ASIC’s Greg Medcraft accuses banks of ‘hiding trail of advice’
The Australian 12:00am June 1, 2017
Michael Roddan
ASIC boss Greg Medcraft says the big banks and wealth management industry have used poor record-keeping to “hide a trail” of questionable financial advice.
Mr Medcraft, who finishes his term at the Australian Securities & Investments Commission in November, also hit out at the vertically integrated business model of the big lenders, arguing that cross-selling wealth, advice and insurance products was “not a viable business strategy any more”.
“The best asset the banks have is the trust of their customers,” Mr Medcraft told the Senate estimates committee.
“Basically, they should be an ecosystem that has the best products for their customers — and that may not necessarily be their own products.
“I think the banking model is probably going to change quite dramatically in the next few decades.”
ASIC last month produced a report showing a tardy approach to compensation paid by the big four banks and AMP for about $200 million in fees charged to customers for financial advice they did not receive.
Less than half that amount had been paid back to customers.
“All of the banks need to get their skates on with this issue,” ASIC deputy chair Peter Kell said.
He said ASIC had uncovered lacklustre internal audit processes within the banks and wealth managers, including some instances of “antiquated” record-keeping.
Joanna Bird, senior executive leader of ASIC’s financial advisers team, said the regulator had asked all financial institutions to investigate their records to find out if there were any “fee for no service” breaches. “The record-keeping has been a significant problem in this industry, which has made the remediation programs in response to that extremely challenging,” Ms Bird said.
“In response to that, we’ve really clarified what the record-keeping guides are.”
Mr Medcraft said: “We all know that poor record-keeping is a good way to hide your trail. We know that, and they should know we know that,” he said.
Inadequate record keeping was “ridiculous” and did not help the banks’ reputations, he said.
Calls for a royal commission into the banking sector have focused on the vertically integrated nature of the major lenders. But parts of the local sector have recently soured on their own diversified model.
Last year National Australia Bank offloaded most of its MLC life insurance business to a Japanese company. ANZ is looking for buyers for its wealth management arm OnePath, and Westpac last week said it was selling its major shareholding in BT Investment Management.
The businesses have been stung in recent years by an endless stream of compliance breaches, poor financial advice, improper life insurance claims handling and wrongly charged fees.
Mr Medcraft said the governance and product distribution model of large institutions was becoming more important, noting the scandal engulfing US lender Wells Fargo, where its staff signed up customers to accounts and credit cards without the customers’ knowledge or permission.
“Cross-selling is really now not seen as a good thing. If you think about product distribution and obligation, basically the obligation is there to make sure that you actually have products that are in the best interest of your customers,” Mr Medcraft said.
“You don’t necessarily have to own something to offer the best product for a customer.
“I think banks are starting to realise the days of owning something and cross-selling — that’s probably not a viable business strategy any more. I think the market will reshape banking.”
The government has just closed a consultation round on the new product intervention powers, which enable it to temporarily ban products deemed not in customers’ best interests.
Greens senator Peter Whish-Wilson wondered if the product intervention powers could be used to stop banks selling their own products in vertically integrated systems.
Mr Kell said the government’s proposed product intervention powers would rarely be used to ban products being sold.