Banking royal commission: ASIC set to tell its side of story

The Australian 12:00am March 21, 2018

Ben Butler

The corporate regulator is set to give the royal commission into the financial services industry its side of the story in response to a series of bank scandals examined during public hearings over the past week and a half, The Australian has learned.

Australian Securities & ­Investments Commission lawyers, whom royal commissioner Kenneth Hayne has given permission to appear, plan to make a submission after the first round of public hearings ends.

Reinforcing Mr Hayne’s ­interest, expressed during hearings last week, in the question of whether banks are willing to obey the law, the commission last night published a paper it ­requested from Treasury on the history of consumer credit law in Australia.

The paper traces an evolution of the law over the past decade that has included “a shift away from a consumer protection framework anchored in disclosure and conduct obligations to a more interventionist approach targeting specific credit lending practices and credit product ­features”.

In the current round of ­hearings, which is due to finish on ­Friday, the commission has heard evidence of the banks failing to meet their obligations to ASIC, including that NAB failed to report a home loan fraud ring among bank managers in western Sydney on time and that Commonwealth Bank-owned mortgage broker Aussie Home Loans did not tell the regulator about three brokers later ­convicted of fraud.

On Monday, counsel assisting the royal commission, Rowena Orr QC, suggested ANZ was breaking the law by failing to ­independently verify financial information passed to it by the mortgage brokers who write 60 per cent of the bank’s home loan business.

And yesterday, the commission heard evidence ANZ continues to ignore demands by ASIC that it compensate almost 3000 customers wrongly sold overdrafts.

It also heard about the bank’s decade-long failure to properly link mortgage accounts with other customer accounts, resulting in borrowers paying more interest than they should have.

In 2014, ANZ said it would repay $70 million to about 235,000 customers after a review of its Breakfree program discovered errors dating back to 2003.

The bank received first complaints about being overcharged in 2006 but did not mount a full ­investigation until 2010.

ASIC is one of 13 organisations — including all the big banks and sister regulator the Australian Prudential Regulation Authority — that Mr Hayne gave leave to appear in this round of hearings.

In his March 6 order granting leave to appear, Mr Hayne said the organisations would be ­allowed to cross-examine witnesses who gave evidence about their conduct and make written submissions after the round ­finishes about issues affecting them brought up during the ­hearings.

So far, the banks and regulators have been reluctant to intervene, and none so far has attempted to cross-examine any of the commission’s witnesses.

It is believed ASIC plans to make a written submission ­because the first round of hearings has raised issues about whether ASIC was kept properly informed by banks and what it did to ­regulate the credit sector.

However, it is likely to be ­guided by the priorities of the commission, which may not want ASIC to weigh in on topics on which it plans to return.

The conduct of CBA was again in the spotlight yesterday over a failure in its computer ­systems.

For four years, the nation’s ­biggest bank failed to detect an error that resulted in 10,500 ­customers getting an overdraft they potentially couldn’t afford, the commission heard.

Between 2011 and 2015, the bank’s automated system for ­assessing whether customers could afford an overdraft substituted a zero for housing expenses ­declared by the applicant and used a wrong, lower, number for other living expenses.

CBA executive general ­manager retail products Clive van Horen said this failure breached the bank’s responsible lending ­responsibilities under the law and should have been detected earlier.

In 2016, following an investigation by the corporate watchdog, CBA agreed to pay four infringement notices totalling $180,000 and write off $2.5m in overdrafts related to the breach.

The commission also heard ­details of an ANZ error affecting about 3000 customers the bank continues to refuse to ­compensate, despite demands by ASIC.

The bank pumped out hundreds of thousands of letters ­telling customers they had been “pre-approved” for a $500 or $1000 “assured overdraft” in late 2013 and early 2014.

ASIC issued five infringement notices, over five customers, to ANZ in March 2016.

In response to the notices, the bank paid penalties of $212,500. At the time, ASIC said ANZ “has co-operated with ASIC’s investigation”.

However, junior counsel assisting the commission, Albert Dinelli, yesterday produced a letter in which ASIC said it would be “appropriate for ANZ to undertake a review of the ANZ Assured facilities provided in order to remediate customers who ought not have been provided with the facility or only provided with a facility with a lower credit limit”.

ANZ responded that it was “not clear on the basis of such a ­remediation program”.

Bank executive Heang Forbes told the commission she wasn’t aware of anyone, including the five people named in ASIC’s ­infringement notices, receiving compensation.