ASIC is a failed agency that instead of holding the banks accountable has let them get off scot-free.
I asked questions about fees for no service at estimates and wasn’t reassured.
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Over-the-counter transactions at NAB have decreased 70% since 2015. The BIG Four banks have actively discouraged people from withdrawing cash over the counter in the past several years. By training customers in this way, the banks have been able to produce a ‘shock and awe’ figure of 99.95% reduction in cash transactions.
Sounds incredible, yet that’s exactly what it is. It isn’t so much a shift away from cash by the public – it’s a shift in behaviour by the banks.
The banks have no idea how many people are using cash. They don’t see cash transactions. They are actively discouraging the use of cash, then coming out with statements that people don’t want to use cash, which is just plain wrong.
According to many constituents, if a customer goes to a branch of the NAB to use the counter services, there is a high likelihood they will be shown how to use the ATM. The NAB says that’s because they need to know and be fully aware of the alternative options. In June, the NAB is pleased to report they saw 96% of customers making digital transactions. How many of those were walked outside to do that?
Mortgage applications are now being conducted remotely by 40% of customers. Pre COVID the figure was zero, yet post COVID the NAB has found that customers are very happy to take up the digital services for buying a house. The NAB report that a massive shift has occurred over the last few years. Social distancing and lockdowns furthered their digital goals.
The NAB’s reported 99.95% less cash payments is just for bank transactions within the bank itself. All real-world cash transactions are an unknown figure. Customers still need to go to the bank though to withdraw their money to use it in their daily lives. How hard is that becoming?
Ross McEwan, CEO of the NAB, says there are thousands of ATMs available to do this freely, and also acknowledges that Australia is a large country. The NAB says it looks at a range of factors when making decisions to close branches, including feedback from staff members and what is happening in the community where it has invested. How much of that is about listening to customers’ needs?
Transcript
Senator ROBERTS: Thank you for appearing today. Your submission includes this statement: ‘Banking transactions made over the counter at NAB branches have decreased by 70 per cent since 2015.’ Is that a 70 per cent reduction in actual transactions; and, if so, what are the figures for, firstly, total over-the-counter transactions in 2015 and, secondly, total over-the-counter transactions now?
Mr McEwan: I’ll ask Krissie Jones to address that question.
Ms Jones: I’ve got the data from 2017 in front of me. We understand that, in 2017, there were 35½ million over-the-counter transactions through our branch network. Certainly, there has been a large reduction over the period since then and, at the conclusion of this year, we expect that there will have been a 71 per cent reduction. We’ve seen a massive shift over the last few years with our customers starting to use digital services. In fact, in June, 96.5 per cent of interactions were digital ones.
Senator ROBERTS: According to reports made to my electoral office, if one of my constituents goes into the NAB to conduct an over-the-counter transaction, it is likely that the teller will march that customer out to the ATM in front of the bank and make them conduct their business there. Does your 70 per cent reduction figure compensate for increases in the use of ATMs in front of your bank?
Mr McEwan: First off, we should probably look at the circumstances in which a customer is shown how to use an ATM. It also depends on the branch structure that we have, as we’ve got a number of branches that are open for standardised hours, which will probably be three hours a day, and the staff member may have shown the customer how to use the services 24/7. But I’ll pass over to Krissie because, again, she runs the network and is very familiar with what staff are being asked to do, in training and developing customers and showing them odd services. Krissie, maybe you could talk to the senator on that one.
Ms Jones: Yes, sure. We want to make sure that our customers are aware of all of the options that are available to them. If they want to conduct their banking in a branch, then we would welcome them using the over-the-counter services. But we want to make sure that, for those examples of when a branch isn’t open, they know of the alternative options. Over the last few years, we’ve added in new functionality to be able to deposit a cheque on your phone from the convenience of your home. So we really want to make sure that customers are fully aware of all of those alternative options, whether it’s phone banking, digital banking options or Bank@Post. But, of course, if a customer wants to come in and talk to their local branch team member to do their transactions, we welcome that too.
Senator ROBERTS: This is a quote from your submission: ‘Only three per cent of our personal banking customers exclusively use our branch network to conduct their banking.’ Could you define ‘exclusively’, please. Does one ATM withdrawal or one call to report a stolen card constitute the loss of ‘exclusive’, as in ‘did not exclusively use over-the-counter services’?
Ms Jones: We do publish some of this information in our FAQ sheets as well, but our definition of ‘exclusive’is really about when a customer walks into the branch. So ‘exclusive’ would be a customer who comes in and only uses that branch for their transactions; it would not include things like the use of ATMs or other services, such as digital transactions.
Senator ROBERTS: So, if a customer used a bank for over-the-counter services every time, except for one call to inquire about a bank card, would that mean that they do not exclusively use over-the-counter services?
Ms Jones: It’s a rolling period and so it would be that, in that period, that wouldn’t be the case. But we look at it over different rolling periods.
Senator ROBERTS: You say here, ‘Only eight per cent of our business banking customers exclusively use our branch network to conduct their banking.’ That’s one in 12, which seems a lot to ignore, doesn’t it? Asking that same question again, does the same definition of ‘exclusive’ apply?
Ms Jones: Yes, it’s the same definition of ‘exclusive’. For both our personal customers and our business customers, I think we are seeing a really big shift in the way that they’re transacting. As I’ve said, in June, we actually saw digital transactions occurring with 96 per cent of our customers. So there really has been a very big change. Also, we are seeing more of our business customers starting to use alternatives as well.
Senator ROBERTS: This is another quote from your submission: ‘Over 40 per cent of home lending appointments are held via videoconference.’ That means that 60 per cent are not using videoconference; is that
correct?
Ms Jones: Yes. We offer a range of ways in which our customers can take out a home loan with us. They can go onto our website to find an appointment that is the most convenient for them. That can be in their local branch or over the phone; it can be with a banker coming to their home or their workplace; or it can occur by video. What we are seeing, even just in the last week, is more than 60 per cent happening over the phone or via video. But a large proportion of customers still want to come into a branch to undertake that conversation with the banker.
Mr McEwan: Just to give you a feel for the rapid change in those numbers, I can say that, pre-COVID, that was zero; we did not have that facility available. Today, as Krissie has said, these stats were put at 40 and, in the last week, that has gone even higher. So customers are very happy to take up those services, and it doesn’t matter whether they are regional or city-bound customers.
Senator ROBERTS: I quote again: ‘99.95 per cent of all payments made by or received by NAB customers were made digitally in 2022.’ Does that include when a person ‘beeps’ to pay for a coffee, petrol and the minutiae of everyday life?
Mr McEwan: Yes, it does.
Senator ROBERTS: If I withdraw cash from an ATM and spend that cash in a farmers market—in fact, I am noticing an increasing number of small retailers asking for cash payments—how would you know that I’ve paid with cash or not?
Mr McEwan: By way of a retail transaction?
Senator ROBERTS: Yes.
Mr McEwan: If a person paid cash, we would not know.
Senator ROBERTS: That’s right.
Mr McEwan: What are you asking for help on with that one? When people have paid with cash at a market or out in society, we have never known what those numbers were.
Senator ROBERTS: So what is the statistical basis for the 99.95 per cent figure, when you have no idea of what your customers are using cash for?
Mr McEwan: No. That 99.95 per cent figure of the transactions that come through our bank are done digitally; that is, the ones that we’re aware of. The definition of that stat hasn’t changed, as we’ve never known
what was going on with a trader or a person at a market who is taking cash for goods. Those stats have never appeared in our stats.
Senator ROBERTS: I made this same point with Westpac, I think it was: so we don’t really know what people are using cash for, but people want to use cash outside of the banking transaction.
Mr McEwan: That’s correct. Yes, you’re absolutely right: I do not know what you use your cash for and you don’t know what I use my cash for. But the point that we’re making is that 99.95 per cent of those interactions with the bank are now done digitally, and that doesn’t preclude customers doing what they like with their cash.
Senator ROBERTS: So 99.95 per cent of payments with NAB might be digital. With customers exchanging money with other customers, we don’t know what it is.
Mr McEwan: No, that’s right. Again, that’s not a service that I provide. Your paying cash to somebody else is not a service that I am involved in; it’s a service that they do themselves.
Senator ROBERTS: No. But for me to pay someone else cash, I need to come to NAB to get the cash.
Mr McEwan: Yes, or you could go to 4,000 ATMs around the country that I pay for you to use and they’re free to you, or you could get the money out at a branch or at 3,400 Australia Post outlets; they will give you the cash.
Senator ROBERTS: Cash is still important. So, on the face of it, your regional banking hubs are a good idea. I assume that these centres are there to handle face-to-face transactions with people from areas where a branch has been closed. You mentioned Emerald in Queensland, where I used to live some years ago. Can I ask: what is the catchment of that Emerald bank, please? How far away are the areas that it is designed to service?
Mr McEwan: We’ll have to look at that. Krissie, do you know the Emerald catchment at all?
Ms Jones: I do, but I want to make sure that we’ve got the facts right, so perhaps I could come back to you on that. We do have surrounding branches to Emerald. As well as our branch in Emerald there are Bank@Post facilities.
Senator ROBERTS: It looks to me as though the next branch, heading west from Emerald, is Longreach, which is four hours away. Is that a good indication of how far apart these regional branches are?
Mr McEwan: The regional branches will be quite different; some may well be at a shorter distance than that and others will be a longer distance apart. As you know, Australia is a huge country. But the point there is that there is a very large number of regional Australia Post offices that people can get to as well, which will service those needs.
Ms Slade: Krissie, you might want to talk about the things that we look at and take into consideration, such as where customers are travelling to already and the other branches that they’re using.
Ms Jones: When we’re making investment decisions or the decision to close a branch, we look at a range of factors, which include: where are our customers shopping; where are they banking; where are they are travelling to, whether it’s to see the doctor or the mechanic; and where do we need to invest to support them? So there’s a range of things that we take into consideration when we’re not only making investments but also making the difficult decision to close. We also seek input from our staff on the ground. We have a large number of colleagues—around 2,300 across NAB—who work across regional Australia, and many of those are bankers who face customers every day. That may be in retail, or it may be in regional and agri, which is where we have over 774 bankers providing services in those areas. So we listen to feedback from our staff members as well about what’s happening in that community, what’s most relevant for that community and what’s the way in which we can shore up in order to serve them as well.
If you rob a bank, you go to jail. If the bank robs you, no banker will go to jail and they won’t even pay a fine. Maybe it has something to do with the Big 4’s top shareholders – Vanguard, Blackrock, State Street, JP Morgan, Charles Schwab, HSBC and others.
After 6 years of inquiries and a Royal Commission, the final Financial Accountability Regime Bill contains no accountability for bad bankers. We supported Senator McKim in trying to make sure bankers could be liable for personal fines if they misbehaved but the Greens caved, joining Labor to pass through the bill without the penalties.
One Nation won’t stop our fight to make bank executives accountable and find justice for their victims.
Transcripts | Speech and Questions
Yesterday, as a servant to the people of Queensland and Australia, I spoke on Senator McKenzie’s matter of public importance regarding the decision by Minister Catherine King to give Qantas a substantial commercial advantage in the Qatar Airlines application for more flights to Australia. I pointed out that the Qatari government owns Qatar Airlines, while Qantas’s most influential shareholders are the merchant banks that invest money on behalf of the world’s richest predatory billionaires. I raise the question: who does this government represent? Is it everyday Australians or foreign wealth?
Here we are again, the very next day, debating the Financial Accountability Regime Bill 2023—a bill devoid of financial accountability. A financial accountability regime bill with no accountability is a bill that could more rightly be called the ‘Letting bank executives do whatever they want bill 2023’. Banking executives in Australia are a protected species for the same reason Alan Joyce and Qantas are protected: crony capitalism.
The big four banks have almost identical major shareholders. They have the same owners as Qantas, including Vanguard with $15 billion in shares in the big four banks, BlackRock with $5 billion, and then the usual suspects with smaller holdings, such as State Street, JP Morgan, Charles Schwab, HSBC and others. With these common owners making up a controlling share, it means we do not have four big banks. We have one monstrous bank with four divisions working under four logos. Why would the banks compete with each other when that competition will lessen their profits and, in turn, reduce the flow of dividends to these investment funds?
Our banking legislation, our checks and balances, were not written for an eventuality where investment funds with A$40 trillion in funds available bought controlling shareholdings in all the big four banks and used those shareholdings for their own financial benefit in a way that reduces competition and has reduced competition. Investment funds get assistance from complicit executives. Those complicit executives know the deal when those same investment funds elect directors who then employ the executives. The same executives know that they have to follow orders to keep their jobs and their fat pay cheques. The same executives then pursue the now infamous ESG measures to ensure that a bank lends only for projects that meet so-called environmental, social and governance standards. ESG is shorthand for using banks to enforce political objectives, like enforcing net zero by defunding coal, gas and most mining while lending for speculative investments in hydrogen and similar unproven fantasy technology.
Why would banks take a course of action that puts shareholders’ funds at risk? It’s because these big investment funds own the companies that profit from those investments. ESG is nothing more than the billionaires who run the world using their ownership of our banks to lend to themselves for risky investments that, if they fail, will reduce their equity. It will reduce the equity of mum and dad investors more. They carry the risk. Everyday Australians are shouldering the risk of these misinvestments that benefit only the world’s most wealthy individuals. As George Carlin famously said, ‘It’s a club, and you’—everyday Australians—’ain’t in it.’
I wonder if whoever made the decision to take personal financial penalties out of the financial accountability regime is in the club. Are you? Those penalties were in this legislation when the Turnbull government introduced it—although, of course, it is not being used, because nobody in the Liberal Party or the Labor Party has the guts to take on these investment funds—least of all, it would appear, Assistant Treasurer, Stephen Jones, who authored this bill.
Everyday Australians are feeling the pain from the failure of this government to govern without fear or favour. Bank branch closures and de-banking are hitting everyday Australians hard, and the banking cartel just sit back and count the profits—record profits. The most glaring exclusion from this bill is the absence of civil penalty provisions such as fines for bankers. To translate that into plain English, it means that senior bankers who behave badly will not, under this bill, face personal fines—no fines at all.
Making bad bankers pay big fines isn’t an idea One Nation and the Greens pulled out of thin air. The Treasury department was the one that initially proposed it. The proposal paper for the financial accountability regime that Treasury published in 2020 included civil penalties for bad bankers. The big bank lobby circled the wagons, mustering all of their high-powered lobbyists and industry groups to browbeat Treasury into removing the personal civil penalties. When the Morrison coalition government introduced the 2021 version of this bill, civil penalties had disappeared. Labor had a chance to fix that when they introduced their versions of the bill, first in 2022 and now with this one in 2023. Instead, the Assistant Treasurer and Minister for Financial Services, Stephen ‘I love the bankers’ Jones, has joined Labor at the hip with their crony-capitalist banking suck-up mates in the coalition.
This bill’s time line is a glaring example of what’s wrong with our country’s governance. In 2017 I chaired the inquiry of the Senate Select Committee on Lending to Primary Production Customers, while at the same time we called for a royal commission into the banks. The horror stories we uncovered in that Senate inquiry were enough to make my skin crawl and my stomach churn: banks stealing land and even livestock straight out from under farmers’ feet, cattle rustling, foreclosing on properties where there hadn’t been breaches of loan repayments, preying on vulnerable people, stealing whole farms, and rewarding mates amongst insolvency practitioners and other farmers. Rabobank, after being fined hundreds of millions of dollars for serious breaches in America, was destroying families in our country. All under your watch.
The evidence of banking practices we uncovered during that inquiry forced the government’s hand. With the testimony of those victims, the government had no option but to call the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This bill now before us supposedly implements recommendations of that royal commission. What a joke! It’s been more than six years since the Senate select committee I chaired was established. At the end of that long road not a single banker has been thrown in jail for their criminal actions—not one. To my knowledge, not a single banker has paid any civil penalty for the outright fraud uncovered in the royal commission—not one. At the end of the long road to this bill we have something that still will not impose personal civil penalties on bankers who breach their accountability regimes. And you guys just let it continue. If you want to know who holds all the power in this country, look no further than the fact that civil penalties have been dropped.
One Nation will be supporting Senator McKim’s amendment to insert civil penalties back into the bill, but, alas, that failed. If that amendment had been successful, we would have supported the bill. Without that amendment this bill does not go far enough to place accountability on misbehaving bankers, and we cannot support its passage. Minister, why does this bill not contain civil penalty provisions for senior bankers who fail their accountability obligations?
Minister Gallagher: Thank you and I acknowledge Senator Roberts’ speech. I don’t agree with large parts of it but in this bill there are penalties within the legislation before us. They will, individuals can lose deferred remuneration – they can be disqualified from being able to work in the industry and there are individual civil penalties for assisting an entity’s contravention of obligations.
Senator Roberts: Minister, are you aware who owns our big four banks? Let me read the list of shareholders of those banks right now so that you may have some idea of where I’m going. Shareholders of National Australia Bank Limited are the Vanguard Group, with 3.3 per cent; BlackRock Fund Advisors; Vanguard Investments Australia Ltd; Norges Bank Investment Management; State Street Global Advisors; Colonial First State Investments; Goody Capital; BlackRock Advisers; Netwealth Investments; and Caisse de depot et placement du Quebec. Let me read them for the Commonwealth bank: Vanguard Group, BlackRock Fund Advisors, Vanguard Investments Australia, Norges Bank, Goody Capital, Australian Foundation Investment Company Limited, BlackRock Advisors, Netwealth Investments, FIL Investment Management and Vanguard Global Advisors. Westpac: the Vanguard Group, Vanguard Investments Australia, BlackRock Fund Advisors, Norges bank, State Street Global Advisors, Goody Capital, Advance Asset Management, BlackRock Advisors, Australian Foundation Investment Company, Netwealth Investments. ANZ group: the Vanguard Group—is there an echo in this room? BlackRock Fund Advisors—there’s that echo again! Vanguard Investments—it’s still here! State Street—another echo! Goody Capital—another echo! BlackRock Advisors—another echo! This place is an echo chamber, and that’s probably very appropriate. There’s Netwealth Investments—another echo! Dimensional Fund Advisors—they’re only in ANZ. There’s Vanguard—another echo! BlackRock investment—another echo! Minister, are you aware of this?
Minister Gallagher: I’m certainly aware there’s millions of shareholders in Australia’s big banks and across Australia’s financial system, yes.
Senator Roberts: So you allow it to continue with no accountability. It seems we don’t have 4 big banks. We have one monstrous bank working under 4 logos, 4 divisions. There’s no, there’s no difference between their primary products and services and their ways of operating. Their product, services and operations are similar. So similar that I recognised, as Chair of the Senate Select inquiry into lending the primary production customers back in 2017, that they operate as one. They are a cartel. Are you aware of the common ownership and common practice, product and services of these banks?
Minister Gallagher: Well, that information is available, as you know, to all of us. It’s transparent around shareholding in big companies in Australia. So I’m aware and you are aware, and you’re aware because that information is available.
Senator Roberts: The difference, Minister, between you and I is that I want to do something to fix it. Minister, what will your government do about protecting Australians from these parasitic predators?
Minister Gallagher: Well, I don’t agree with the language that you’ve used Senator Roberts.
Senator Roberts: The Minister says, in effect, that she agrees they are parasitic predators. So legislation needs to have teeth. Without teeth, massive regulation protects the Big Four from accountability because of the complexities needing deep pockets for deep pockets for lawyers. A farmer, small businessman, even a woman, cannot afford the lawyers that the big banks resort to at the drop of a hat because they’re protected by deep, complicated legislation. These barriers are barriers to accountability. Are you aware of that? And what do you plan to do about it?
Minister Gallagher: Well, no, I don’t agree with that. The bill we are debating or we completed debated of yesterday is the Financial Accountability Regime Bill. So no, I don’t agree with that. And I do believe since the Royal Commission there has been significant increase in and protections for us through legislative reform like this to make sure that we get a properly regulated and accountable financial system. This is one piece of that. So no, I don’t agree with you.
Senator Roberts: Minister, these regulations provide barriers to entry of new competition to the Big Four or the Big One. Are you aware of that and what do you plan to do about it?
Minister Gallagher: Sorry if your questions about do I think this is a barrier to competition? No.
Senator Roberts: That wasn’t my question. The massive amount of complex regulations, they’re protecting the big four banks, they’re a barrier to competition.
Minister Gallagher: I mean in a sense you’re arguing in a circle because we are putting in place legislative protections and regulations to make sure there is a stronger financial system in this country to deal with some of the problems that we saw come through in the lead up to and during the banking Royal Commission to protect consumers and to make sure that we have a strong, profitable, well led banking system financial system in this country. This legislative response is part of that. The regulations are there to offer that protection. They’re not there to limit competition.
Senator Roberts: They’re effectively working as such Minister. The government’s bank deposit guarantee scheme is worthless. Firstly, it’s not automatic, because the Treasurer has to invoke it and if he doesn’t, there’s no guarantee of bank deposits. Secondly, it covers only a maximum of $80 billion out of $1.3 trillion in bank deposits. For example, the Commonwealth Bank, I understand, has 30 million deposit accounts, meaning an average of $670 per deposit. Meanwhile, the previous government passed a bank bail-in provision that your party supported. These are other ways in which banks avoid accountability for their mistakes and greed. They take none of the risk and all of the profit. They have no penalty for excessive greed causing failure, because government bails them in. When will your government start protecting Australian citizens and revoke the bail-in, for example?
Minister Gallagher: Well, the work that has come out of the royal Commission, of which this is a part of, is precisely about that, Senator Roberts.
Customers of Australia’s ‘Big Four’ banks are not getting a fair go.
The Commonwealth Bank announced a $10.2 billion annual profit made on the backs of the hard work of their customers and staff, who deserve better.
The Senate inquiry into bank closures in regional Australia has heard evidence of banks acting in concert, if not collusion, to close branches, forcing customers online and preventing the use of cash. Even with online banking unavailable in areas where bank branches close and despite their actions not serving their customers’ needs they’ve gone ahead with closures. Worse, the banks have misled the committee not only about their plans to close branches in the future, but even about the reasons why.
I will be addressing the reprehensible behaviour of the Big Four banks in the next sitting.
Transcript
As a servant to the many different people in our one Queensland community, it’s my duty to ensure that our constituents get a fair go. Customers of the big four Australian banks are not getting a fair go.
The Commonwealth Bank announced a $10.2 billion annual profit made on the backs of the hard work of their customers and staff, who deserve better. While the banking superprofits tax will return some of that excess profit to taxpayers, my question is: how are the big four banks able to exploit their oligopoly power to deliver obscene profits?
One Nation, of course, supports the right of companies to invest money and receive a fair return on investment—a fair return. One Nation believes that free market competition is the answer to providing all Australians with wealth and prosperity. Australia does not have free market competition in many industries, including in banking. We have an oligopoly conspiring together to rip off as much money as they can from captive clients. That was evident in 2017, when I chaired the Senate Select Committee on Lending to Primary Production Customers. The committee heard evidence of inhuman banking behaviour that screwed their own customers, taking homes, livelihoods, equity and even cattle, to which the banks were not legally entitled. No compensation has ever been made, because good luck suing a bank. Banks are above the law.
The Senate inquiry into bank closures in regional Australia has heard evidence of banks acting in concert, if not collusion, to close branches, force customers online and prevent the use of cash, despite online banking not being available in areas where bank branches closes and not suiting customers’ needs. Worse, banks have misled the committee regarding their future branch closure plans and misled the committee on the reasons for closures. The big four banks’ behaviour is reprehensible. In the next sitting, I’ll advance the debate regarding a proposal to stop banks further hollowing out the bush and forcing their customers into digital prison.
Watch this space.
Previously, Westpac abruptly announced their plans to close the branch that deals with millions of dollars in agribusiness and mining contractors, with no consultation.
When this inquiry announced we would be coming to Cloncurry to hear from locals and interrogate Westpac, they suddenly reversed their decision to abandon Cloncurry.
While the backdown is a small win, there are still dozens of regional branches on the big banks’ chopping blocks. Despite taking millions of dollars from the bush, the banks are happy to keep hollowing out regional town services to save a few cents.
Residents are forced to travel hundreds of extras kilometres to bank and community events are put on hold because they can’t get a decent cash float in their own town.
Bank profits are at record highs, the Australian community expects that they do the bare minimum for our regional towns and they are failing them.
Transcript
Senator ROBERTS: My question is to the Minister for Finance, Senator Gallagher. Last week I asked questions about the funding for the deposits guarantee scheme, which was designed to protect the money in the bank accounts of everyday Australians—capped at $250,000 per account, $20 billion per bank and $80 billion total. Minister, when the scheme was brought in, the eligible deposits being protected were $650 billion. According to statement 9 of Budget Paper No. 1 of the October 2022 Labor budget—your budget—eligible deposits are now $1.2 trillion. How can $80 billion possibly protect $1.2 trillion in deposits?
Senator GALLAGHER (ACT—Minister for the Public Service, Minister for Finance, Minister for Women, Manager of Government Business in the Senate and Vice-President of the Executive Council): I think this question goes to some of the concerns that we’re seeing in global financial markets at the moment, and the impact on some banks overseas and some concerns that Senator Roberts is raising about the potential for impact here in Australia. The answer is the same as I gave last week.
Senator Rennick: You don’t know how to count.
Senator GALLAGHER: Thank you, Senator Rennick. Would you like leave to speak to this question or am I allowed to? You’d like to, would you?
The PRESIDENT: Minister Gallagher, address your comments to those opposite through the chair. Senator Rennick, resume your seat.
Senator Watt: Tell us about your Masters in Applied Finance!
Senator GALLAGHER: I know responding to interjections is disorderly, but Senator Rennick’s got verbal diarrhoea, it seems, this question time. He can’t keep it in. As I said last week, this is something the government is monitoring closely. In fact, the Treasurer is being briefed twice a day on what’s happening overseas, and is also being provided with feedback from regulators and from the banking system here. I think it is very good, and I would think that it’s something that this Senate would welcome, that our financial markets and our banking system are well regulated, well led and well capitalised, with good liquidity, and we are not seeing the issues that are being seen overseas. I did undertake, and I’m not sure if we’ve done this, to provide you with a written response to the question that you raised last week. I’ll chase that if it hasn’t got to you, as well as anything further I can provide in relation to the answer I’ve just given.
The PRESIDENT: Senator Roberts, your first supplementary?
Senator ROBERTS: My constituents, as I expressed last week and in the last question, are concerned. Minister, the protected amount is not indexed and, because of inflation, would need to be increased to $380,000 per account and $115 billion overall just to cover the same amount as the scheme did in 2008. Minister, will you increase the caps on the bank deposit guarantee to make up for inflation since 2008?
Senator GALLAGHER: In line with the answer I gave last week, of course the government would respond in relation to concerns that were raised about the operation of our banking system and the impact it was having here. We are not seeing that. I think Australians should be reassured that the Australian banking system is resilient and that all of our banks, as I said, are well capitalised and have strong liquidity coverage. The Treasury and regulators are closely monitoring the situation about potential impacts for Australia—and when I say that, I mean very closely monitoring. I can understand that people watching what has happened with Silicon Valley Bank and Credit Suisse would have raised concerns. I can understand that. The response is that since the GFC and since the banking royal commission there are measures in place to ensure the strong performance of our banking system, and we don’t have any concerns about it.
The PRESIDENT: Senator Roberts, a second supplementary?
Senator ROBERTS: Reviewing the minister’s answers, I have five questions on the guarantee so far. Firstly, the guarantee has not been adjusted for inflation, and so it offers 34 per cent less protection than when it was legislated. Secondly, the guarantee is not funded. There is no money available to implement it. Thirdly, the scheme only covers 7c in the dollar of deposits. Fourthly, the minister has refused to commit to activating the scheme if it was needed. Minister, can you explain why constituents should not conclude, as many have, that the bank deposit guarantee is a fraud and a lie?
Senator GALLAGHER: I don’t agree with that representation by Senator Roberts at all. I have answered the question in a general sense by saying that, if there were concerns as we saw in the GFC, of course the government, and I presume the parliament, would act. The point I’m trying to make is that at this point we don’t have concerns. We do not share the concerns. In fact, we’ve been given very strong reassurance by the regulators, by the banks themselves and by the systems that have been put in place by this place and the other place to ensure that we have a strong, well regulated, well capitalised banking system to precisely insulate from some of the financial instability that we’re seeing elsewhere. Yes, of course, the government would respond if we had to. At this point in time we are assured that that’s not the case.
The Government is trying to make sure bankers don’t face any personal responsibility or jail time when they commit a crime.
Transcript
As a servant to the many amazing people who make up our one Queensland community, I note that if an everyday Australian steals a few thousand dollars they go to jail, yet if a banker steals $4.7 billion they do not go to jail.
As at 31 December 2022, six of Australia’s largest banking and financial services institutions have paid or offered a total of $4.7 billion in compensation to customers who suffered loss or detriment because of fees for no service or non-compliant advice. ‘Banks gone bad’, greedily charging fees for no service and providing financial advice that failed to meet the standards for financial advice, ripped $4.7 billion off everyday Australians. And they got away with it. Let me name and shame them: National Australia Bank, AMP, ANZ, Westpac, Commonwealth Bank and Macquarie Bank. Australia has a Banking Executive Accountability
Regime, B-E-A-R, that’s supposed to hold bank executives to account. Clearly, BEAR does not work, because no executive has been fined, let alone jailed, for this corporate fraud.
Is corporate fraud now okay with Labor, with the Liberal-Nationals and with the teals? Apparently. Now Stephen Jones, the minister representing the banks, is planning to introduce legislation to take the penalties out of the BEAR scheme to expedite the banks ripping off more Australians in the future.
One Nation has a simple message for banking executives: don’t even think about it! Unless we keep and use penalty based regulation, nothing will stop these banks doing the same again. Free market competition, though, will bring the banks to heel.
A proper Australia Post bank will provide genuine competition for our banking cartel, using ethical, community based banking at thousands of new bank branches. It’s been proven with the original Commonwealth Bank a hundred years ago.
One Nation has a long history of standing up for everyday Australians. Clearly, the Labor Party does not.
Whether it’s bail-in, regional branch closures or restricting cash, Anthony Albanese’s Labor Government is continuing the Liberal party’s tradition of running protection for the big banks.
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It seems Stephen Jones is to the Labor Party as Josh Frydenberg was to the Liberals: the bank’s man in the government.
Whether it’s defending the right of the banks to bail in the cash in your account; whether it’s turning a blind eye to banks closing their rural bank branches, which has increased this year under Minister Jones; whether it’s allowing the King’s currency to be shunned so the banks can force everyone onto electronic banking, with every transaction helping bank profits and every sale providing a data- and profit-rich environment for the banks; or whether, as it is today, it’s letting banking executives off the hook for egregious behaviour, that should be criminal.
These hideous, inhuman banking crimes were brought to light during the Senate’s Select Committee on Lending to Primary Production Customers in 2017, an inquiry that Senator Pauline Hanson got and that I chaired.
Four years later, not one of those victims has been compensated nor a banker prosecuted. Minister Chalmers is protecting the banks over the best interests of the people.
Sterling First victims have been kicked out of their house and some are still under threat of eviction. ASIC received complaints about Sterling as far as back as 2015 but didn’t start investigating until 2018, when millions of dollars of retiree’s and other investor’s money was at risk.
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Senator ROBERTS: Thank you, Chair, and thank you, Mr Longo and your colleagues from ASIC. Mr Longo, would you agree that, for ‘buyer beware’ to work, buyers need to have access to all available information?
Mr Longo : The general principle of ‘buyer beware’ is as to availability and also asking. Clearly, as your question proposes, information needs to be made available, but the classic application of the buyer beware principle is: the buyer also has to ask questions and take an active interest in ensuring they’re properly informed before doing things.
Senator ROBERTS: Before getting to my core questions, I need to reference information contained in the redacted internal ASIC chronologies that were provided to the Senate. I know some of the details have been laboured over, yet I need to reiterate them for the purpose of these questions. I’ll make four points. In May 2015, ASIC concluded internally that, firstly, Sterling had likely provided financial services while unlicensed; secondly, Sterling had likely not provided adequate documentation to retail investors; thirdly, Sterling had likely engaged in misleading and deceptive conduct; and, fourthly, Sterling may have breached the requirement to not engage in conduct liable to mislead the public. Are these details correct, or substantially correct?
Dr Bollen : Mr Longo, do you want me to take that?
Mr Longo : I was just talking to my general counsel. Go for it, Rhys.
Dr Bollen : Yes, that’s a reference to an early complaint we received—the first one we received—which was from FOS. At that time it appeared to be one breach without any prior or later concerns. It was about a three-year-old breach already at the time. In the circumstances, with the myriad of other complaints and referrals we had, we formed the view that no further action was needed at that time.
Senator ROBERTS: So they’re correct. Despite these conclusions, ASIC elected to not pursue an investigation at that time due to the age of the conduct and the other workloads et cetera. I will continue to check my understanding. In June 2015, an ASIC staff member raised fresh concerns about Sterling providing unlicensed financial advice or that it may be engaged in misleading or deceptive conduct. Secondly, and this is the last fact I want to check, in September 2016, ASIC received a complaint that a Sterling victim had concerns about misleading and deceptive conduct and was unable to get information about what had happened to their investment and could not withdraw their investment as they had been led to understand they could. Are those two points correct?
Dr Bollen : That is a slight simplification, but, yes, basically, they are the second and third complaints that we received. They’re referred to in our submission as well.
Mr Longo : Can I ask about the line of questioning? These points have been dealt with comprehensively in our written material and I would respectfully ask, in regard to the rather simplistic approach that I’m hearing this afternoon, the committee to expect a supplementary written submission to comprehensively deal with the inferences it appears you wish to draw. But these matters have all been dealt with comprehensively in our written submissions and questions on notice and do not change my earlier evidence that I believe ASIC behaved reasonably at all material times. I do respect the line of questioning, but I would ask the committee to expect a supplementary submission to confirm the position we’ve taken on these earlier reports that I believe were properly handled at the time.
Senator ROBERTS: Thank you for repeating that conclusion of yours. In January 2017, ASIC assumed that Sterling’s conduct fell within the small-scale offer exception for professional investors, despite a track record of complaints relating to retail investors. ASIC suspected that a new and ongoing managed investment scheme was in operation—a managed investment scheme was in operation. Despite all of this, ASIC recommended that no further action be taken in relation to Sterling. Did ASIC commence any type of investigation before concluding no further action was required and, if so, specifically what were the investigation steps?
Mr Longo : Through the chair, could I ask Senator Roberts to ask a question, please?
Senator ROBERTS: Yes. I just did. Did ASIC commence any type of investigation—
Mr Longo : With all due respect there was quite a narrative that preceded your question, which makes it very hard to answer the question fairly, given the premises upon which it was based, which are very hard to follow. So can I ask senators to—
Senator ROBERTS: Certainly, Mr Longo. I’d be happy to do that. This is what I asked—
ACTING CHAIR: Senator Roberts, to make it as easy as possible for us all to follow, can you just go through one by one the introductory points that set up your question so that we understand the preamble that gives the context to our witnesses from ASIC?
Senator ROBERTS: What I’ll do, Chair, is address Mr Longo’s request and ask the question, and then I’ll go through the introductory comments. The question is: did ASIC commence any type of investigation before concluding that no further action was required, and, if so, specifically what were the investigation steps? Some of the earlier comments were—
Mr Longo : What point in time are we talking about?
ACTING CHAIR: Mr Longo, I think Senator Robert is now going to go through the preamble and give you that context so you can answer the question. In particular, Senator Roberts, we’re talking about the timing.
Senator ROBERTS: Thank you for understanding, Chair. In January 2017, ASIC assumed that Sterling’s conduct fell within the small-scale offer exception for professional investors, despite a track record of complaints relating to retail investors.
ACTING CHAIR: Senator Roberts, I will just hold you there. There’s a point you’ve made there, and it’s based on certain premises, so perhaps we can ask ASIC to respond to that point first.
Mr Longo : Thanks, Senator. The idea is that there’s an assumption that we apparently made in January 2017. Rhys, can you comment on the assumption? Can you follow what’s going on here?
Dr Bollen : The senator is referring to the first three complaints and the redacted chronology that was tabled by Senator Hume earlier. Those three early complaints—the one from the Financial Ombudsman Scheme, the second from an internal staff member and the third in late 2016 or early 2017—were all assessed by our intake team, who receive all reports of misconduct, breach reports and so on. We have a large number each year—10,000 or so reports of misconduct and 4,000 or so breach reports. They were all assessed. I wouldn’t describe that as an investigation; it is an assessment. There are policies and procedures that the assessment team follow. They look at the evidence, the number of people who appear to be affected, the amount of money that appears to be involved, the age of the conduct and the likelihood of whether it’s systemic or not. They have to make a judgement, based on the information that we’ve been given by the complainant or in the report, about whether further action should be taken. They necessarily have to be quick judgements to get through that kind of volume. You’re referring to the views that that assessment team formed at the time as to whether it was likely to fit into the small scale exemption and so on. Yes, those assessments were made at the time based on the information in those three early complaints.
Senator ROBERTS: Thank you. What we’re looking at here is trying to get an understanding. I work for and serve the people of this country. They pay my salary, they elected me and I have to serve them. I think that’s what all members of the Public Service have to do as well, including members of ASIC. So what we need to understand is: what does ASIC see as the breaches? Were there breaches of law? Were there breaches of good faith? What’s the core issue? Is it the capacity of ASIC? Is it the capability of ASIC? Is it structural? Is it a legislative or parliamentary fix? What’s the intent going on here? That, overall, is where I’m heading. I can either help you or undermine you.
ACTING CHAIR: Senator Roberts, there’s a lot there.
Senator ROBERTS: No, I’m just explaining. Let me continue.
Ms Armour : Senator, just to go back to your questions about the report of misconduct that came in in 2016 or 2017, I just think it’s important to note—we put this in an answer to a question on notice—that that report of misconduct was from an investor who appeared to have purchased shares in a company called Sterling Residential Syndicate Australia Pty Ltd, so it related to a different type of investment. I thought it would be helpful for you to be aware of that, because it’s a different type of investment from the Sterling Income Trust, which we’re talking about. It’s the same broad group, but that was the context of that one.
ACTING CHAIR: With your indulgence, Senator Roberts, I will ask Commissioner Armour about this: that complaint which was made did not have an attached or stapled residential tenancy—is that correct?
Ms Armour : I’m taking my answer from our answer to the question on notice, which was back in 2019-20. We’re happy to take on notice whether there was anything stapled to that.
ACTING CHAIR: I’m reading this. I have a few with me too. I would be interested to know in relation to it. As you know, in that question on notice which was provided, there were three prior issues which were raised. I think it would be helpful if ASIC could provide as much additional information with respect to those three issues as possible. I would certainly be interested to know whether or not any of them have the hallmarks of the attached residential tenancy as well as the purchase of shares.
Mr Longo : I can give you that assurance now. Those three matters are outside what this inquiry is looking at. I’ve said repeatedly—and I’ve tried to act in good faith with this inquiry—that the meeting with consumer affairs in March 2017 was a significant meeting. Without wishing to oversimplify, that’s when some of the dots started getting joined up and that’s when, as I think the evidence to the inquiry has shown, ASIC’s interest in this matter really started. There’s been a lot of evidence and back and forth about whether we should have done things more quickly or whatever, but, the way I’m looking at it—I wasn’t around at the time; I’m trying to be objective and trying to be professional with the inquiry—to my mind, around March 2017 is a realistic moment to say: ‘Well, there was that meeting with consumer affairs. We started talking with consumer affairs in a way that started looking at the issues that are the subject of this inquiry, and the rest is history.’ Pre March 2017—
ACTING CHAIR: You’ve been very consistent in your testimony about the three prior complaints that were the subject of the answer to the question on notice that Commissioner Armour refers to. From your perspective, you’re quite adamant and quite clear that these matters were totally disconnected from the matters which are the subject of this inquiry. Is that correct?
Mr Longo : That’s correct. But, with respect, I do appreciate that people are wanting to understand: ‘Why not? There were these three wrongs. Surely that must have got you thinking.’ I respect that curiosity, if I can put it that way.
Senator ROBERTS: Concern.
Mr Longo : Concern, absolutely. I was concerned. When all of this came to light, Senator Roberts, with the help of my team I put a lot of time into really trying to understand what happened, and this is my view. It’s my duty to give you my view. I think, from March 2017, as I’ve said to the team, to my mind, that’s when the dots started getting joined. I’m absolutely happy to come back to the committee. There have been a few QON submissions dealing with this point. It might be helpful to the committee to put it all in one place. Hopefully that will clear the air on it. As I’ve said from the beginning, we’ll do that as quickly as we can, and if there are additional questions from the inquiry, saying, ‘We still have some queries,’ we’ll deal with those, too, as best we can.
ACTING CHAIR: Excellent; thank you. Senator Roberts.
Senator ROBERTS: Can ASIC explain to this committee how it interprets the phrase ‘reason to suspect’, as detailed in section 13 of the ASIC Act?
ACTING CHAIR: I’m looking forward to this answer, Chair Longo!
Mr Longo : Well, there’s a lot of jurisprudence on that question! We interpret that phrase in a conservative manner. If there are facts or circumstances that we think could point to a contravention then we may, but are not required to, commence an investigation. I think the practical answer to your question, just reflecting on it, is that it’s a pretty low bar. I don’t think anyone is going to tell you that a reason to suspect is a very high bar. It’s a very low bar, and so it should be. You want agencies like ASIC being able to investigate things without having to jump over a high bar, because that wouldn’t be in the public interest.
The critical question, Senator Roberts—and I hope you’ll forgive me for saying this, because I’ve been saying it repeatedly through most of my professional life—is that we can’t investigate everything. What tends to happen is that a lot of judgement, assessment and analysis goes into all the matters that come to our attention. The really hard part of our job, on the enforcement side, is choosing which ones to investigate, resource, have section 19 examinations for and issue document notices for and which ones not to. I know in this inquiry there have been a lot of questions about: ‘What’s going on here? Your investigation didn’t start until May 2018. Why didn’t it start sooner?’ I’m not here to tell you that there was a big legal impediment. The situation unfolded. We made judgements based on what we knew at the time. We commenced an investigation when we did and we took the steps we took. But it is a low bar. The short answer to your question is: it’s a low bar, and we have to make decisions about which things to investigate and which things not to.
Senator ROBERTS: Are there any internal criteria or operational procedures or guidance as to how section 13 powers are to be exercised by ASIC and when?
Mr Longo : Yes, there are.
Senator ROBERTS: Could we get them as a question on notice, please?
Mr Longo : This question has come up before. I’m looking at my general counsel.
Senator PRATT: That was me. I did ask that question before, and I think we were going to get that provided to us.
Mr Longo : It’s not an uncommon question. We’ll certainly share with the committee what we can. When I say ‘what we can’, there may be some material we would happily share with the committee on an in-confidence basis, because you will appreciate that, as to some of that internal material, it would not be in the public interest for the whole community to know about it! But we’ll certainly provide you with what we can, and, where we think there’s a sensitivity, we will ask the committee to accept that material in confidence.
Senator ROBERTS: Thank you, Mr Longo. Who, at what level of seniority within ASIC, is able to make a determination on whether ASIC can trigger section 13 powers?
Mr Longo : I was about to say ‘relatively junior’, but there’s a system of delegation of powers that we use so that the commission itself isn’t involved in every decision to commence an investigation. Because of the range of matters that come to our attention, we have a process and a system for figuring out which ones to investigate. There’s a governance structure, a committee structure, within ASIC that makes those decisions. I suppose we could include a description of that in the—
Senator ROBERTS: You’re reading my mind now! Thank you very much—that’s exactly where I was going.
Mr Longo : I have to tell you, Senator Roberts, it’s a very risky business thinking I can read someone’s mind!
Senator ROBERTS: I thought you were referring to my mind!
Mr Longo : Can I just generalise, then: I can’t read anyone’s mind.
Senator ROBERTS: I have difficulty, too, reading minds. That’s why I ask short questions, generally. Is there a threshold of evidence that a complaint to ASIC must meet before section 13 powers can be exercised? I think that’s really part of the earlier question, and I think you undertook to give us that.
Mr Longo : There’s been a lot of confusion about this over the years. Just stepping back: ASIC gets matters, issues and concerns brought to its attention by a whole range of sources, as you can imagine. We might learn about something by reading about it in a newspaper and say: ‘Whoa! We need to get on that.’ What you are focusing on—which is really sort of the big part of resources—are those thousands of complaints that Rhys referred to earlier. We have a very systematic—I would like to say, sophisticated—approach to figuring out what to do with each one of those matters, and we have internal benchmarks to make sure they get prompt attention. A lot of them are actually resolved by getting other agencies involved. Sometimes we’re just helping people with a query that we can’t take any further. So, long story short: an assessment is made. Now, some of those matters will become investigations, but that depends on a whole range of circumstances, and I think Rhys touched on quite a few of them. The general principle is: it’s not every matter that could lead to an actionable contravention that we would investigate.
ACTING CHAIR: Senator Roberts, we’re running about 30 minutes over time, so do you have many more questions?
Senator ROBERTS: I think they’re all fairly short, Chair.
ACTING CHAIR: Okay.
Senator PRATT: I have a couple more, too, Chair. My apologies.
Senator ROBERTS: Given the track record of complaints, as to Sterling, how was this threshold not specifically met?
Mr Longo : I’m not sure—I think we really are at cross purposes now. As to the first three, I just don’t think they led us anywhere close to what the inquiry is looking at now. From March 2017, as I said earlier, we had the interaction with consumer affairs, and that triggered what we did and didn’t do. Clearly, we’ve had several days of hearings now and we’re trying to work through what we did do, what we didn’t do and why. So I’m not sure I can really add much more to that story—
Senator ROBERTS: Thank you—
Mr Longo : The formal investigation started early in 2018.
Senator ROBERTS: In the context of Sterling First, it took ASIC one year and two months, from March 2017 to May 2018, to exercise its section 13 powers and commence a formal investigation—only after receiving a complaint from a Western Australian government department, as I understand it. Wouldn’t a reasonable person expect that ASIC would have reason to suspect after receiving a complaint crammed with concerns from a state government department in much less than a year?
Mr Longo : I don’t accept the premise of, or the way you’ve put, those questions. As we’ve gone through in written submissions and evidence, we responded to the material. After all, consumer affairs were aware of this matter for several years. They were aware of the issues with the tenants. They then made the connection and came and spoke to us. We started looking at it, and we’ve taken the steps we’ve taken.
I’m not trying to make excuses. I’m just trying to work through what we did and didn’t do based on what we knew at the time. I respect the fact that some people might say, ‘Well, you should have started your investigation the moment you left the meeting with consumer affairs in March 2017.’ With all due respect, I think that’s entirely unrealistic. That was never going to happen. We’ve tried to work through why that’s the case. But I think the commencement of an investigation in early 2018, in the particular circumstances of this matter, is a reasonable time line.
Remember: we don’t have any visibility into these investments. We’re not there when the investors sign the leases and put their money into managed investment schemes. We’re not there when the product disclosure statements are given to these investors. Indeed, right up until the time we commenced the investigation, the investors weren’t even complaining to us. Then, by the middle of 2018, a lot of investors still seemed relatively happy with what they were getting. These situations, as I’ve tried to explain in earlier evidence, really require a lot of judgement as to when to intervene and how much you need to have before you intervene. It’s not uncommon for investors in managed investment schemes to say: ‘Why did you intervene so quickly? That was all going really well. It’s your fault, ASIC, that this scheme’s collapsed.’ Alternatively: ‘It’s your fault, ASIC, that you didn’t come in here sooner and stop this scheme.’
I’ve really given this a lot of thought, Senator Roberts, and I really think this inquiry is an opportunity to revisit. I’m not here to make excuses; I really want to reassure the committee about that. We have a number of management scheme matters that we’re working on right now that could lead to court action, and there are others that already have. The Sterling situation is tragic, but it is part of a much bigger picture. With all due respect, these are big issues. We’ll do whatever we can to be helpful, but, as far as this particular matter is concerned, I think ASIC acted reasonably. We did, I think, act reasonably quickly with what we had. Could we have moved more quickly? Probably. Should we have issued a media release more energetically? Probably. But with the time the investigation took and the issues we’ve had to deal with, I think we’ve handled that reasonably.
I do respect other views of frustration about this. We’ll do whatever we can to provide additional information to the inquiry to better understand the issues, but, as I’ve said in earlier evidence, this is going to happen again and again and again.
Senator ROBERTS: I accept that this is a complex situation. There are many levels at which it needs to be investigated, and I think that’s happening. Victims, as I understand it, thought they were paying rent in advance—some of the victims. Victims did not make a decision to invest in a managed investment scheme. I think that’s clear as well. Some of the victims did not make a decision to invest in a managed—
Mr Longo : I’m not sure that’s right. With due respect, I’ve got to disagree with you about that. I don’t know what the investors were thinking at the time. What happened here—and I’ve looked at the documents personally—is that they signed a residential tenancy document, and they also signed documents to invest in an income flow that would pay for the rent. They signed documents signing over the income from that managed investment—it went into a bank account—to pay for the rent. I do acknowledge that, many investors, if not all of them, didn’t fully appreciate what they were doing or the risks. But there’s no doubt they signed documents, because, otherwise, this couldn’t have gone ahead.
Senator ROBERTS: I’m done arguing that. Does ASIC not see that some of the victims did not know that it was a managed investment scheme?
Mr Longo : I can’t speak for their state of knowledge.
Senator ROBERTS: Is that a possibility? I don’t expect you to read minds. But where is the deficiency in Sterling? Is it in ASIC’s exercising of powers, ASIC’s analysis, ASIC’s capability? Is it the law? Is it the intent of the people who were putting out this scheme?
Mr Longo : Where I’ve taken your question, Senator, is it’s a bit like talking about crypto or why people buy stock exchange shares or why they put money into superannuation. I don’t know. When someone puts their money into a managed investment scheme or buys shares on the Australian Stock Exchange they are motivated by whatever is going on. I can’t tell you what they were thinking at the time. At the time they had the benefit of marketing material saying that there was an innovative product, that this would enable them to have a higher standard of living, that they could sell their home and put the proceeds into an investment, into something that would generate income to pay for rent. I know there’s sort of a feeling of ‘they’re not investors’ but where did the money come from to pay for the rent? It wasn’t coming from their bank account. It was coming from this other place where they put their money—I’ll call it an investment—and that income went into paying the rent at the so-called ‘stapling’. I’m the first to concede this is a complicated arrangement and it’s risky. With all due respect to the investors, I can’t speak on their behalf as to what they were thinking at the time.
Ms Armour : The responsibility for the success or otherwise of the scheme rests with the people who promote and develop the scheme. That is the model that we’re operating in, where degree of latitude is provided to firms and individuals to develop schemes and to attempt to attract investors into those schemes. They own, if you like, the success or otherwise. There’s a framework they need to operate in but it is really the responsibility of the promoters of the scheme.
Senator ROBERTS: Then we have regulators to oversee the promoters’ intent.
Ms Armour : The regulators work in a framework. We oversee the promoters’ conduct. So, as we talked about previously, a lot of what we do ends up being retrospective because that’s how we’ve set the system up. When things go wrong we take action. But we don’t have the merit powers that would substitute, say, my judgement for an investor’s judgement at the start of the investment.
Senator ROBERTS: Let’s get to my final question then with a statement first that this is a complex situation. Mr Longo has acknowledged that. I’m saying regulations are a double-edged sword, because dishonest people can quite often hide behind regulations, especially complex regulations. What is the core issue in your view, Mr Longo? Is it capacity of ASIC? Is it capability? Is it structural? Is it legislative? Is it the intent of the promoters of the investment scheme? What is the core issue here, or what are the core issues here, and what’s needed to prevent it happening again?
Mr Longo : That’s a really generous question.
Senator ROBERTS: Yes, it is.
Mr Longo : We live in a free country. We’re a democracy. We encourage people to make their own decisions about what they do with their lives, their money and everything. I think one of the really big issues for all of us here is that we know from our life experience that good people, very often highly educated people, do silly things with their money. They put their money into things they shouldn’t put their money into and there are lots of examples over the years. So one big policy question for us all is: should we have a law that makes it harder for people to put their money into investments that a group of people like us in an inquiry like this would say, ‘Gee, that’s a bad idea, that’s really risky and you really shouldn’t do that without getting advice or whatever the rules are’? I think that’s one big question for the inquiry, because this system, as I think Commissioner Armour was just reminding us, is pretty liberal. It basically says that, if you follow what I think you’d have to describe as fairly liberal managed investment scheme criteria and responsible entity criteria under the Corporations Act, then a whole range of ‘investment opportunities’ are opened up to ordinary people. To me, the heart of it is: do we want to change the law to say we’re going to make it much harder for certain people—we’ll call them vulnerable consumers or retail investors—to put their money into something like this without a proper rating or proper counselling or access to proper advice or whatever the safeguards are? So I think that’s a legitimate issue and a legitimate question.
Senator PRATT: I’ve got a follow-up question to this, Chair, when we’re able.
Mr Longo : Then there’s the role of the regulator, and there are big issues there too. We know regulation can be costly, it can be inefficient and it can give people a false sense of security. One of the issues here, I think, is that people say, ‘This managed investment scheme has been registered with ASIC, and the responsible entity has a licence.’ It has this veneer of an imprimatur, if you like, from the regulator. Nothing could be farther from the truth. Our role is essentially a licensing administrative role. There’s some substance underneath it—I’m not saying it’s totally administrative—but the policy objective is to encourage investment and to encourage risk-taking. As Commissioner Armour reminded us, what happens after that is retrospective. It’s reactive. We don’t spend a lot of time—or, in fact, any time—looking at whether the business models work or not or whether the PDSs are accurate or not. That’s another big question for the inquiry: do we want to change that? I could go on and on, but I thought I’d just pick a couple of those. I don’t know whether I’ve missed something fundamental. It’s obviously a very generous question from Senator Roberts. Cathie or Rhys, do you want to add to it?
Ms Armour : It’s a very fundamental question, isn’t it? It’s quite apparent from reading many of the submissions that there is a disconnect between, potentially, what investors anticipate, or some investors anticipate, and what the framework is. It’s a very fundamental question, I think.
Dr Bollen : The only thing I’d add is something we mentioned in our submission. There have been a number of inquiries over the years suggesting improvements to the managed investment scheme regime around how insolvent schemes and nonviable schemes are managed. Indeed, this committee has made recommendations in the past. I think there is fertile food for thought in that area.
Senator ROBERTS: I’d just like to add, Chair, that Mr Longo made the statement that we live in a free country. Thank you very much, Chair. Thank you, Mr Longo, and your colleagues at ASIC.
The government is set to try and ram through destructive changes to responsible lending rules. This axing will mean banks can go back to the bad days of over-lending to people who will never pay their loans back. We cannot go back to the bad days of equity theft where banks lent to people who couldn’t afford it just so the bank could later sell their house for a profit.
ASIC and AUSTRAC have been doing a good job in slapping fines on banks after the Royal Commission, racking up just over $2.2 billion in enforcement. Its proof that we need heavy fines for bank wrongdoing and that ASIC can do a very good job keeping banks in line.
The government’s proposed changes take away power from ASIC to do the job they have been doing very well. This can’t be allowed, and I won’t allow this government to use the cover of the pandemic to ram through cushy rule changes for their banking mates.
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Senator Roberts
[Senator Malcolm Roberts] Thank you. And thank you for attending today. Firstly, to ASIC, congratulations on your recent enforcement action against AMP for fees for no service, and charging fees to dead people. I hope that goes well. I know that’s a comment without a question, but I appreciate that. In your most recent ASIC Enforcement Actions Bulletin to December 2020, you list 11 actions still pending from the Hayne Royal Commission. With AMP now underway, is that now reduced to 10, and can we expect further enforcement actions for bad banking behaviour?
I haven’t got the statistics in front of me. Perhaps, Commissioner Armour, the…
I think, yeah Commissioner Hughes might be the best able to answer that.
Yeah, thanks. Thanks Cathie. Senator, good afternoon. We can take that one on notice. I think your assumption is probably correct because we have been netting down. If I can put it that way the number of matters as we’ve gone through. So if I’m going to make this point we had 13 matters referred to us by the Hayne Royal Commission. And we are, as I say, going through all of those matters, as well as 32 case studies that were examined by the Royal Commission, which we took on. But we will give you a specific answer on your question about it. I think you’re correct but I just want to be crystal clear on that.
[Senator Malcolm Roberts] Thank you. Do you have a dollar figure for the total cost to Australian ADI’s, that’s banks, for bad banking behaviour in the last five years as a result of asset enforcement action?
We don’t have a total cost of the behaviour Senator, what we would be able to provide to you on notice is the total amount of civil penalties and other regulatory outcomes that we’ve achieved over the period since the Royal commission.
[Senator Malcolm Roberts] That, that in fact Mr. Hughes, is what I’m asking for. So thank you. So
So Senator I might just add one other aspect to the cost measurement would be the remediation payments as well which we know collectively now are well above $10 billion.
[Senator Malcolm Roberts] Okay. Thank you. To confirm, you currently have 11 enforcement actions before the courts for credit misconduct. Is that correct?
That’s my understanding Senator.
[Senator Malcolm Roberts] And that’s for breaches of responsible lending laws?
Oh no. Sorry. I thought you meant, Senator, in relation to the matters arising from the Royal Commission. I didn’t hear you correctly.
[Senator Malcolm Roberts] No
Not it’s not physically in relation to credit.
[Senator Malcolm Roberts] It just happens to be the same number, 11 in both cases. This is for credit misconduct. I think you have a total of 11, and that’s before the courts?
I’m going to have to check those numbers. I’m sorry, Senator. I don’t have whatever it is whatever it is you’re referring to in front of me.
[Senator Malcolm Roberts] Okay, I have ASIC enforcement update July to December 2020, page seven. There’s a table there.
Can I take that on notice, Senator?
[Senator Malcolm Roberts] Sure. Thank you. I appreciate you valuing accuracy. Have you changed your enforcement since the Hayne Royal Commission?
I don’t believe that we would say we have changed our enforcement. What we have done is prioritised matters that give rise to significant consumer detriment or hardship or which relates to egregious misconduct including matters that might undermine confidence in the market. So there has been a refocus or a swinging of our prioritisation of matters, specifically to address those strategic enforcement priorities. We obviously receive a vast number of reports of misconduct, which my colleague Mr. Day could talk to you about, but Senator, we couldn’t possibly resource every single matter. So we, we put them through a process by which we identify those matters which meet our strategic priorities. And it would also prioritise enforcement matters that might relate to other priorities or thematic priorities such as misbehaviour in the OCC derivatives market those matters, or matters that involve predatory lending or misconduct involving indigenous or remote communities. So we have a number of filters, which we apply in deciding which matters to take to enforcement.
[Senator Malcolm Roberts] So it sounds like ASIC is doing its job and you’re policing responsible lending provisions, correct?
We’re enforcing the laws as they exist today, Senator. We’re very mindful, of course, as Senator McKim was asking me earlier that there are reforms before this chamber in relation to responsible lending. And we will be interested to see the passage of those reforms, if that is indeed what takes place. But where the law is settled then we will pursue those matters where we identify misconduct and there is an actionable bridge that we can pursue.
[Senator Malcolm Roberts] So in a briefing with Treasury, which didn’t involve me but my staff were involved. As were Senator Hanson’s staff, Treasury advised my staff that the reason for the decision to move Responsible Lending Regulation from ASIC to APRA was based in large part, apparently, on the actions of ASIC in tightening lending regulations. Have you tightened the legislation or regulation in respect of Responsible Lending since the Hayne Royal Commission? If so, how? I got the impression,
No
[Senator Malcolm Roberts] No, you haven’t?
No, Senator, ASIC does not have the power, the legislative basis or any legislative basis to change the law or regulations. Prior to the completion of the Royal Commission, ASIC updated its guidance response, its guidance number two zero nine, regulatory guide two zero nine, in December 2019, which provided further examples of the sorts of conduct and considerations that responsible lenders should take into account when making lending decisions. But as I said to Senator McKim, that guidance does not have the force of law, and we have not changed the rules or imposed any new obligations since the Hayne Royal Commission.
Thank you The only thing that has happened since the Hayne Royal commission Senator – sorry to cut you off is that the full federal court handed down its decision in the Westpac matter.
[Senator Malcolm Roberts] Thank you. Is it true to say that any tightening in bank lending practises is the decision of the banks, not of ASIC?
Well, we don’t make decisions on individual loan applications, Senator. Those are entirely matters for the banks. They will have regard obviously to Prudential Standards, administered by APRA. They will have regard to their obligations under the Consumer Credit Act administered by ASIC. And they’ll also have regard to the decisions of courts and of APRA. But the decision to advance a line to any particular borrower, consumer or business is entirely that of the bank, not its regulators.
[Senator Malcolm Roberts] Minister, could you agree that it would be possible for some people to categorise the stripping of Responsible Lending Regulation from ASIC to be a penalty for your enforcement act, for its enforcement action against the banks?
No, I think that’s an unfair characterisation, Senator Roberts.
[Senator Malcolm Roberts] I just want to go on record saying I appreciate the directness and the quality of the responses from ASIC. So thank you very much.
Thank you, Senator Roberts.
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