Thursday, 29 October 2020
Banking and Financial Services
If the royal commission into financial services taught us anything it is that sunlight is the best disinfectant. Last year the Hayne royal commission uncovered immoral practices in Australia's financial services sector, fuelled by a toxic culture of deception. Australians have been misled into buying bad products, or had their money raided for exorbitant fees—among many other shocking revelations. Since then the Standing Committee on Economics has been scrutinising the financial services sector to smoke out any further malfeasance and ensure Commissioner Haynes' recommendations are implemented.
Integrity and transparency in our financial services institutions is only more important after COVID-19. With around 800,000 loans worth approximately $260 billion currently deferred, the actions of our major banks determine the severity of some of the pain Australians experience. Accordingly, the economics committee has required the big four banks to provide monthly updates on how they are responding to the pandemic. The committee has pressed Commonwealth Bank CEO, Matt Comyn, to highlight the savings small businesses can gain from switching to least-cost routing. This will remove many of the fees involved in operating a tap and go payment system and ease the burden for small businesses as they rebuild.
The committee has focused on the legacy of so-called responsible lending laws, which have made it harder for homebuyers and small businesses to access credit. The laws have driven Australians to unreliable non-bank lenders and made big banks more competitive over smaller ones, a classic example of regulation crowding out competition.
The committee is holding super funds to account to ensure that all Australians' retirement savings are also secure. Your super is your money. Fund managers must adhere to the obligations as trustees of your money. The committee exposed industry superannuation funds for using an illegal loophole to reactivate low-balance, inactive accounts to enable them to charge fees to people who otherwise were unaware. It was a shocking example of industry super charging fees for no service—exactly what they accuse so many other financial institutions of doing, but we caught them with a hand in people's pockets and in the till. Fortunately, the loophole is now closed because of the efforts of the Treasurer and, particularly, the assistant minister for superannuation.
Questioning from the committee also exposed that ME Bank, a financial entity 100 per cent owned by industry super funds, failed to inform 20,000 of its customers about changes to its redraw policy. Without warning Australians had been deprived of their own money at a time of national crisis. What's worse is that ME Bank knew about the intended changes for five months but still chose not to inform their customers. ME Bank also denied that it had been instructed by ASIC to advise its customers to the redraw change—a claim which ASIC subsequently correctly refuted. Of course, logically, the CEO of ME Bank, after questioning, quite rightly resigned. Actions like these undermine public trust in super funds, financial institutions and the integrity of our system. In a display of corporate accountability, ME bank, of course, saw their CEO resign, but they had a long way to rebuild public confidence.
The committee also revealed that industry super had contradicted its own internal research by claiming increases to the compulsory super guarantee wouldn't lower wages or reduce jobs, at a critical time when jobs growth is everything to all those Australians who are unemployed. So industry super has now joined the long waiting list of entities which assert an increase in the compulsory super guarantee will harm Australian workers—whether it's the RBA, the Treasury, the Australian Council of Social Service or the Treasurer.
Importantly, the committee is putting pressure on the regulators, ASIC and APRA, to make sure they're doing their job too.
Earlier this year we exposed ASIC for publishing and distributing misleading and deceptive data about the cost of running SMSFs. ASIC claimed it cost $13,900. It's much closer to $13,000 annually. That ASIC would publish such highly inaccurate information raises questions about their basic competence. And, now, with the recent stepping down of their chair it's quite clear that that is even more in the focus, because a regulator's job is to act without fear or favour, and that is why we have asked for both an audit of the professional backgrounds of their staff and an outcome.