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ASIC keeping banks in line – Government trying to soften them up

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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.

Transcript

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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Government cosying up to their bank mates – APRA

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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.

The government’s proposed axing includes giving APRA more bank-policing responsibility. I’m sorry to say but APRA has been weak and ineffective when it comes to policing the banks. They’ve managed to hand out just a $1.5 million dollar fine compared to ASIC and AUSTRAC’s impressive $2.2 billion in banking fines.

I won’t allow this government to use the cover of the pandemic to ram through cushy rule changes for their banking mates.

Transcript

Thank you very much Senator small. Senator Roberts, please take us home

[Malcolm Roberts] Thank you Chair and thank you for appearing here

As promptly as possible.

[Malcolm Roberts] Okay. If I can reference a December 2020 headline ‘Westpac hit with a second bank regulator penalty.’ Westpac broke key capital ratios and the consequence APRA levied was to make Westpac keep more money in the bank. In other words, to comply with the law this has the effect of reducing the bank’s ability to lend by reducing their available capital. Is that a fair analysis?

Thanks Senator, for the, for the question. So just to be clear you’re referring to the press release of March 21. Did I hear that correctly?

[Malcolm Roberts] No.

Which one?

[Malcolm Roberts] The headline of December 1st 2020 in Reuters.

December 1st, 2020.

[Malcolm Roberts] Yep.

So at that time, Senator, there were a range of AML issues for Westpac,

[Malcolm Roberts] AML?

Anti money laundering issues. APRA announced at that time, just before Christmas that it was taking action on three issues, there was an additional capital overlay, which I think is the point you’re making, of an additional 500 million on top of the 500 million they’d already applied, a BEAR investigation and some supervisory work. And I’m happy to talk about that. In terms of the capital impost, Westpac is a bank as per other majors who are very well capitalised. They’re running CT1 in the twelves at the moment and they have plenty of capital to lend for worthwhile projects and housing.

[Malcolm Roberts] Okay, thank you. Another headline, April 2021, APRA takes action against Macquarie Bank over multiple breaches of prudential and reporting standards. The penalty there was to keep more money in the bank, that also has the result of reducing the bank’s liability- ability to lend money. Correct?

Senator that’s another example where a bank breached a number of reporting issues on capital and liquidity and also on stable funding. We took action on the bank and part of that action was the capital impost. And I think the same answer applies that you have a bank with considerable capital and considerable ability to lend commercially. And in fact, in the case of Macquarie, they have been lending very significantly into housing.

[Malcolm Roberts] A third example, APRA takes, this is the headline from October 20th. APRA takes action against Bendigo and Adelaide Bank for breaching prudential standard on liquidity, their penalty, well their consequence, was not a penalty. Their consequence was to keep more money in the bank, that also reduces their ability to lend.

Senator, I think all three examples that you give go to breaches of standards that APRA has and as we’ve explained to the Committee previously we have an enforcement approach. The adoption and compliance with prudential standards is critically important to safety and system, safety for depositors in particular. And so we need to and have taken appropriate action, enforcement action on each one of those cases. And so that’s what we’ve done.

Can I just clarify one thing, Senator? So you keep referring about our actions reduce the capacity to lend and that’s not, not quite right, what we do when we’re adding more capital to the bank effectively we’re changing the mix in which it uses either its shareholders money or depositors’ money to fund loans. And the actions we take mean effectively that a bank has to use more shareholders’ money and less depositors’ money to fund a loan, but it doesn’t actually stop the bank from or reduce the bank’s ability to lend. It just says, use more of your shareholders money, put- get your shareholders to put more on the table and use less depositors’ money.

[Malcolm Roberts] Doesn’t it make the bank, reduces the bank’s ability to lend in that it makes

Only if they don’t have enough capital to meet their regulatory requirements and then they have to stop. But as John has said, these banks are running well above their minimum regulatory requirements. So the issue is really, it changes their, because capital is more expensive than funding from depositors it makes their funding costs slightly higher.

[Malcolm Roberts] So the headline in the Reuters that, well, the first paragraph, the Australian bank regulator, APRA, said on Tuesday it was forcing Westpac Banking Corp to raise its cash reserves after it fell short of prudential standards its second enforcement action in a year against the country’s number three lender.

So the effect of what we did was to increase the minimum amount of shareholders’ money that we required Westpac to have.

[Malcolm Roberts] Okay.

But they use that money still to lend.

[Malcolm Roberts] I ask because in a meeting of the Responsible Lending legislation with my staff, between my staff and Treasury, Treasury indicated that a substantial reason behind moving responsible lending regulation from ASIC to APRA was because ASIC was imposing restrictions on the bank’s ability to lend. But you’ll argue with this, then that is exactly what we see that APRA doing, is it not, because it’s altering the liquidity?

Well, I think we’ve already answered that question Senator.

[Malcolm Roberts] So since the Royal Commission, has APRA ever launched an action against an ADI or bank that resulted in a fine, a real penalty, not just complying with the law?

Yes we have Senator. And an example of that would be Westpac again, for a breach of reporting standards, a small fine but it was the maximum fund that could be levied under the FSCODA Act.

[Malcolm Roberts] What was the fine?

It was from memory, 1.5 million.

[Malcolm Roberts] Isn’t it amazing how 1.5 million is a small fine these days but anyway

Well we’re talking about a major

[Malcolm Roberts] It is all relative Does the National Consumer Credit Protection Amendment Supporting Economic Recovery Bill 2020 allow APRA to fine a bank that engages in systemic breaches of the Responsible Lending Guidelines.

So no, no Senator.

[Malcolm Roberts] Thank you. What action is open to APRA to regulate low doc home loans which are provided for in that legislation.

Well that, that is not something within our responsibility Senator.

[Malcolm Roberts] Well, we could find none

Senator Roberts we will need to wind up soon.

[Malcolm Roberts] Yep, I’m almost done. What about all the people who lose their homes their savings, their marriages, their mental health. Is there no consideration for the human cost of bad bank behaviour in this legislation?

Senator, is that a question?

[Malcolm Roberts] Yes.

If it is it’s not a piece of legislation that APRA has responsibility for Senator

[Malcolm Roberts] But you will have, or for Responsible Lending.

No, that’s not correct Senator.

[Malcolm Roberts] I thought you were getting, going to have responsibility for Responsible Lending.

What we have, as explained earlier, is we have a standard, Prudential Standard, APS220 there are some very minor changes to that and APRA’s current stance in relation to how it assesses credit will be pretty much the way it has been for many years. So no change

[Malcolm Roberts] Under the new legislation,

Well correct Senator.

[Malcolm Roberts] Thank you. APRA runs the Bank Executive Accountability Regime – BEAR scheme which fines bank executives for bad banking behaviour. You have taken action against the banks for bad behaviour, ASIC and AUSTRAC have fined, have caused fines on the banks of over $2 billion in the last three years. How many of the executives in charge of the banks have been personally fined through BEAR?

I was going to say the BEAR doesn’t give us capacity to impose fines on individuals.

[Malcolm Roberts] None at all?

That’s not part of the legislative framework.

[Malcolm Roberts] Okay. Well last question Chair. Westpac are moving night safe wallets and advising their business customers to not accept cash. Isn’t that rule number one for a bank, accept the Queen’s currency. On what basis are APRA allowing the banks to make such fundamental and illegal decisions without reference to APRA.

Senator, APRA does not have particular standards in place in terms of what commercial activities banks undertake and services that they provide. So, so they are commercial issues for the banks. Thank you Chair. Thank you. Thank you.

Just on your last point though I do think it is a little bit of an issue if banks do, and I’m not saying that Senator Roberts is necessarily correct, but banks refuse to accept legal tender, but I will leave that part there. Thank you very much for your time.

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Should we let bad banks keeps abusing virtual AGMs? Australian Securities and Investments Commission at Senate Estimates

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Annual General Meetings of large companies have almost always been held physically. This changed with COVID when the use of Virtual AGMs was authorised. Virtual AGMs were necessary when the country was plagued by lockdowns, but now as restrictions ease big companies such as banks are desperately trying to hold on to them.

Virtual AGMs allow the big banks to shut down investor questions and avoid scrutiny on important topics like the huge salary bonuses of top executives. AGMs that used to take an entire day because of questions from investors are now being sailed through in just a couple of hours.

I believe in the free market and to have that we must have confidence in the stock market. Physical attendance at AGMs for those investors that want it is a fundamental part of maintaining that confidence in the stock market and the companies in it.

Transcript

[Senator Roberts] And thank you all for attending today. The corporation’s coronavirus economic response determination number three, 2020, provided the basis for virtual AGMs. ASIC have replaced that determination, which expired this week with order 21-056 MR, which takes a no action position on virtual AGMs. Does this mean that corporations can run a virtual AGM with no restrictions coming from ASIC?

[Commissioner Melina] Senator, hopefully I can help you with that. In relation to this, there is a bill that parliament is considering about a full-time permanent change to the law to allow virtual AGMs, but that bill is still in committee and being considered.

[Senator Roberts] That was the rule of the Senate to extend it.

[Commissioner Melina] Yes, exactly, exactly. So in light of the fact that the pandemic, whilst we’ve operated very effectively nationally in the pandemic, but there is still some uncertainties about the pandemic for companies whose balance dates, for example, after December 31, this year, they have five months to have their AGM. In light of that fact, we think that it is reasonable given that there are still some restrictions of movements for companies to temporarily, until we hear, and it is temporary, but until we hear how parliament intends to pursue that matter, have an opportunity to, if they need to hold a virtual AGM to comply with various restrictions, wherever they may be located. Now, it is only a no action position. We don’t have the power to amend the law in this area or make any more permanent situation. But we are intending to give guidance to companies about what’s important. If they do need to take advantage of having a virtual AGM to ensure really the safety of their shareholders, their employees, and their staff. We are working to ensure that we give enough guidance about what’s necessary, so that people have an opportunity to ask questions of the chairs.

[Senator Roberts] So you’re saying this is temporary.

[Commissioner Melina] Temporary, absolutely.

[Senator Roberts] When will it expire?

[Commissioner Melina] We intend to revisit it once we, one, if the pandemic conditions change dramatically and two, once we hear more how the Senate and the parliament are considering this particular issue.

[Senator Roberts] So why couldn’t you’ve extended it until September 30th?

[Commissioner Melina]Well, we weren’t feeling comfortable about doing that because we were, my understanding and please correct me because I’m not so familiar with parliamentary time-tabling but my understanding was it’s possible that this bill could be determined before then. I understand the committee that is considering it is due to report at the end of June. So we did want to take our lead from the decisions of parliament. We’re not interested at all in-

[Senator Roberts] So the intent is temporary, but there’s no deadline.

[Commissioner Melina] And we could announce in a month or two, you know, it’s no longer applicable, but we want to give companies the opportunity to plan. These events do require a bit of logistics.

[Senator Roberts] Were you happy with the outcome of the trial of virtual AGMs?

[Commissioner Melina] Generally, there were some instances where we received complaints about how those, on some occasions, how questions were dealt with, but generally we were reasonably happy, and we’re able to go back and talk to chairs and companies about the particular issues.

[Commissioner] Senator, I just wanted to emphasise what Commissioner Melena just said, that the dialogue, the ongoing dialogue, which we had with the director community and the corporate community was very constructive so that we saw improvements taking place, as this was operationalized by companies in that initial no-action period.

[Senator Roberts] Okay my experience and the feedback we’ve got is quite the opposite. Companies are using virtual AGMs to disenfranchise activist shareholders. And these tactics include sending activist shareholders a wrong entry code. So they can’t access the virtual meeting room. Accepting questions on notice and then not reading them out, not calling on shareholders who they know will ask difficult questions and switching off shareholders, who were asking difficult questions. So this is why virtual AGMs went to an inquiry. So you’re basically invalidating the process.

[Commissioner Melina] Well, Senator we would be very happy to take those points on board and review them ‘cos that sort of feedback is very helpful.

[Commissioner] Yeah, we are interested in following up that sort of feedback.

[Senator Roberts] It does become a great way to manipulate annual general meetings and shareholders. American shareholder organisations are stating just that. So I understand the benefit for small companies to have virtual only AGMs, if shareholders agree before every AGM. But are you really saying that 100% virtual is acceptable for large companies like the banks and Crown Casino, who featured strongly in complaints to my office? And in addition, it seems like some of these companies want to shut down the problems, but that only defers it, because they eventually pop up, and then it becomes more embarrassing.

[Commissioner] Senator the points that you’re raising, we will certainly take on board, but just to confirm and this is explicit in your question. This is a temporary relief, we’re waiting on parliament. And certainly we will take those points on board but it strikes me that these are issues for Parliament’s consideration.

[Senator Roberts] Okay, thank you. Going to Banking Code of Practise. The enforceable code provisions, particularly, how close are we to seeing which provisions of the Banking Code of Practise will be enforceable?

[Commissioner Hughes] Morning Senator. Sean Hughes-

[Senator Roberts] Good morning.

[Commissioner Hughes] Commissioner at ASIC. Thank you for your question. The current version of the code, which we approved in January, which came into effect on the 1st of March does not contain any enforceable provisions. The changes that were approved by us in January are essentially minor in nature. We are however waiting to see the outcomes from the ABO’s triennial review of the code, which commences in June, that will also include a consideration of the small business threshold definition with the reviewer recommending an increase of that definitional threshold from $3 million to $5 million. At that point in time, I’d suggest Senator that we would revisit to the issue of enforceability in relation to any provisions of the code.

[Senator Roberts] So what date after June?

[Commissioner Hughes] So they’re commencing the triennial review in June.

[Senator Roberts] So at the moment, ASIC doesn’t have any provisions it wants to see as enforceable?

[Commissioner Hughes] The position in relation to enforceable code provisions, Senator is that the relevant body in this case, the ABA needs to apply to ASIC to say whether any provisions should be made enforceable. No such provisions were nominated to us and having considered it, we didn’t believe that any needed to be made enforceable at this point in time. As I say the changes that we approved in January were relatively minor and technical in nature. We would prefer to revisit the question of enforceability post the triennial review in June.

[Senator Roberts] So basically at the moment ASIC is waiting for the banks to tell them what to do.

[Commissioner Hughes] That’s not the case at all Senator. We have not identified any enforceable provisions in relation to the minor and technical changes to the code made in January.

[Chair] Senator Roberts, two more questions.

[Senator Roberts] Yes, exactly that, two. Going to unconscionable conduct. My question relates to this week’s judgement of the full bench of the Federal Court in the Kybolt Case which saw a substantial change in the definition of unconscionable conduct. Unconscionable conduct is contained in section 12CB of the ASIC Act. Will ASIC assist Corporate Australia to meet the lower standard of proof this offence now carries by way of a regulatory document or note or report?

[Commissioner Hughes] Senator I’ll take that question as well. We are aware of and have followed the decision of the High Court in relation to that proceeding that was commenced by the ACCC. And we’re revisiting the extent to which that may have an impact in enforcement actions that we are running. But as you rightly point out, Senator, that’s a very fresh judgement from the High Court. And I can’t make predictions as to what we will do in relation to future litigation matters at this stage.

[Senator Roberts] Will you be assisting Corporate Australia though to understand this component?

We will certainly continue to inform and educate Corporate Australia as to the impact of that decision. As I know, the ACCC will do, and we will be discussing with colleagues across the law enforcement agencies the benefits and the implications of that judgement .

[Senator Roberts] Last question. Well, it’s not a question, actually it’s a statement. May I compliment ASIC for its enforcement history on unconscionable conduct cases against the major banks. And I look forward to this judgement making your job even easier.

[Commissioner] Thank you, Senator.

[Commissioner] Thank you, Senator.

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