Tuesday, 10 April 2018

Big banks get hammered in first round of Banking Royal Commission hearings

I am sure that the Turnbull Coalition Government was hoping that voters would not form opinions such as this when it set up the deliberately ‘hobbled’ Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

O’Brien Solicitors, blog post, 5 April 2018:

First Round of Banking Royal Commission Reveals Systemic Issues in the Banking Industry

Customers are falling victim to the misconduct of banks with evidence being presented at the Banking Royal Commission (BRC) of fraudulent conduct, approval of inappropriate loans and excessive interest rates. The first round of public hearings have finished with the big four banks (NAB, Westpac, ANZ and CBA) being scrutinised by the Commission over its inappropriate behaviour.

The big banks get hammered in first round of BRC hearings

NAB’s employee incentive scheme saw fraudulent conduct by its bankers making unsuitable loans, the dishonest use of customer signatures, and false documentation being provided to support loan applications. Even worse, staff in some branches accepted bribes to facilitate loans they knew were based on fraudulent documents. Whistleblowers called out the fraud, but the bank did not notify the regulator until months after they were required to.

The Commonwealth Bank of Australia has also been criticised for its brokers fees and commissions for home loans and associated CBA insurance products that customers purchased. Brokers failed to clearly disclose upfront, on-going fees and incentives to stop people paying off their mortgages sooner. CBA was also under fire after they admitted to waiting two years before reporting a problem with their personal loan insurance program that affected over 20,000 customers.

ANZ have also been scrutinised with the bank failing to check customers’ expenses before approving them for a home loan. Their car finance business, Esanda, was also found to have been undertaking dodgy practices before it was sold in October 2015. This included the inappropriate use of customer’s financial information and increasing interest rates for better commissions.

It was found that Westpac also had its own dodgy practices. Similar to the other banks, the commissions attached to Westpac employees’ approval of car loans has caused issues of inappropriate loans being made. It has also been found that the bank increased credit card limits without checking customer’s current employment status.

Systemic change required in the banking industry

It is clear that there is a lack of accountability mechanisms and internal controls to manage potential conflicts of interest and the detection of fraud within banks. Commission based incentive programs have resulted in the approval of inappropriate loans and fraudulent conduct. Customers are falling victim to greedy banks with higher interest rates and the misuse of their personal information. It is only now that the banks have been caught out that they are apologetic and pledging to change their practices. It is unacceptable that this has been occurring on a consistent basis throughout all banks, and requires a systemic change to be made in the banking industry.

The findings during the Banking Royal Commission’s first hearing indicate two key things. Firstly, commissions and employee incentives are a key contributor to misconduct. This needs to be regulated in some way. Customers should enquire about commissions and any associated fees before purchasing any banking services. Secondly, the industry regulator ASIC needs to implement proactive measures to monitor the practices of financial institutions. Many of the reported cases of misconduct were only made aware to the regulator years after, or even swept completely under the rug. They need to be prevented from occurring in the first place.

While this from the Australian Transactions Reports & Analysis Centre (AUSTRAC) CEO Nicole Rose via ABC News on 5 April 2018 would have been as welcome as seven day old fish heads in the prime ministerial letter box:

Australia's financial intelligence czar Nicole Rose says she is shocked at the depth of money laundering in the economy involving organised crime, child exploitation and drug importation.

"I thought coming from the Australian Criminal Intelligence Commission that I had a pretty good handle on serious and organised crime," she told the ABC's AM program.

"I didn't appreciate the depth and breadth of involvement with private entities and banks. I didn't appreciate how many industries it does actually touch.

"There's a misperception that money laundering is a victimless white collar crime that's probably just looking at tax avoidance.

"It has a massive impact on everyday life whether that's child exploitation, serious and organised crime or drug importation. It all involves money laundering." [my yellow highlighting]

In December 2017 AUSTRAC filed a further 100 alleged contraventions against the Commonwealth Bank amending the statement of claim in the current civil penalty proceedings:

AUSTRAC CEO, Nicole Rose PSM, said that the additional alleged contraventions were identified after the civil penalty proceedings were instituted through AUSTRAC’s ongoing investigation into CBA.

‘These allegations are very serious and reflect systemic non-compliance over approximately six years’, Ms Rose said.

AUSTRAC now alleges over 53,800 contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. 

Financial Review, 9 April 2018:

The financial intelligence regulator AUSTRAC has stolen the spotlight from Commonwealth Bank CEO Matt Comyn on his first day in the top job with allegations that the bank broke the law by knowingly opening transaction accounts for customers it had reasons to suspect of money laundering.

Among the transactions AUSTRAC says the bank ought to have known, or at least suspected, were not legitimate was $250,000 deposited by an Iranian salesman and a second unemployed customer and a $150,000 deposit made through a Russian Bank from company located in a known tax haven.

AUSTRAC's reply yesterday to CBA's defence of the money laundering allegations made it difficult for Mr Comyn to clear the air as he promised the bank would be more accountable and more transparent under his leadership…..

"We have been too slow to fix mistakes and we have failed to meet some important regulatory and compliance obligations. This is unacceptable," Mr Comyn said in a reference to the bank's fraught dealings with regulators including AUSTRAC, ASIC and APRA.

By late morning, however, AUSTRAC's new claims showed that the two parties were some way from settling the issue the bank has set aside $375 million to resolve, which relates to the regulator's claims it has repeatedly breached transaction reporting requirements.

"CommBank suspected on reasonable grounds that the opening of CommBank Accounts 78,79, 81, 82 and 84 were 'specifically generated for the purpose of laundering money'," AUSTRAC said yesterday.

"Commbank's failure to give the AUSTRAC CEO an SMR (suspicious matter report) in respect of its suspicion ... constitutes a contravention of Section 41 (2) of the Act."

The five accounts formed part of a group of seven that had $1.7 million deposited in them over four years. Among those to open and make deposits in some of those accounts were money launderers known as Person 66 and Person 67.

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