations by Mr Sinha under section 961K of the Act.
‘Westpac, as Mr Sinha’s
responsible licensee, failed to properly monitor and supervise Mr Sinha
for a period of time. This meant his customers were not provided with
advice in their best interests. ASIC brought this case as a result of
Westpac’s suspected contraventions of the law and failures to observe
its duties. The court has found that Westpac contravened the law in this
regard’ ASIC Deputy Chair Daniel Crennan QC said.
In the judgment, Justice Wigney observed:
‘The
relationship between Westpac and Mr Sinha was structured so that Mr
Sinha was able to share in the commissions and fees earned or derived
when, as a result of his advice or recommendations, clients signed-up
for financial products in which Westpac or associated companies had an
interest. As will be seen, that rather cosy arrangement turned out to
be fruitful for both Mr Sinha and Westpac, but not always for their
clients.
…
Unfortunately
for four couples, it was subsequently discovered that the
recommendations that Mr Sinha made, and the circumstances in which he
made them, were deficient and defective, both as a matter of process and
in substance. That should not have been a complete surprise to Westpac
because Mr Sinha’s less than satisfactory conduct as a financial
adviser had previously come to the attention of certain senior officers
of Westpac as a result of various internal compliance reviews, audits or
investigations.’
His Honour further found that Westpac
ought reasonably to have known, from 1 July 2013, that there was a
significant risk that Mr Sinha would not comply with the best interests
obligations and that it failed to do all things necessary to ensure that
the financial services covered by its licence are provided efficiently,
honestly and fairly, and to comply with financial services laws. In
doing so Westpac also contravened sections 912A(1)(a) and (c) of the
Act.
Justice Wigney noted:
‘Westpac
also stood to gain from Mr Sinha’s actions. That perhaps explains why Mr
Sinha was permitted to continue as Westpac’s representative and partner
despite the serious compliance breaches which were exposed by the 2010
investigation. It is tolerably clear that, at least prior to the
commencement of the FoFA reforms, some officers or employees at Westpac
were either unable or unwilling to terminate the services of a
representative who achieved high achievement ratings and was plainly
proficient and successful at promoting the financial products of Westpac
and its associates. It may readily be inferred that Westpac’s
compliance systems and practices were less than rigorously applied, at
least in Mr Sinha’s case.’
