Australia to Add Muscle to Regulators After Bank Probe -- Update
February 04 2019 - 4:14AM
Dow Jones News
By Robb M. Stewart and Rob Taylor
CANBERRA, Australia--Australia plans to hand financial
regulators new powers of enforcement following a year-long probe
into misconduct in the country's banking industry, which long had a
reputation for being among the world's safest for investors.
The Royal Commission, which was set up in 2017 to conduct the
probe, said it was asking regulators to look at 24 cases in which
financial institutions may have broken laws, and its final report
on Monday recommended giving agencies extra powers of
enforcement.
During its investigation, the commission heard allegations of
inappropriate lending practices and lying to regulators. In one
audio recording played as evidence to the commission, a 26-year-old
man with Down syndrome was talked into buying insurance over the
phone, despite struggling to understand what he was being sold.
The commission's report comes as Australia's economy is showing
signs of weakening after 27 years without a recession. National
elections are set to be held in coming months and the center-right
government's record of economic management will be coming under
scrutiny. Australia's banks are big dividend payers and anchor many
people's pension savings, so taking a hard line on the sector
carries risks for political parties.
Australian Treasurer Josh Frydenberg said the government would
accept all of the 76 recommendations made by the commission and
federal judges would get new powers to expedite cases of alleged
misconduct. Mr. Frydenberg said the government must balance
restoring trust in Australia's financial system with maintaining
the flow of credit.
Among the growing signs of economic stress in Australia, data on
Monday showed building approvals fell sharply for the second month
in a row in December, as banks grew leery about lending amid
scrutiny of their business practices. House prices in major cities
such as Sydney and Melbourne have been falling for more than a
year.
The commission was critical of Australian regulators approach to
the industry in previous years and recommended establishing a new
oversight panel. It also asked regulators to examine evidence that
came to light during its probe to determine whether National
Australia Bank Ltd., wealth managers Suncorp Group Ltd. and AMP
Ltd. and others should face lawsuits.
The referral of German insurance giant Allianz AG to regulators
for failing to report misrepresentations on its website within a
10-day window required by the Corporations Act potentially could
result in criminal penalties.
NAB and Suncorp said they were reviewing the report to
understand its implications fully, while Commonwealth Bank of
Australia pledged to work with regulators asked by the commission
to examine its conduct, including in its superannuations business.
AMP and Allianz didn't immediately respond to a request for
comment.
"Saying sorry and promising not to do it again has not prevented
recurrence," Kenneth Hayne, who led the judicial probe, said in the
report. "The financial services industry is too important to the
economy of the nation to allow what has happened in the past to
continue or to happen again."
Karen Den Toll, a regulatory analyst at Deloitte, said the
market had been expecting worse, with short selling in advance of
the report. "Everyone is saying that Hayne has been very measured
in his approach. I think that's a fair assessment, as he has not
gone and shocked everyone with fundamental and unworkable
changes."
The probe has already spurred changes in the industry. Last
April, the chief executive, chairman and several board members at
AMP, Australia's largest wealth management company, resigned after
the company acknowledged it had misled regulators and been slow to
compensate customers for fees charged for financial advice it
didn't deliver. More recently, several senior figures at wealth
manager IOOF Holdings Ltd. took leave pending a case brought by the
prudential regulator alleging breaches of trustee obligations.
The Australian Securities and Investments Commission has
estimated the cost for compensation from the big banks and other
institutions could top 1 billion Australian dollars (US$725
million).
The Australian Banking Association, the trade group representing
the industry, said the banks accepted they were fully responsible
for failings highlighted by the commission and were determined to
fix problems. "This report contains some very tough medicine for
banks," said Anna Bligh, its chief executive.
Write to Robb M. Stewart at robb.stewart@wsj.com and Rob Taylor
at rob.taylor@wsj.com
(END) Dow Jones Newswires
February 04, 2019 04:59 ET (09:59 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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