Other Newspaper & Online Articles

Schmulow, A. D. & P. McConnell, “A Deposit Tax to Fill Canberra’s Coffers?”, Asia-Pacific Banking & Finance, (2015), published electronically.

Schmulow, Andy., “Financial Watchdogs Keystone Cops”, The Age, 2016.

Schmulow, Andy., “Financial Watchdogs Keystone Cops”, The Canberra Times, 2016.

Schmulow, A. D., “More Powers? ASIC Already Has the Tools to Pursue BBSW Manipulation Allegations”, Thomson Reuters Accelus, (2016), published electronically.

Schmulow, A. D. & P. McConnell, “Time For Royal Commission, Bankers”, The Age, 2016.

Schmulow, A. D. & P. McConnell, “Time For Royal Commission, Bankers”, The Sydney Morning Herald, 2016.

Schmulow, A. D., “UK Regulators Get Tough; ASIC Walks Softly”, Asia-Pacific Banking & Finance, 6 August 2015 2015.

Schmulow, A. D., “Who Will Be Doing What Under South Africa’s New ‘Twin Peaks’ Model”, Finweek, Vol. 2018, May 2018, 2018, pp: 34-35.

Schmulow, A. D., “Will Regulators Run the Banks?”, Asia-Pacific Banking & Finance, 19 May 2015 2015.

Twin Peaks is titillating SA banks and financial markets

by Dr. Andrew D. Schmulow

Business Day, (2018), published electronically.

SA is preparing the ground to migrate to a new way of regulating its banks and financial markets. Known as the Twin Peaks model, the decision has sparked debate, even controversy. So what is Twin Peaks? And what’s all the fuss about? The name Twin Peaks was adopted in 1995 by Michael Taylor, who at the time was an official with the Bank of England. The name was a riff on the popular US mystery horror television mini-series created by David Lynch. In a seminal paper published that year, Taylor set about unpacking the failings of the way banks and the financial markets were regulated in the UK. Regulation was based on a sectoral model — that is on the assumption that banks should be regulated separately from other kinds of financial institutions such as insurers. This model was used in most countries in the world at the time. It was applied in SA until April 1 2018. Twenty-three years ago Taylor argued that the sectoral model was no longer fit for purpose. It was an anachronism. A thr…

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Why Rigging Of the Bank Bill Swap Rate Hurts Everyone

by Dr. Andrew D. Schmulow

The Conversation, (2016), published electronically.

ANZ Bank’s alleged manipulation of the bank bill swap reference rate (BBSW) is Australia’s version of the LIBOR debacle.

The workings of BBSW, like LIBOR, make for a very complex story. BBSW is similar to LIBOR (London Interbank Offer Rate), in that it’s used to set rates on hundreds of trillions of dollars (yes, hundreds of trillions) worth of transactions, including interest rates on credit cards, student loans and mortgages.

Banks also use the swap rate to determine the cost of borrowing from one another. It is the primary interest rate benchmark in the Australian financial market, and in Australia in 2014-15, was a market worth some A$1.7 trillion. The Australian Securities and Investment Commission (ASIC) is alleging that by nudging rates, ANZ has been able to make illicit profits.

With LIBOR, evidence emerged that banks were behaving like a cartel, and the practice of rigging rates was very much one of business as usual, with senior management in on the deal. After the LIBOR rigging was uncovered in the US, Barclays CEO Bob Diamond, and Chairman Marcus Aguis both resigned.

The rigging by ANZ allegedly happened while former CEO Mike Smith was in charge. ASIC has already managed to impose penalties against Royal Bank of Scotland (A$1.6 million), UBS, and BNP Paribas (A$1 million) for BBSW manipulation. Although of course, these penalties are small change compared to the billions of dollars in fines imposed abroad.

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Why APRA’s IOOF attack was an epic fail

by Dr. Andrew D. Schmulow

Australian Financial Review, (2019), published electronically.

Much has been written about two recent court defeats suffered by ASIC and APRA, some of it facile. It is time to set the record straight.

Very briefly, the Australian Securities and Investments Commission sued Westpac, alleging reckless mortgage lending. ASIC lost. This was the judgment in which Justice Nye Perram opined that a borrower could remedy unaffordability by, for example, forgoing their Wagyu beef and shiraz.

The second involved the Australian Prudential Regulation Authority and directors of IOOF. In particular Christopher Kelaher, the CEO. He admitted before the banking royal commission that IOOF had used member’s money to remunerate members for errors caused by IOOF.

The Federal Court last week dismissed APRA’s case dismissed APRA’s case, calling it “unpersuasive” and ordering the regulator to pay costs.

Since then, everyone has been piling into ASIC and APRA, asserting they are equally hapless. They are anything but.

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What will a Royal Commission mean for consumers?

by Dr. Andrew D. Schmulow

The Sydney Morning Herald, 30 November 2017.

Our poor banks. At great pains to convince anyone who’ll listen that a Royal Commission (RC) is unnecessary, wasteful, redundant, a distraction. Their mouthpiece, the ABA, has attempted to scare Australians by saying it will lead to higher interest rates, and be bad for everyone’s super. Nothing could be further from the truth. Let’s debunk the myths one by one:

An RC will make banks look vulnerable, spook foreign investors, and lead to higher off-shore funding costs, which will have to be passed-on to consumers: Nonsense. Borrower-default risk determines funding costs. That risk is almost zero, thanks to an Australian government (ie taxpayer) guarantee. If the Australian government’s credit-rating was downgraded, then yes, funding costs would increase. Moreover, foreign investors might actually regard our banks as less risky if, thanks to an RC, they were more trustworthy. Plus, if banks are so worried about keeping rates low, maybe they wouldn’t have rigged Australia’s benchmark interest rate?

As above: Our banks are the most profitable in the world. Their return on equity is three times the European average – which also reduces their funding costs. But such high profitability involves gouging every borrower in this country. Every individual. Every business.

Your super will suffer: Nonsense. By being the world’s most profitable banks, they reduce profitability across every other Australian business. Those “other businesses” constitute the bulk of every super fund’s investments. It’s like petrol. Increase the price and yes, petrol companies make more money, but every other business makes less.

Everything’s under control, we’ve addressed our shortcomings: Another day, another scandal. And each time we are told “this one’s the last”.

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Also published in The Age.

Watching the watchdogs

by Dr. Andrew D. Schmulow

Financial World, (2018), published electronically by The London Institute of Banking & Finance in association with the Centre for the Study of Financial Innovation (CSFI).

In 1995, Michael Taylor published a report with the Centre for the Study of Financial Innovation entitled Twin Peaks: a regulatory structure for the new century. That began a conversation that attracted world interest. Taylor’s proposal – two “peak” regulators for the financial system, one for system stability and the other for market conduct and consumer protection – was adopted as government policy in Australia three years later, and in the Netherlands a couple of years after that.

Following the global financial crisis, Taylor’s model was widely regarded as having provided the best response. As a result, it was adopted in Belgium, Qatar, New Zealand, the UK and, most recently, South Africa. Both in theory and in practice, this bifurcation of responsibilities is the best method of dividing what are, at times, competing and conflicting goals.

But how this is transmitted – the implementation and the enforcement of financial regulations (the plumbing) – remains problematic. This is because of challenges that all regulatory systems share. They include regulatory capture, regulator fatigue and under-resourcing, political interference, inappropriate priorities, excessive discretion leading to a capricious regulatory environment, and the difficulty of predicting why the next financial crisis may develop. It can, as with the subprime disaster, grow from market misconduct and consumer abuse. Regulators, therefore, face the challenge of foreseeing the unforeseeable.

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Twin Peaks in South Africa: Aussie expert explains what all the fuss is about

by Dr. Andrew D. Schmulow

BizNews, (2018), published electronically.

South Africa is preparing the ground to migrate to a new way of regulating its banks and financial markets. Known as the Twin Peaks model, the decision has sparked debate, even controversy.

So what is Twin Peaks? And what’s all the fuss about?

The name Twin Peaks was adopted in 1995 by Dr Michael Taylor, who at the time was an official with the Bank of England. The name was a riff on the popular US mystery horror television mini-series created by David Lynch.

In a seminal paper published that year, Taylor set about unpacking the failings of the way banks and the financial markets were regulated in the UK. Regulation was based on a sectoral model – that is on the assumption that banks should be regulated separately from other kinds of financial institutions such as insurers. This model was used in most countries in the world at the time. It was applied in South Africa until 1 April 2018.

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This article was originally published on The Conversation.

Twin Peaks impacts the financial industry

by Dr. Andrew D. Schmulow

BusinessBrief / Bbrief, (2018), published electronically.

On 1 April, a new regulatory model called Twin Peaks was implemented in South Africa.

This will have a dramatic impact on the country’s future financial regulatory landscape. Many companies may not be aware that this model will have authority over every South African firm or business that offers a financial product or service.

The good news for consumers is that this will potentially create one of the most progressive and extensive consumer protection regimes in the world.

The Twin Peaks model, which was first adopted in Australia two decades ago, was so named because of the two peak regulatory authorities it creates:

  • One peak, termed the ‘system stability’ regulator, is charged solely with creating and enforcing prudential regulations, designed to prevent a financial crisis. During the global financial crisis, the strength of Australia’s financial system was attributed to this regulatory model.
  • The second peak is responsible for deterring misconduct and protecting consumers of financial products and services.
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Twin Peaks ‘Not Enough’

by Dr. Andrew D. Schmulow

The Herald [South Africa], 22 June 2016.

Without well-regulated banks, South Africa’s economy will not grow and develop. Without sound banks it may face a financial catastrophe. That could decimate the economy, impoverish a nation, wipe out the value of property and retirement savings, and cause millions to become jobless.

For these reasons South Africa is about to engage in the most far-reaching reforms to the regulation of its financial system since the abandonment of the gold standard in 1932. The goal is to provide a regulatory environment that will assure South Africa of a stable financial system, fit for purpose, and adequate to the needs of a globally integrated economy in the 21st century.

South Africa’s reforms are based upon the so-called ‘Twin Peaks’ model first adopted by Australia in the late 90s, and subsequently copied around the world, including in the UK, New Zealand, Qatar, and (independently) the Netherlands; and currently under consideration in a slew of other countries. The Australian model has become popular because of the perceived success with which Australia navigated the global financial crisis, and the strength and resilience of Australia’s financial system. In addition, there is a perception – only a perception mind you – that Australia enjoys good market conduct and that its banks are well regulated.

The Twin Peaks model uses two, peak government regulators. One is charged with ensuring good market conduct and consumer protection – the market conduct regulator. The other is tasked with ensuring a stable financial system – the prudential regulator. In South Africa the former will take the form of the Market Conduct Authority (MCA). The latter will be the Prudential Regulation Authority (PRA) – a division of the SARB.

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Also published in HeraldLive eEdition.

Twin Peaks – Taking the cost out of compliance

by Dr. Andrew D. Schmulow

BizNews, (2018), published electronically.

South Africa has now formally begun implementing the new ‘Twin Peaks’ reforms for the regulation of the financial system. This is one of the most far reaching since South Africa left the gold-standard in 1932 and DB & Associates, South Africa’s fastest growing management advisory firm, is assisting businesses to understand the immediate impact and prepare for the future. Based on the Australian Twin Peaks regulatory architecture, these reforms will encompass the latest research conducted, and insights gained, from the global financial crisis, on how to prevent financial crises and, critically, provide consumers with adequate protection.

The new Twin Peaks regulatory model has two tranches: (1) implementation of the Financial Sector Regulation Act (FSRA), and (2) the finalisation of the draft, and subsequent enactment, of the Conduct of Financial Institutions Bill (COFI). Together these will provide South Africa with the best regulatory architecture available. It is the only model that addresses, in chief, the conflicting impetuses of financial system stability and consumer protection.

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