by Dr. Andrew D. Schmulow

Published electronically by Australian Financial Review (2019).

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, ASIC sued Westpac, alleging reckless mortgage lending. ASIC lost. This was the judgment in which His Honour opined that a borrower could remedy unaffordability by, for example, foregoing their Wagyu beef and Shiraz.

The second involved APRA and directors of IOOF. In particular Christopher Kelaher, the CEO. He admitted before the Royal Commission that IOOF had used member’s money to remunerate members for errors caused by IOOF.

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

by Dr. Andrew D. Schmulow

The Sydney Morning Herald, 26 March 2019.

The ABC has reported that our bank regulator, the Australian Prudential Regulation Authority, has contracted NIDA to teach its staff “presentation skills” – effectively acting lessons – to the tune of $430,000. Theatre patrons and merchant bankers are up in arms. Sure APRA is in some sort of glittering death spiral. But surely the blame for this is that a bunch of do-gooders have lined-up to kick APRA while it was trying to stay out of everyone’s way (well, everyone who’s a shyster). The kicking has been delivered by the Royal Commission (APRA doesn’t understand the law, much less enforce it), the Productivity Commission (APRA has been running a protection racket for the big four banks) and the IMF (APRA collects voluminous amounts of data, most of it useless).

Also published in The Age.

by Dr. Andrew D. Schmulow

The Conversation, (2017), published electronically.

Australian Prudential Regulation Authority (APRA) chairman Wayne Byers has made it clear the bank regulator will be cracking down on bank capital levels this year.

Bank capital reserves are a loss-absorber, designed to protect creditors if banks suffer significant losses. That protection, in turn, will – ostensibly – prevent panicked withdrawals by depositors, thereby preventing financial contagion and financial crises.

Byers has decided that Australian banks’ capital levels must be “unquestionably strong” in keeping with the findings of the Financial System Inquiry. But how much capital equals “unquestionably strong”? We don’t know.

What we do know is that the inquiry handed down that finding in November 2014. More than two years have passed and only now is APRA getting a wriggle on.

The problem is that, according to the IMF, when it comes to Tier 1 bank capital, this time last year Australia was ranked 91st in the world. That puts us close to the bottom of the G20, the OECD and the G8. Our position has fluctuated, but at no time during the preceding four quarters have we risen above 60th. Ranked above Australia were Swaziland, Afghanistan and even Greece. That sounds like, at best, unquestionably ordinary. Maybe even unquestionably weak. But definitely not “unquestionably strong”.

by Dr. Andrew D. Schmulow

Published electronically by Thomson Reuters Regulatory Intelligence, (2018).

This author argued consistently for a Royal Commission, and took what appeared to be a safe bet by predicting that what had been in the press was the tip of the iceberg.

Confession time. It was a guesstimate based upon a consistent and observable trend. It was not data-driven, and as a result was a monumental under-estimate. The Royal Commission has been a metaphorical bloodbath.

The evidence to date is of a state within a state, impervious to the law, with a compulsion to deny, trivialise, obfuscate and lie about how much had gone wrong. There were “mistruths” about what steps (if any) had been taken by way of remedies, whether clients had in fact been remunerated as had been asserted, including in cases where banks were under an enforceable undertaking to do so, or indeed even told they were eligible for compensation — sometimes 10 years after the fact.

Fraud, bribery, false documentation, forged signatures, impersonating customers, failure to verify customer income, failure to assess expenses, failures of internal controls and failures to report misconduct to the Australian Securities and Investments Commission (ASIC) is but a general list.

by Dr. Andrew D. Schmulow

The Conversation, (2018), published electronically.

The chairwoman and chief executive of AMP have resigned after the company admitted to charging for advice never provided and lying to clients and regulators. But no banking CEOs have been toppled despite the Financial Services Royal Commission unearthing instances of fraud, bribery, impersonating customers, failures to report misconduct to regulators and other poor behaviour.

Similar conduct in the United States has resulted in bank executives and directors being forced to resign. That this is not happening in Australia shows how the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) aren’t using their full powers to take action on the banks’ bad behaviour.

APRA already has the power under the Banking Act to remove someone from a bank board and install its own nominee. The recently enacted Banking Executive Accountability Regime has given APRA more power to remove directors and install new ones.

So ASIC and APRA are not bedevilled by a lack of power, but by a lack of willpower.

This article first appeared at The Conversation. Also published at Shedconnect, Property Observer and ABC News.