Tag: Westpac

BT Panorama inks deal with robo-adviser

From Investor Daily.

BT has made a clear statement of intent on digital advice by signing a platform connectivity deal with Ignition Wealth.

In a deal that will be announced this morning, BT has agreed to connect advisers and accountants using the Ignition Wealth platform to BT Panorama.

A spokesperson for BT confirmed to InvestorDaily that Ignition Wealth is the first digital advice provider to have connectivity with Panorama.

The agreement between the two companies is squarely aimed at accountants who are no longer permitted to provide advice to SMSFs after the expiry of the ‘accountants’ exemption’ on 1 July 2016.

Speaking to InvestorDaily about the deal, Ignition Wealth chief executive Mark Fordree said that while many clients will continue to be offered portfolios of ETFs, others will now be recommended a BT Panorama product if it is in their best interests.

The experience will be “seamless”, he said, with the Ignition Wealth engine granted permission to create BT Panorama accounts for clients.

“Our hybrid solution will allow an individual to have a complete self-service into numerous investment options including BT Panorama but not limited to it,” Mr Fordree said.

“The journey starts with Ignition Wealth, and a proportion of the clients that come through our platform may end up in BT Panorama where it’s appropriate.”

The agreement with BT was a long time in the making and it was a matter of “jumping bank-grade hurdles” at every step of the process, Mr Fordree said.

While the initial agreement with BT is limited to connectivity with Panorama, the goal of Ignition Wealth is to become completely integrated into Panorama and the BT Wealth platform.

“All the major players in the wealth management business may over the next few years have a digital platform,” Mr Fordree said.

“Whether they build it themselves or partner is the key question. We’re offering a solution to those who either don’t have the appetite or capability to build it.

“If they haven’t started already, I suspect that they’re already leaving it too late.”

In a separate statement, Ignition Wealth said the deal with BT was “the largest fintech deal in Australia to date”.

“This marks the first of the ‘big four’ to choose an independent technology provider to power their digital financial advice,” it said.

$200m+ Refunds Due From Major Financial Advisory Firms – ASIC

ASIC says AMP, ANZ, CBA, NAB and Westpac have so far repaid more than $60 million of an expected $200 million-plus total in refunds and interest for failing to provide general or personal financial advice to customers while charging them ongoing advice fees.

These institutions’ total compensation estimates for these advice delivery failures now stand at more than $204 million, plus interest. As foreshadowed in ASIC’s Report 499 Financial advice: fees for no service (REP499), ASIC can now provide an update on compensation outcomes to date.

Background

In October 2016 the Australian Securities and Investments Commission (ASIC) released REP499. The report covered advice divisions of the big four banks and AMP and described systemic failures to ensure that ongoing advice services were provided to customers who paid fees to receive these services, and the failure of advisers to provide such services. The report also discussed the systemic failure of product issuers to stop charging ongoing advice fees to customers who did not have a financial adviser.

At the time of the publication of the report compensation arising from the fee-for-service failures reported to ASIC was approximately $23.7 million, which had been paid, or agreed to be paid, to more than 27,000 customers.

Since REP 499 a further $37 million has been paid or offered to more than 18,000 customers. In addition, the institutions’ estimates of total required compensation for general and personal advice failures have increased by approximately 15% to more than $204 million, plus interest.

The table provides, at an institution level, compensation payments and estimates that were reported to ASIC as at 21 April 2017. Since that date compensation figures have continued to increase.

Group Compensation paid or offered Estimated future compensation   (excludes interest) Total (estimate, excludes   interest)
AMP $3,816,327 $603,387 $4,419,714
ANZ $43,818,571 $8,613,001 $52,431,572
CBA $5,850,827 $99,786,760 $105,637,587
NAB $4,641,539 $385,844 $5,027,383
Westpac $2,670,479 Not yet available $2,670,479
Total (personal advice   failures) $60,797,743 $109,388,992 $170,186,735
NULIS   Nominees (Australia) Ltd (1) Nil $34,720,614 $34,720,614
Total (personal and general   advice failures) $60,797,743 $144,109,606 $204,907,349

Source: Data is based on estimates provided to ASIC by the institutions and will change as the reviews to determine customer impact continue.

(1) For details, see the section on NAB below.

Key compensation developments

AMP

  • AMP’s total compensation estimate decreased from $4.6 million to $4.4 million as AMP reviewed customer files and data to determine compensation required, and revised its previous estimates.

ANZ

  • The total compensation estimate has increased from $49.7 million to $52.4 million due to the expansion of existing compensation programs and the identification of further failures by authorised representatives of two ANZ-owned advice businesses:
    • Financial Services Partners Pty Ltd; and
    • RI Advice Group Pty Ltd.
  • The largest component of ANZ’s compensation program relates to fees customers were charged for the Prime Access service, where ANZ could not find evidence of a statement of advice or record of advice for each annual review period.
  • In addition, ANZ found that further compensation of approximately $7.5 million is required to be paid to ANZ Prime Access customers for ANZ’s failure to rebate commissions in line with its agreement with customers. This compensation has not been included in the figures in this media release because it does not relate to a failure to provide advice for which customers were charged, but is noted for completeness and transparency.

CBA

  • There has been no substantial change in CBA’s compensation estimate, which remains at approximately $105 million, plus interest, the majority of which relates to Commonwealth Financial Planning Ltd (CFPL). The compensation estimate for CFPL results from a customer-focused methodology whereby, as well as providing refunds where the adviser failed to contact the client to provide an annual review, CFPL will provide fee refunds to customers where:
    • the adviser offered the customer an annual review and the customer declined, or
    • the adviser tried to contact the customer to offer a review, but was unable to contact the customer.
  • Some of the other licensees or banks covered by the ASIC fees-for-no-service project have not, at this stage, adopted a similar customer-focused approach to the situation in which a service was offered but not delivered.  ASIC continues to discuss the approach to this situation with these banks and licensees.

NAB

  • Since the publication of REP 499, by 21 April 2017, NAB reported to ASIC the further erroneous deduction of adviser service fees for personal advice from more than 3,000 customers of the following licensees:
    • Apogee Financial Planning Ltd: $11,978, from 11 customers;
    • GWM Adviser Services Ltd: $179,446, from 290 customers;
    • MLC Investments Ltd: $9,755, from six customers;
    • National Australia Bank Ltd: $2,777, from seven customers; and
    • NULIS: $173,120, from 3,310 customers.
  • In addition, the table shows the expected compensation of approximately $34.7 million by NAB’s superannuation trustee, NULIS Nominees (Australia) Limited (NULIS), for two breaches involving failures in relation to the provision of general advice services to superannuation members who paid general advice fees (other fees referred to in this release relate to personal advice). As announced by ASIC on 2 February 2017 ASIC has imposed additional licence conditions on NULIS following these and another breach: ASIC MR 17-022. The failure was by MLC Nominees Pty Ltd (and MLC Limited for the first of the two breaches).  Whilst on 1 July 2016 the superannuation assets governed by MLC Nominees were transferred by successor fund transfer to NULIS, and on 3 October 2016 NAB divested 80% of its shareholding in the MLC Limited Life Insurance business, accountability for this remediation activity (including compensation) remains within the NAB Group. The estimate of customer accounts affected has increased from approximately 108,867 to 220,460 since REP 499, reflecting the second of two breaches.

Westpac

  • REP 499 noted that Westpac had identified a systemic fees-for-no-service issue in relation to one adviser only, with compensation of $1.2 million paid in relation to those failures.
  • Following further ASIC enquiries, Westpac subsequently clarified that it has paid further compensation of approximately $1.4 million to 161 customers of that adviser and 14 further advisers, in respect for fee-for-no-service failures in the period 1 July 2008 to 31 December 2015.

Next steps

ASIC will continue to monitor these compensation programs and will provide another public update by the end of 2017.  In addition ASIC will continue to supervise the institutions’ further reviews to determine whether any additional instances are identified of fees being charged without advice being provided.

MoneySmart

Customers who are paying ongoing advice fees for services they do not need can ask for those fees to be switched off. Customers who have paid fees for services they did not receive may be entitled to refunds and compensation, and should lodge a complaint through the bank or licensee’s internal dispute resolution system or the Financial Ombudsman Service.

ASIC’s MoneySmart website has a financial advice toolkit to help customers navigate the financial advice process and understand what they should expect from an adviser. It also has useful information about how to make a complaint.

Westpac 1H17 Result Good, In Parts

Westpac has declared a 1H17 Statutory net profit of $3,907 million, up 6% compared with 1H16, with Cash earnings $4,017 million, up 3%.

Most of the increase in net operating income was due to a higher Institutional Bank contribution from participation in a number of significant customer transactions and from stronger markets income.   This strong markets result relies on non-customer trading, and may be hard to replicate. They were impacted by higher insurance claims mostly associated with Cyclone Debbie, and higher delinquencies with a $44 million rise in impairment charges in the consumer book.

Net interest income increased $136 million or 2% compared to First Half 2016, with total loan growth of 4%, primarily from Australian housing which grew 6%.

However net interest margin is under pressure, and has declined 7 basis points over the past 12 months, of which 4 basis points was in 1H17. The consumer bank fell 6 basis points.  Loan repricing may help in the 2H17.

Group net interest margin was 2.07%, a decrease of 4 basis points from Second Half 2016. Key features included:

  • 4 basis point increase from loan spreads. This reflected loan repricing mostly in Australian mortgages, including repricing of interest-only and investor loans. These increases were partly offset by competition;
  • 4 basis point decrease from customer deposit spreads, driven by the full period impact of increased competition for term deposits in 2016 (3 basis points) and the continuing impact of lower interest rates on the hedging of transaction deposits;
  • 1 basis point decrease from term wholesale funding costs reflecting an increase in Additional Tier 1 and Tier 2 capital balances and the higher costs of these instruments;
  • Capital and other decreased 2 basis points primarily from the impact of lower interest rates; and
  • 1 basis point decrease from liquidity, reflecting the increased holdings of third party liquid assets to meet the LCR requirement. This was partly offset by a lower CLF fee following a $9.5 billion reduction to the CLF from 1 January 2017.

Cash earnings was per share 119.8 cents, up 1% and the cash return on equity (ROE) was 14%, at the upper end of 13-14% range.

Expenses are well controlled (up 1% over the year) and included a productivity saving of $118m with an expense ratio of 41.7%.

Impairments were down (15bps of loans) down 26% over year to $493 million as 1H16 included additional provisions for a small number of larger names. There were workouts of some larger facilities in the Institutional Bank and NZ.

They further strengthened their Common equity Tier 1 capital ratio of 10.0%

Organic capital generation of 29 basis points included:

  • First Half 2017 cash earnings of $4.0 billion (99 basis points increase);
  • The 2016 final dividend payment, net of DRP share issuance (70 basis points decrease);
  • Ordinary RWA was modestly lower (excluding FX movements, RWA initiatives and modelling changes), a 2 basis point increase; and
  • Other movements, decreased the CET1 capital ratio by 2 basis points.

Other items increased the CET1 capital ratio by 20 basis points:

  • RWA initiatives including management of unutilised limits reduced RWA by $1.6 billion (4 basis points increase);
  • Regulatory modelling changes (discussed further below) reduced RWA by $1.0 billion (3 basis points increase);
  • Reduction in the deferred tax asset (6 basis points increase);
  • The impact of foreign currency translation (4 basis points increase), mostly related to NZ$ lending; and
  • A decrease in the accounting obligation for the defined benefit pension plan primarily reflecting higher discount rates used to value defined benefit liabilities (3 basis points increase).

They announced a 94 cents per share interim, fully franked dividend, which is unchanged from last period.

Looking at the divisional splits

Consumer Bank

Cash earnings of $1,511 million was 2% lower than Second Half 2016 with the decline primarily due to a $44 million rise in impairment charges. While asset quality remains sound, higher delinquencies – including from
changes in the reporting of facilities in hardship – led to the increase in impairment charges. Core earnings were relatively flat over the period (up $6 million) as were most of its components, with operating income up $2 million and expenses declining $4 million. The division recorded disciplined growth with mortgages rising 2% and other lending slightly lower.

Customer deposit growth was solid, up 3% supported by a 2% rise in customers and a focus on deepening relationships by growing transaction accounts. Balance sheet growth, however, was largely offset by a 6 basis point decline in net interest margin. The margin decline was mostly due to competition for lending and higher funding costs, particularly across term deposits. As a result of these movements, net interest income was up $12 million. Non-interest income was $10 million lower mostly from reduced cards related income.

Productivity continues to be a significant focus with costs broadly unchanged over the half and the expense to income ratio continuing to fall. A range of initiatives contributed to the improved efficiency including the further digitisation of manual processes such as: changing PINs online, enhancing the origination of personal loans, and improving access to key mobile banking transactions. Improving customers’ digital access contributed to a net reduction of 26 branches over the half.

Australian mortgages accounts for 62% of group loans. They showed a 2 basis point rise in delinquencies, with a rise in WA. The number of consumer properties in possession rose from 261 in Sept 16 to 382 in Mar 17. Investment property 90+ day delinquencies rose from 38 basis points in Mar 16, to 47 basis points in Mar 17.  Loss rates remain at 2 basis points.

They said that interest-only represented 46% of flow in 1H17 and 50% of the total mortgage book. That said, the proportion of current drawdowns that are interest-only has already fallen into the mid-30s of total flow, remembering the APRA target of no more than 30% by September.

They also reported higher delinquency rates in their unsecured consumer books, with 90+ day up from 1.17% in Sept 16 to 1.63% in Mar 17.  28 basis points reflect an adoption of APRA hardship policy adopted across Westpac’s Australian unsecured portfolios.

Business Bank

Cash earnings of $1,008 million was $9 million, or 1% higher than Second Half 2016. The result was supported by higher fee income, targeted loan growth, and efficiency gains from digitisation and simplification initiatives. The division took a disciplined approach to growth in the half choosing to grow in sectors such as services and in SME and reducing exposure to some lower returning sectors including asset finance and commercial property. As a result, lending was up less than $1 billion (1%). Deposits grew 1%, mostly from working capital balances (up 4%) as the division focused on broadening relationships. Fee income was also higher mostly from a rise in line fees.

Expenses were up 1%, mostly from increased technology and investment including expanding the use of the division’s online origination platform and the continued roll out of new payment technologies. These increases
were partially offset by improved efficiencies including from the greater use of digital and refining the banker to customer ratio across segments. Impairment charges were flat, reflecting higher provisions in the auto loan portfolio, mostly related to a rise in delinquencies from changes in hardship reporting, offset by a lower impairment provisions for other business lending.

BT Financial Group

BTFG delivered a sound performance in a challenging environment, with good increases in funds, strong volume growth in lending and deposits and disciplined expense management. FUM and FUA balances were up 14% and 4% respectively while Life in-force premiums were up 6%.

Despite these benefits, the division was impacted by higher insurance claims mostly associated with Cyclone Debbie, and reduced fund margins from product mix changes, including from customers being transitioned from legacy products to lower fee MySuper products. As a result, cash earnings were 5% lower to $397 million for First Half 2017. Expenses were $17 million lower over the half (down 3%) with productivity more than offsetting higher compliance costs and an increase in investment related expenses. The division reached a major milestone over the half with the release of a number of modules on the Panorama platform. The key elements of the platform are now complete resulting in increased activity and flows onto the platform.

Westpac Institutional Bank

WIB delivered a strong result, with a 26% increase in core earnings from a rise in customer transactions, improved markets income and disciplined expense management. Cash earnings increased 20%, supported by the higher core earnings and partially offset by a $65 million rise in impairment charges. WIB has managed the business in a disciplined way over recent periods, including changing its business model in 2016 helping to keep costs flat and reducing exposures with low returns. This active management of the balance sheet contributed to a 3% decline in
lending over the half with margins up 1 basis point. A focus on relationships has supported a 6% increase in deposits and contributed to a rise in non-interest income as the division has been well placed to support customers involved in significant transactions. This was reflected in higher markets income and an improved contribution from foreign exchange and commodities. Impairment charges were $64 million from an increase in IAPs from new impairments which are partially offset by a reduction in CAPs due to a decrease in stressed assets. Overall asset quality remains sound with stressed assets to TCE falling by one third to 0.59% and impaired assets also declining.

Westpac New Zealand

Westpac New Zealand delivered cash earnings of NZ$462 million, up 6% over the half, with most of the rise due to impairments which were a benefit of NZ$36 million in First Half 2017. Core earnings were 7% lower over the half reflecting a 4% decline in net interest income with growth in lending more than offset by a 17 basis point decline in margins. Most of the decline in margins was from higher funding costs, particularly customer deposits and from the ongoing effects of low interest rates.

Non-interest income was little changed over the prior half. Expenses
were 1% higher, as the business continued the investment in its transformation program. Productivity benefits, from this multi-year program partially offset inflationary increases. Asset quality improved over the half with stressed assets to TCE of 2.41% down 13 basis points. The improvement reflects the stronger outlook for the dairy sector and the work-out of one larger facility. These two elements led to the NZ$36 million impairment benefit. In 2016 a drop in the price of milk solids saw a large number of facilities become classified as stressed; with milk prices having significantly improved, the division is beginning to see customers use the higher prices to improve their financial position and migrate out of stress.

Westpac increases fixed rate home loan deals

From News.com.au

WESTPAC has followed the lead of the Commonwealth Bank and today increased fixed rate loans deals.

Just three days after CBA announced increases on fixed loan deals with interest-only investment loans getting the biggest hikes, Westpac has just announced their home loan customers will also be hit.

They are hiking fixed interest rate deals across their owner occupier and investment products.

Owner occupiers on interest-only fixed loans will be the worst hit — Westpac is increasing rates by 30 basis points across 1, 2, 3, and 5 year fixed deals.

For a three-year fixed rate loan — among the most popular fixed rate term for borrowers — fixed rates for owner occupier interest-only loans will rise by 30 basis points to 4.56 per cent.

For investors on interest-only deals fixed rates will rises by 10 basis points per cent across 1, 2, 3 and 5 year loan terms.

The Westpac Bank is hitting customers with interest rate hikes.

Investor principal and interest deals will remain unchanged for 1, 3 and 5 year loan terms.

Owner occupiers with principal and interest repayments will also be spared moves on 1, 3, and 5 year deals, while two-year fixed loan rates will drop by 11 basis points to 3.88 per cent.

Westpac’s subsidiary banks, St George and Bank SA are also experiencing moves across many fixed rate deals.

1300homeloans director John Kolenda said in more than 20 years in the mortgage industry he had never seen times like now with continuous changes to rate deals by banks simply wanting to boost their margins.

“I’ve never seen anything like the current market conditions where we have banks moving all over the place and raising rates across different products and totally out of cycle,’’ he said.

A Westpac spokeswoman said these deals which only affect customers who fix their loan from today onwards was “in response to recent regulatory changes.”

Financial comparison site Mozo’s spokeswoman Kirsty Lamont said many lenders are continuing to push up fixed rate deals and putting more pressure on borrowers’ budgets.

“Hot on the heels of the round of out-of-cycle hikes last month we’ve seen 28 lenders in total now up fixed rates since the start of April,’’ she said.

“The fresh round of hikes has hit owner-occupiers and investors paying interest-only loan the hardest as lenders respond to APRA’s recent crackdown on interest-only loans.”

On a $300,000 30-year loan for an owner occupier paying interest only, for a three-year fixed deal their rate new rate of 4.56 per cent will increase monthly repayments by $75 to $1140.

For an investor with the same sized loan paying interest-only their new three-year rate will be 4.56 per cent and their monthly repayments will rise by $25 to $1140.

For owner occupiers and investors paying principal and interest on three-year fixed deals the fixed rates won’t change from 4.09 per cent for owner occupiers and 4.29 per cent for investors.

 

Westpac Now Offers Samsung Pay

From Gizmodo.

In the eternal war between Apple Pay, Android Pay and Samsung Pay, the world’s largest smartphone maker just scored another — minor — victory. Millions of customers from Australia’s second largest bank can now use Samsung’s phones and smartwatches instead of their credit and debit cards to pay at almost any NFC payment terminal around the country.

Although for the average user there’s not a great deal of difference, Samsung Pay is technically superior to Apple Pay or Android Pay in that — because it only works on a certain number of Samsung phones and Samsung’s Gear S2 and Gear S3 smartwatches — it can also emulate the MST magnetic strip on physical cards, which can be useful for payment terminals that don’t have NFC support already.

It’s also a convenient time for Samsung to switch on its newest feature — a NFC provisioning feature, which lets customers add cards into Samsung Pay by tapping them on the back of the phone, rather than taking a photo of the card itself with the phone or by — ugh — entering details manually.

Samsung already has Citibank’s Mastercard and Visa credit card holders on board, as well as American Express, so Westpac’s various debit and credit cards will massively bolster the roster of Samsung Pay payment methods available. Westpac customers will be able to add their cards to Samsung Pay from 8AM on Tuesday morning.

Westpac says:

You’re even more unstoppable with Westpac when you tap and pay using your Samsung Galaxy S7, S7 Edge, S6, S6 Edge, S6 Edge+, S5, S5 Mini, S4, Note 5, Note 4 Edge, Note 4, Note 3 or Alpha.

To start paying for everyday purchases with your smartphone, simply download the Westpac Mobile Banking app and choose which Westpac eligible credit and debit cards you’d like to use for mobile payments.

Westpac Affirms Wealth Management Focus

Westpac briefed the market yesterday on BT Financial Group, its wealth management division and reaffirmed that Wealth remains a strategic priority for the Group and it was continuing to invest to grow the business.

They showed this picture of financial products over the lifetime.

They argued that there will be strong growth in superannuation (faster than credit growth) and returns above the the Institutional Bank.  18.5% of Westpac Group customers have at least one BT Financial Group product although individual segment shares are small.

Finally, they reinforced their mobile strategy.

BT Financial Group (BTFG), Chief Executive, Brad Cooper, said the Group’s strategy was to provide superior service and that required looking after all of a customer’s financial needs throughout their life.

“Having a strong wealth and insurance operation is imperative to deliver this and BTFG has invested to transform its operations to help more Australians plan for their best financial futures,” he said.

Mr Cooper said while the industry is facing some near term headwinds from volatility and the uncertainty and costs associated with regulatory change, the longer term prospects are very positive. This is particularly true with superannuation balances expected to grow at around 8% per annum over the next decade.

“There is an increasing awareness of the need to fund retirement by Australians. Currently financial advice is only being accessed by one in five people. Add to that superannuation assets doubling to around $4 trillion over the next nine years and there is an obvious need to help more Australians into a dignified retirement,” he said.

“We have been improving our market leading wealth solutions across our business to better help customers through all life stages. Customers are rightly demanding more convenience, flexibility and the ability to be helped on their terms and we have reshaped our business and built the tools to meet these needs.

“This has included a new flexible advice model that offers everything from general and single-topic advice to full personal advice delivered when and where the customer wants, a partnership with Allianz to broaden our general insurance product set, and a new Super Check service that has helped 5,400 customers consolidate around $100 million of their retirement savings.

“Our investment in BT Panorama has created the most advanced Wealth platform in the country for both advisers and customers. For the first time, customers can view and transact seamlessly right across all their financial services in one place. This includes banking transactions, savings, credit cards, home loans, insurance, superannuation and investments.

“Within Panorama, customers can pick and choose from a wide range of investment options – from the simple, through to the more advanced – based on an individual’s objectives, financial situation and needs,” he said.

Mr Cooper also referenced BTFG’s life insurance business as a standout industry performer. Our customer focused strategy and prudent approach to risk has seen us avoid the more recent claims issues experienced by other life insurance participants.

“Life is an integral part of our product set and our business is strong,” he said.

“We have a disciplined approach to how our products are distributed, with most sold through an adviser, as we believe that life insurance is a complex product that needs either personal or general advice to support it.

“Additionally, our strong policy framework and transparent claims management processes has further strengthened our business. Our claims philosophy has consistently focused on customer wellbeing, with attention given to early intervention and rehabilitation so customers can return to work as quickly as possible. This approach has seen us routinely recognised by claimants, and the industry, as having the best Claims team,” he said.

Westpac announces changes to variable interest rates

As expected Westpac today announced changes to interest rates across a range of variable lending products for home owners and investors.

  • Variable home loan rate for owner occupiers will increase by 0.03% to 5.32% per annum for customers with principal and interest repayments1;
  • Variable home loan rate for owner occupiers will increase by 0.08% to 5.49% per annum for customers with interest only repayments;1
  • Variable residential investment property loan rate will increase by 0.23% to 5.79% per annum for customers with principal and interest repayments1; and
  • Variable residential investment property loan rate will increase by 0.28% to 5.96% per annum for customers with interest only repayments1.

George Frazis, Chief Executive of Westpac Consumer Bank, said today’s decision takes into account a number of economic and regulatory factors.

“Today’s changes are in response to increasing funding costs. Despite home loan interest rates being at historically low levels, both deposits and wholesale funding of mortgages have increased over the last nine months.

“We understand the significance of interest rate changes to our home loan customers, so we take a very careful approach to these decisions,” Mr Frazis said.

“We try to balance the needs of both owner occupiers and investors in making these decisions while continuing to provide customers with a competitive offering across our range of products.

“Importantly, we are offering lower interest rates to customers who make principal payments to encourage customers to pay down their home loan in this low interest rate environment.”

Customers with interest only home loans who wish to move to principal and interest repayments can do so without paying a switching fee until 17 June 2017.

Variable lending products for small businesses will also increase by 0.08%2.

1 Changes are effective 24 March 2017.

2 Changes are effective 3 April 2017.

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.

***********

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.

Westpac Plans to Launch Low Rate No Frills Credit Card

During today’s evidence to the House Standing Economics Committee, Westpac CEO Brian Hartzer confirmed they are planning to launch a no-frills (e.g. no travel insurance) credit card with an interest rate below 10% and a limit of somewhere between $2,000 and $4,000 depending on ability to repay. The launch is expected within the next 2-3 months.

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.