BFCSA Blog

Graeme Samuel ‘bewildered’ by finance companies’ poor behaviour The Australian 12:00am September 22, 2018 Michael Roddan   Former competition tsar Graeme Samuel has hit out at the “completely unacceptable” behaviour of some of Australia’s biggest ­financial institutions through the man­ipulation of supposedly independent reports concocted by major consulting firms and fed to financial regulators. While crimes and misdemeanours committed by the big four banks gave cause to establish the banking and financial services royal commission, the behaviour of the big four accounting firms — KPMG, Deloitte, Ernst & Young and PwC — and a host of second-tier auditing, contracting and consulting firms is squarely in the sights of financial watchdogs. Kenneth Hayne’s royal commission this week revealed further sorry examples of how companies pressure consultancies to fudge information in reports destined for regulators, this time with the revelation that EY buckled to the demands of insurance giant Allianz and reproduced a...

ASIC under fire: Can a change of the guard fix regulator’s image? The Australian 12:00am September 22, 2018 Ben Butler   Hard and fast. That’s how one of the Australian Securities & Investments Commission’s new commissioners took on the spivs, crooks and scumbags infesting New Zealand’s corporate landscape when he became the head of the Kiwi regulator back in 2010. At the time, New Zealand was reeling from the collapse of a series of finance companies that erased about $NZ3 billion in savings from 200,000 depositors. “We wanted to create a deliberate image that we were going to be hard-nosed about regulation in terms of misconduct,” Sean Hughes told a parliamentary inquiry in 2014. “There had been some very vehement criticism of our predecessor bodies that they had been too soft on breaches of the law.” On his first day at the new Financial Markets Authority, Hughes inherited 55 investigations from...

ASIC reviews penalties after Hayne shaming Australian Financial Review Sep 21 2018 11:00 PM John Kehoe   EXCLUSIVE  The corporate regulator has launched an internal review into how it negotiates settlements and the size of monetary penalties with offending companies, following revelations at the banking royal commission that it was sometimes too soft on banks and insurers. AFR Weekend has learnt that Daniel Crennan, the new deputy chairman of the Australian Securities and Investments Commission, has been made responsible for ASIC's enforcement policies and tools, including its pursuit of criminal and civil penalties, as well as the use of administrative or court enforceable undertakings. The quantum of monetary penalties imposed on infringing firms is also being examined, said sources with direct knowledge of the ASIC review. It coincides with intense pressure on the regulator from Treasurer Josh Frydenberg, who recently lashed ASIC for alleged past enforcement shortcomings committed before new chairman...

How reef funds went from $5 million to nearly $500 million in five days Sydney Morning Herald 21 September 2018 12:00am Carrie Fellner & Peter Hannam   EXCLUSIVE  Just days before the Great Barrier Reef Foundation received a controversial $443.4 million funding package, the organisation was in talks with then environment minister Josh Frydenberg's office for a grant of just $5 million. Documents obtained by Fairfax Media under freedom of information also show in the weeks after Mr Frydenberg met the foundation chairman John Schubert with the then prime minister Malcolm Turnbull on April 9 to tell him the grant had leapt almost 100-fold, officials were still scrambling to learn what the non-profit group did. The internal emails and diary notes provide colourful details of the efforts to justify the funding, with an Environment department staffer asking the group on April 19 for "any summaries of projects that we are investing...

Labor to target overseas tax haven loopholes and 'citizenship shopping' Australian Financial Review Sep 20 2018 11:00 PM Tom McIlroy   Labor will move to end travel allowances for known overseas tax havens and stop citizenship shopping by requiring Australians with foreign residency to report to the Tax Office. Shadow assistant treasurer Andrew Leigh will announce plans to close a loophole that allows wealthy employees to receive allowances of up to $2000 tax-free for trips to nearly 30 countries including the Bahamas, Bermuda, Barbados, the Cayman Islands and Monaco. Currently some allowances paid to employees for overseas travel are tax deductible – up to $400 per day for five days. The plan would automatically deny deductions relating to all jurisdictions included on a European Union-style blacklist, including countries such as Nauru, the Maldives, Cook Islands, Niue and Vanuatu. Individuals could apply to the Commissioner of Taxation to receive the deductions, provided...

Hayne shines a light on bargain basement penalties Australian Financial Review Sep 20 2018 7:31 PM James Frost, Misa Han   The corporate regulator's failure to issue major companies with fines of any consequence was again highlighted at the Hayne royal commission on Thursdaywhen evidence showed Suncorp was fined just $43,200 when it was liable for a $7.2 million penalty. The Australian Securities and Investments Commission told Suncorp its promotion of insurance was false and misleading and issued the company four infringement notices with penalties of $10,800 per infringement. Breaching this section of the law is a criminal offence and carries a maximum penalty of $1.8 million per contravention. Emails between Suncorp employees show they knew promoting complete replacement cover was likely to infuriate both regulators and politicians but "the risk was accepted" after they considered the potential financial reward. Suncorp reported net profit of $1.1 billion for the 2018 financial...

One in five interest-only borrowers could run into mortgage repayment arrears: UBS Australian Financial Review Sep 21 2018 12:16 AM Su-Lin Tan   One in five interest-only loan borrowers will struggle to make mortgage repayments when their interest-only loan expires, the latest UBS housing and banking survey reveals. The Reserve Bank previously indicated almost half a trillion dollars in interest-only mortgages - or about 30 per cent of all outstanding mortgages - will convert to principal and interest loans over the next four years, jacking up monthly repayments for almost 1.5 million borrowers and cooling housing markets further. "This last finding is quite concerning, in our view, as it implies that 18 per cent of interest-only customers will not be able to afford to pay their monthly mortgage repayment when their Interest-only period expires," the 2018 UBS Evidence Lab Mortgage Survey said. "With a lack of refinancing options available and the...

Banking royal commission report will crimp mortgage credit: Citi and UBS Australian Financial ReviewSep 20 2018 11:00 PM James Eyers   Banking analysts are braced for the interim report of the financial services royal commission to prompt a further restriction in housing credit, which could apply further pressure to house prices, after various case studies presented by the inquiry found banks lent more than many borrowers could afford. Citi banking analyst Brendan Sproules said he's expecting a "blistering review" of lending standards by Commissioner Kenneth Hayne when he delivers his interim report next week, and suggested investors could be underestimating the impact of his recommendations on the sector. Systemic over-lending The hearings on consumer lending had exposed "systemic over-lending" and in a comprehensive report published on Thursday, he predicted the inquiry would prompt further tightening of lending and lead to a ramp up of enforcement of lending laws by regulators. Commissioner...

RBA’s Chris Kent explains how banks make money ... literally The Australian 12:00am September 20, 2018 Adam Creighton   Banking is a licence to create money out of thin air, the Reserve Bank says, exploding the myth that banks make loans by “lending out customer deposits”. In a landmark speech, assistant governor Chris Kent moved in Sydney yesterday to clear up the “degree of confusion” about how money is created, explaining that banks create deposits when they make loans — in contrast to what textbooks say and most people ­believe. “Concerned citizens might be worried about what they see as the ability of private banks to create money via the extension of credit, seemingly at will,” he said. Since June 2008, the volume of money in the economy has almost doubled from just over $1.1 trillion, or 100 per cent of GDP, to almost $2.1 trillion, or about 115 per cent...