by Dr. Andrew D. Schmulow

News24, (2018), published electronically.

ON April 1, 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.

Consequently, this model creates clear and unequivocal goals that are separated between the two peaks. This is a core feature of Twin Peaks: a model that recognizes that the two peaks can have contradictory goals, and then creates the peaks as separate, but equal.

by Dr. Andrew D. Schmulow

The Conversation, (2015), published electronically.

Scandals involving Australia’s financial advice sector and the regulation of it have continued into another month, the latest chapter of which has involved NAB’s financial advice division.

But this is not the first time NAB has attracted attention for its behavior and the oversight of it.

There was the time when the Australian Investments and Securities Commission (ASIC) allowed NAB to review and massage ASIC’s own media statement about NAB malfeasance.

And the controversy when it was discovered senior lawyers from NAB had been allowed into ASIC, to work, observe, and no doubt given the chance, to advise, caution and warn. Followed by ASIC stating, on the record, that no NAB lawyers were allowed to infiltrate and contaminate its policy development branch. Only to be made fools of by their own evidence, that in fact NAB lawyers were present and working in the policy formulation space at ASIC.

Only when the problems at NAB were revealed was the public informed NAB had sacked 37 senior advisers for “failing to meet standards”.

This article first appeared in The Conversation. Also published at FatCat and MacroBusiness.

by Dr. Andrew D. Schmulow

Thomson Reuters Accelus, (2015), published electronically.

Africa is not a continent generally held up for its excellence in financial regulation but South Africa’s National Credit Act contains legislation the rest of the world would do well to take note of, particularly Australia.

Australia is grappling with a number of retail regulation issues at the moment around predatory and reckless lending practices. Payday lenders in particular are under fire, having been discussed several times in the Senate and awarded the 2015 “Shonky” award by consumer watchdog group Choice for their tendency to ‘sneak around government restrictions.’

Rent-to-buy schemes are also in the spotlight, with the Senate last month passing legislation placing such schemes off-limits for the financially vulnerable living on welfare payments.

While these examples are quite micro in terms of the broader economy, the underpinning philosophy of protecting the vulnerable from financial predation is extremely sound. The most stunning example of a failure in this regard was the financial crisis of 2008, where extraordinarily reckless lending in the United States almost led to the financial collapse of the Western world. Not to mention the social responsibility that regulators have to protect the weakest members of the economy.

So where does Africa fit? Well, it happens that South Africa’s regulatory treatment of lending practices sets a visionary framework. Not just for preventing unsavoury lending, but also stopping credit and asset bubbles from forming in the first place.

by Dr. Andrew D. Schmulow

Money Management, (2014), published electronically.

Andy Schmulow argues that the controversy surrounding ASIC and its handling of the Commonwealth Bank have seriously damaged the financial planning industry and left few people deserving of any real credit.

The scandal engulfing the Commonwealth Bank (CBA) and the Australian Securities and Investments Commission (ASIC) does no one any good – least of all financial planners who work hard to serve their customers, and who scrupulously put their customers’ best interests first.

The facts become more tawdry with every passing day. ASIC has failed demonstrably in its remit, and has let down the Australian public badly.

First, ASIC failed to act upon the voluminous information provided to it by whistle-blowers, who placed themselves and their careers at risk. Second, ASIC failed the victims of the CBA financial planning division, who were desperate – precisely the people that ASIC was created to protect. Third, ASIC allowed itself to be misled by CBA as to whether there was a problem at all.

For a Commission charged with investigating malfeasance, to have placed such faith in a bank, where there was prima facie evidence of criminality, is both depressing and pathetic. Under questioning, an ASIC deputy commissioner conceded he was concerned that legal advice to victims would be prohibitively expensive for the CBA! Not, mind you, concerned with the costs to consumers of CBA fraud.

by Dr. Andrew D. Schmulow

Thomson Reuters Regulatory Intelligence, (2017), published electronically.

The Australian Prudential Regulation Authority (APRA) announced this week it will convene an independent prudential inquiry into the Commonwealth Bank of Australia (CBA). The inquiry will focus on governance, culture and accountability frameworks and practices at the bank and report back within six months.

To this end, APRA will be able to rely upon Prudential Standard CPS 510, an enforceable standard that “sets out minimum foundations for good governance of an APRA-regulated institution”, such as CBA. Compliance with the standard in question is compulsory.

The timing, however, seems questionable, and for a couple of reasons. These include the fact that CPS 510 was promulgated on January 1, 2015. Since then APRA has had opportunities to use this standard to investigate an ever-growing list of scandals and incidences of potential governance failures.

These include significant examples of poor governance — including illegality, in Commonwealth financial planning, unreasonable denial of life and permanent disability claims at CommInsure, charging for financial services that were never provided, sale of credit card insurance in inappropriate circumstances (such as unemployment insurance to people already unemployed), CBA staff found complicit in running an A$76 million Ponzi scheme, and then the money laundering scandal which broke almost three weeks ago.

The scandals affecting customers involve tens of thousands of customers, and remediation is running into hundreds of millions of dollars. The number of alleged anti-money laundering (AML) breaches exceed 53,700 breaches, in amounts that were eye-watering.