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TOPIC: Jennie Paluka says "report McGarvie to IBAC"

Ravelo in Howard Bowles' American Express Case 1 year 9 months ago #3999

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The American Express Case that Howard Bowles says he discussed with a Mr Glenn Jones who was a landlord who was evicted somehow according to Bowles and Mcgarvie. Are landlords like Jones evictable from a place he sold, never occupied, and denies being evicted from. Jones says "cover up". BankreformNow says "cover up". Sgargetta says "cover up". Whistleblowers like Dennis Sgargetta say 'cover up".

. Legal Analysis and Commentary from Justia



Time for a New—and Effective—Antitrust
9 Aug 2018
Thomas Greaney and Samuel R. Miller
Time for a New—and Effective—Antitrust
Posted in: Business Law

Antitrust law has been much in the news recently, but not in a good way. A spate of articles from The Economist, The Atlantic, and The Nation, among others, talk about America’s “Monopoly Problem.” By this is meant that major sectors of the US economy have become highly concentrated, enjoying high profits and the ability to depress wages. Entry into these industries has become a trickle, protecting dominant firms from real competition.

As teachers of antitrust law, we must report—reluctantly—that antitrust law is partly to blame. What started in 1890 as a legal sword to keep markets competitive, antitrust law, as interpreted in court decisions over the last 40 years, has increasingly become a shield insulating large companies from competition. Influenced by hands-off economic thinking, courts too often assume that mergers will be benign, if not beneficial. Too often they downplay the effects of exclusionary practices that protect profitable incumbents from competition from new entrants in their markets or in adjacent markets.

Recent cases illustrate this problem. In the $85.4 billion AT&T/Time Warner merger, a trial court brushed aside current economic analysis as well as explicit documents explaining how the acquisition of a major content provider like Time Warner could strengthen AT&T’s ability to demand higher prices for popular content. Instead the court relied on the testimony of the CEOs of the merging firms who—with billions on the line—discounted the companies’ previous analyses of such a transaction. The result? The merger was approved, and although the court had been assured at trial that prices would not go up after the merger, AT&T immediately boosted rates for basic service offered by its DirecTV subsidiary. Approval of this merger touched off a multi-billion-dollar bidding war between Disney and Comcast for 21st Century Fox, which is expected to be just the beginning of a new wave of mergers in the entertainment industry. Further, this decision has been interpreted by some as a green light for vertical mergers in other industries as well.

The Antitrust Division has now appealed this decision, so there is some chance that it can be reversed. But undue deference to executives’ views of what’s good for the public and refusal to recognize modern economic analysis of transactions and restraints will not be rooted out with a single appeal.

In Ohio v. American Express, the US Supreme Court in a 5–4 decision concluded that contract terms imposed by AmEx on retailers prohibiting them from encouraging consumers to use credit cards which charged the retailers less in fees were not anti-competitive. In reaching this conclusion, the majority opinion found that 20 AmEx price increases to retailers over five years did not trigger a shift in the burden of proof requiring AmEx to prove the pro-competitive benefits of its exclusionary rule. In support of this surprising conclusion, the majority cited a spate of economic studies which, as Justice Breyer pointed out in dissent, did not actually support the majority’s decision.

The court’s uncritical—and misapplied—invocation of the economic literature on “two sided markets” will make it harder to apply the antitrust laws to attack exclusionary conduct by other “two-sided” platforms, such as Google or Facebook or Uber. The decision may also chill future antitrust enforcement in other areas. In the healthcare sector, for example, serious concerns are raised by anti-competitive vertical mergers such as the acquisition of physician practices by dominant hospitals and the proposed CVS/Aetna merger, which would combine the nation’s third-largest health insurer with the second-largest pharmacy benefit manager and second-largest retail drug store chain.

It is time for new antitrust thinking based on the best, most current economic analysis. As noted by the Seventh Circuit in a recent hospital merger case, courts should “respond to the academy’s evolving understanding” of markets. Courts must focus on the dangers of concentration and exclusionary conduct, and not make reflexive assumptions that vertical mergers are procompetitive or that markets will be self-correcting.

Notwithstanding the trial loss in the AT&T case, the Antitrust Division should not shy away from challenging anti-competitive mergers or exclusionary conduct by dominant firms. The FTC, with its unique powers to do in-depth studies, should expand its retrospective analyses of prior mergers and cases in which courts have approved exclusionary restraints. In this regard, the planned FTC hearings this fall are a good step. In prior years, thoughtful, retrospective FTC studies of healthcare markets helped reform litigation of healthcare mergers, much to the advantage of consumers and small businesses.

Finally, Congress should step up and consider improvements to the antitrust laws. The United States is unique among developed nations in relying on case-by-case court decisions to develop its competition policy. By contrast, many nations with advanced antitrust laws rely on administrative enforcement of detailed statutes and regulations to address potentially anti-competitive conduct. They use smart presumptions that recognize the dangers of things like exclusionary conduct, but provide that these presumptions are rebuttable, that is, defendants can offer evidence that in a specific instance such restraints should be allowed. In the US under current court interpretations, the possibility that a restraint might have some theoretical benefit results in a litigation burden that is virtually insurmountable, as illustrated by the AmEx case.

America’s monopoly problem is real. This not only adversely impacts consumers but also reduces opportunities for many workers. Now is the time to renew the antitrust enterprise using the best of current economics informed by a realistic appreciation for how markets actually work in the real world.

Posted in: Business Law

Tags: Antitrust, Legal
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Elliot's Expose on ABC TV 1 year 9 months ago #4000

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It all came true.

ASIC asks for Westpac BBSW rate-rig emails

Michael Roddan
12:00AM July 10, 2018
No Comments

The corporate watchdog has attempted to force Westpac to hand over any private messages sent between the bank’s most senior executives and its star traders, including Col Roden and Sophie Johnston, in the ­period after the Federal Court found the lender engaged in unconscionable conduct by trying to rig the benchmark BBSW rate.

An application to the court made by the Australian Securities & Investments Commission has asked judge Jonathan Beach to reveal further information out of the nation’s second-largest bank before the court rules on any penalties to slap Westpac with.

Westpac declined to comment as the matter was before the courts.
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Publican’s success back home
John Lethlean

The so-called fishing expedition by the corporate watchdog includes requests for documents outlining any disciplinary action or remuneration changes inflicted on nine separate Westpac employees in the wake of the Federal Court’s finding that on four separate occasions the bank “engaged in manipulative trading”.

The traders targeted by ASIC include Mr Roden and Ms Johnston, Daniel Park, Bryan Duignan and William Hosie, along with Westpac treasurer Curt Zuber, deputy treasurer Joanne Dawson, treasury risk manager Satruhan Sharma, and former treasury director Mostyn Kau.

ASIC has also asked for “any internal and external communications” from Westpac’s key management personnel “to or from” any of the named traders or employees or which discuss the courts’ findings. The key personnel list includes Westpac chief executive Brian Hartzer, divisional heads Lyn Cobley, Brad Cooper, George Frazis and the bank’s board directors.

In late May, Justice Beach found Westpac engaged in unconscionable conduct by trying to rig the benchmark bank bill swap rate on four occasions out of 16 alleged by the corporate watchdog.

While the court later this year is to decide on a penalty, Westpac and ASIC are able to submit information to assist Justice Beach’s decisions. The next hearing is scheduled for mid-October.

ASIC has also asked for any documents or material on Westpac’s training procedures or compliance systems to see if there was any change since 2016, when it started chasing banks over the BBSW rigging.

In a series of sensational lawsuits, ASIC achieved penalties collectively totalling $120 million out of Commonwealth Bank, National Australia Bank and ANZ over claims star traders in the banks’ market divisions were continually rigging the rate. Westpac was the only major bank not to settle the claims.

Westpac’s star trader, Mr Roden, whose expletive-ridden transcripts garnered attention during the trial, reportedly left Westpac following the court case. It is likely that Mr Roden was well remunerated by Westpac, as the trader generated $850m in revenue for Westpac over two years.

While the Federal Court threw out more serious allegations of market manipulation brought against Westpac by ASIC, Justice Beach found “by reason of inadequate procedures and training” the bank breached its financial service licence conditions.

ASIC launched civil penalty proceedings against Westpac in April last year, accusing it of trading in a manner designed to create an artificial price for BBSW 16 times between April 6, 2010 and June 6, 2012. At the time, the BBSW was set during a five-minute trading frenzy between 9.55am and 10.05am. The system has since been changed and is now run by the ASX.

ASIC claimed that Westpac, on the days it tried to rig the market, had a large number of products price-based on BBSW, and it tried to move the benchmark higher or lower to maximise its profit or minimise its loss, to the detriment of those holding positions opposite to Westpac’s.
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Jennie Paluka says "report McGarvie to IBAC" 1 year 9 months ago #4009

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ASIC thinks banks pay you when you when you go to pay the full and final settlement on a deal that required third parties in the USA to agree to hamper the FBI's arrests of CBA executives in the I.T unit in Sydney? Is anyone surprised the legal board advised Sgargetta to see the FBI and SEC?

Our Reference: 12916/18
5 June 2018
Mr D Sgargetta
By email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Dear Mr Sgargetta
Thank you for your correspondence dated 30 April 20
We summarise your main concerns, that NAB engaged i
n unconscionable conduct and
perjury, as follows:

NAB lied that they never produced a settlement paym
ent to you for $299,000,
when it was later shown that they did

NAB then tried to cover this up and claim that the
offer was made on a without
prejudice basis

Gadens lawyers, acting on behalf of NAB, made an of
fer that you refused to
sign as it included a “hush deal”
After we received your correspondence, we escalated
your concerns for our review
because you have previously raised these matters wi
th us. This letter sets out the
outcome of our review and further information to he
lp you.
Our review
We have looked at the information that you provided
and made our own inquiries, both
public and confidential as appropriate.
ASIC does not have the power to enforce the law sur
rounding perjury. We are unable
to consider this matter further.
We have considered your concerns that NAB engaged i
n unconscionable conduct and
our review confirms the previous decision not to ta
ke further action.
The Courts have set a high bar for establishing unc
onscionability. A general power
imbalance between the parties or a contract that fa
vours one party more than the other
is not sufficient to support a claim of unconsciona
ble conduct.
We are aware that in 2014 the Victorian Court of Ap
peal rejected your argument that
NAB engaged in unconscionable conduct under the Aus
tralian consumer law.
GPO Box 9827
In your capital city
05 June 2018
There is little regulatory benefit in ASIC consider
ing this matter further given the age
of the alleged misconduct and the Court outcome. Yo
ur dispute began in 2008 and your
various Court proceedings were during 2012 to 2014.
The remedies available for
unconscionable conduct expire after six years (some
three years).
Our Information Sheet 151:
ASIC’s approach to enforcement
sets out the factors that
we consider when selecting matters for formal inves
tigation. Our review outcome is in
line with this approach.
Next steps
We would encourage you to speak to a legal adviser
about your options. It will
ultimately be up to you to weigh the costs and bene
fits involved in pursuing this matter
We see that you are interested in making a submissi
on to the Royal Commission into
Misconduct in the Banking, Superannuation and Finan
cial Services Industry. Please
their website
for information about how to make a submission.
Finally, our records show that you have contacted u
s many times about your dispute
with NAB since 2010. Our inquiries are finished and
we do not intend to correspond
further with you about these same matters. This wil
l be the last time that we write to
you about your dispute with NAB.
Commonwealth Ombudsman
If you have concerns about ASIC’s management of you
r matter you can complain to
the Commonwealth Ombudsman. The Commonwealth Ombuds
man cannot review or
re-determine ASIC’s decision, but does have the pow
er to investigate misconduct, or
review the way a decision has been made to ensure t
hat it was done fairly and in line
with the law. The contact details for the Commonwea
lth Ombudsman are available at
Yours sincerely
Fiona Crowe
Misconduct & Breach Reporting
Assessment & Intelligence
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CBA Box Hill & Bill Jordanou's Nevada Casinos 1 year 9 months ago #4010

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The legal services board's cstomers in the SEC Whistleblower Scheme aren't happy with the bank staff.
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APRA ASIC at Royal Commission 1 year 9 months ago #4012

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mebusinessbanking royal commission


Banking royal commission live: superannuation hearings - 17 August
APRA asked about misleading communication
APRA's Helen Rowell appearing at the financial services royal commission in Melbourne. Picture: Supplied.
APRA's Helen Rowell appearing at the financial services royal commission in Melbourne. Picture: Supplied.

By Cliona O’Dowd and Chris Jenkins
28 minutes ago August 17, 2018

Latest updates

Criminal action flagged
Court action likely, $1bn to be repaid
ASIC’s Peter Kell appears
ASIC’s enforcement approach
ASIC’s Tim Mullaly appears
IOOF’s ‘fundamental misunderstanding’
APRA’s Stephen Glenfield appears
Heated exchange, APRA accused of ‘unacceptable outcome’
Colonial First State MySuper contraventions
The roles of ASIC and APRA
Behind closed doors
APRA’s Helen Rowell takes the stand

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is conducting the second week of its fifth round of hearings, focused on superannuation, in Melbourne. Follow the proceedings with us live.

AN HOUR AGO | 4.58pm
Closing remarks and adjournment

Mr Hodge begins his ‘brief’ closing observations.

Over the past two weeks we have heard evidence from seven directors of trustees, including four chairs and one deputy chair, two CEOs and nine other officers from within trustees or their service providers. Cumulatively the trustees are responsible for more than $627bn of funds under management. Those trustees are also responsible for more than $228bn of MySuper assets.

In the documents there are statements related to two case studies that the commission didn’t deal with orally: Sunsuper and Mercer. In relation to Sunsuper investigations concluded that the issue raised was of insufficient general application. In relation to Mercer the issue didnt go beyond something that had been addressed in a media report and Mercer sent a letter to the commission admitting that the conduct may fall below standards and expectations.

The evidence suggests that it may well be the case that Commissioner Hayne will conclude that some RSE licensees are not, as they are obliged to do, prioritising the interests of their members over the interests of others, Mr Hodge continues.

There are certain types of decisions that raise particular matters of concern: the decision to charge or allow others to charge fees which are then paid to advisers in circumstances where the member didn’t receive services; decisions to charge or maintain grandfathered commissions or other conflicted remuneration; the decision to delay the transition of ADAs to a MySuper product in order to entrench members in legacy products; the failure to become aware and intervene to prevent the charging of fees by a related party; and the failure to exercise proper oversight of the distribution channels of a trustee’s super products by related parties.

It may also be conduct that is in contravention of the best interests duty, Mr Hodge adds.

There was also evidence that some trustees may have failed to exercise their discretions independently of other influences or third parties. It would seem to follow that this ought not have occured. The outsourcing of services does not absolve the trustee of responsibility for what occurs in relation to the use and application of trust money.

A third issue that the commissioner may consider is that there was evidence that suggests there may have been problems with the ways in which some trustees communicated to members information that had the potential to confuse or mislead - disclosure about services fees, the reasons for transfer of ADAs to MySuper, information provided to members about commissions or the reasons for compensation.

Members of super funds, like most beneficiaries, are vulnerable and many are disengaged and disadvantaged by a lack of financial literacy. They are readily able to be taken advantage of. The evidence suggests this has occurred in some cases, Mr Hodge says.

In most industries, the forces of competition can be relied on to minimise improper conduct and effective regulation expected. However, for super, the disengagement of members may limit the effectiveness of competition. There are also questions about the effectiveness of regulation.

Mr Hodge goes through a list of questions to be considered, including whether structural changes of entities is desirable and whether legislative intervention is necessary. Another question relates to the types of relationships that present challenges to trustees and where the benefits to members are non-existent. Would it be desirable to end grandfathering? Is it necessary to strengthen laws to prohibit misconduct or is it simply necessary to enforce existing laws? What can be done to encourage regulators to act promptly on misconduct and is the present allocation of roles appropriate? Are there furter structural tweaks necessary to make it more likely that consumer interests are best served.

These questions and issues raised will be developed in the written submissions, Mr Hodge says.

Thanks for following along with us today. You can jump back to some of today’s hightlights using the links on the left of the page.

Today also concludes the superannuation hearings that have run in Melbourne for the past two weeks.

The sixth round of hearings, focussed on insurance, will again be held in Melbourne, and will commence on September 10.

We’ll be back live blogging the hearings so be sure to join us then.

AN HOUR AGO | 4.28pm
Criminal action flagged

Commissioner Hayne asks Mr Kell if he believes civil penalty proceedings are the best way to achieve public denunciation of misconduct.

“I think they can be a very effective means, but it might be that criminal proceedings are in some cases a more appropriate tool, or banning someone for life,” Mr Kell replies.

If criminal proceeding were to be launched that would have to be by the Commonwealth DPP and ASIC would have to submit a brief to the director of public prosections, Mr Kell clarifies for the commissioner.

Has ASIC given consideration to submitting a brief to the DPP in respect of the fees for no service matter? Yes, Kell replies.

Niether Mr Hodge or the commissioner wish to know more, and Mr Kell is excused.

AN HOUR AGO | 4.25pm
ASIC’s powers

Mr Hodge now moves to ASIC’s investigation of the transfer of accrued default amounts (ADAs) to MySuper.

In his written statement, Mr Kell said there was no systemic issue relating to ADA transfers. He seems to have changed his mind after hearing from the banks in the royal commission.

“Given the evidence I’ve heard in the last few days I would say more broadly I think there is a systemic issue but the work we undertook was to look at the transition to MySuper through the prism of adviser behaviour based on an anonymous complaint we received,” Mr Kell says.

On general deterrence, Mr Kell wrote in his statement that it was “most important” that misconduct and poor practices are broadly deterred. What kind of deterrence does he mean, Mr Hodge asks.

Civil or other litigation is a critical part of general deterrence, Mr Kell says. Deterrence can also be enforced through other mechanisms but he would agree that civil litigation is a key component.

He also said in his statement that if ASIC had a greater role as a regulator it would need to be provided with powers to enable it to carry out enforcement action.

Under the corporations act, ASIC can bring civil proceedings, Mr Hodge says. It also has powers to commence civil penalty proceedings in the case of director duties. ASIC also has the power to commence proceedings of unconscionable conduct. Yes, Mr Kell agrees.

Has ASIC commenced any proceedings against trustees for false or misleading representations or unconscionable conduct? Mr Kell doesn’t believe so, but would need to check.

Mr Hodge wonders: when Mr Kell says ASIC would need more powers, is that a statement that is easily reconcilable with the fact that it already has powers that it doesn’t exercise?

It would be desirable to clarify where conduct regulation should be appropriately housed, Mr Kell says. But ASIC plans to expand its approach to the regulation of the super sector.

Does Mr Kell think the way ASIC has gone about commencing or not civil penalty proceedings gives confidence that ASIC with expanded powers would exercise those powers?

I would point to the fact that we’ve already had some outcomes against the entities and have investigations under way that are likely to lead to litigation as an indication that ASIC takes these issues very seriously, Mr Kell says.

Within areas where it has been the sole regulator, much of ASIC’s work has been related to people’s superannuation, he adds.

2 HOURS AGO | 4.04pm
Grandfathered commissions

Mr Hodge moves on to NAB, NULIS and successor fund transfer. NAB came to ASIC to discuss the continuation of grandfathered commissions. NAB said its legal team advised NULIS could continue grandfathering commissions following the transfer and NAB won’t seek a “no action” letter from ASIC. Was that the end of ASIC’s consideration of this issue, Mr Hodge asks. Yes, Mr Kell confirms.

An internal ASIC email explains the issue raised by NAB and gives ASIC’s proposed response. It says NAB was testing ASIC to see whether the regulator had concerns. It outlines the legal issues that might arise. ASIC didn’t take the issue further.

Mr Hodge believes there’s an obvious consumer harm evident, since ASIC believes commissions are not good for consumers and rather than take any steps to investigate the issue, it didn’t do anything.

“We gave the issue some consideration but given that the law allows for changes to the parties to an arrangement, there was a high degree of uncertainty. We simply note NAB’s view and this was not seen as a matter where testing the law would be productive.”

The view from ASIC’s legal team was there was a considerable degree of uncertainty plus a view that given what the grandfathering provisions allowed, it was not a matter that warranted further investigation, Mr Kell adds.

ASIC contacted APRA in mid-2016 to talk about NULIS. ASIC didn’t raise the grandfathering commissions issue with APRA. With the benefit of hindsight, was this an acceptable outcome, Mr Hodge asks.

Mr Kell thinks it should have considered the issue and raised it with APRA. It will consider it, he says.

“I heard the evidence over the last few days from the witnesses from NAB and NULIS... I didn’t find some of the reasons put forward, as to why grandfathering should continue, as persuasive,” he says.

Mr Kell goes on to say the issue should be dealt with at a policy level.

One of the things he could have done in 2016 was to challenge the proposition that the trustee of a super fund was a platform operator and therefore able to granfather commissions, Mr Hodge says.

That should have been considered, Kell concedes.

2 HOURS AGO | 3.48pm
$1bn court action likely

NAB and NULIS said they wanted licence conditions and negotiations commenced. In October 2016 ASIC released its first fees for no service report. In it the amount of fees for no service in the case of MLC Nominees was $12.6m. Day after the report was released, NAB gave a presentation to ASIC.

That was the first time ASIC was told NAB’s fee for no service amount was $34m. This disclosure was the subject of much discussion earlier in the commission’s hearings this week.

An internal ASIC email after the presentation from NAB says “the revised figure is concerning because the company has known about it for 11 months and has only informed ASIC today. No formal letter and only a hard copy powerpoint presentation. We are questioning whether the imposition of licence conditions is sufficient in this situation.”

Nevertheless, the negotiation on licence conditions continued. Mr Kell says he wasn’t party to any deliberations on whether it was appropriate to continue the negotiations but his understanding is the licence conditions didn’t preclude further investigation of NULIS conduct. These investigations are ongoing, he says.

The first time ASIC raised the fee for no service issue was in mid 2015. No proceedings have commenced since then, we hear, but Mr Kell says there’s a “very high likelihood” of proceedings commencing in the near future.

He wouldn’t be surprised if the compensation ends up being in excess of $1bn, he says. So far the compensation paid is about $260m.

Has there been any work to assess what profit these entities have made by having deprived c customers of their money over an extended period of time, Hodge asks.

It’s a good question, Kell says, and ASIC will look at that but it hasn’t yet. It’s been a very resource-intensive process to get the money back to customers, he adds.

Another way of creating a disincentive would be to commence civil penalty proceedings, Hodge suggests. Kell agrees with this and says that has been one of the key issues ASIC has been considering as part of its investigations. He adds that we “can expect to see that”.

Have any limitation periods been missed? Kell can’t give an answer on that but it is firmly on ASIC’s mind as it prepares for further actions, he says.

2 HOURS AGO | 3.31pm
ASIC’s Peter Kell appears
ASIC deput chair Peter Kell. Picture: Supplied.
ASIC deput chair Peter Kell. Picture: Supplied.

ASIC deputy chair Peter Kell now takes the stand.

Senior counsel assisting Michael Hodge QC ask about steps he took in relation to NAB and NULIS.

In 2017, ASIC imposed additional licence conditions on NULIS following breach reports on the charging on fees for no advice and also changes made to total and permanent disability (TPD) insurance.

As a consequence of those breaches ASIC sought from NAB and NULIS either an EU or a change to licence conditions. It had originally sought that in July 2016.

ASIC’s preference was for an EU. It wasn’t a “strong preference”, Mr Kell says.

A licence condition was regarded as being less serious than an EU, Mr Hodge says. No, Mr Kell says. His view is they would achieve a similar outcome and in some cases licence conditions can be more onerous, he says.

Mr Hodge brings up a letter of August 2016 from ASIC to the chair of NULIS, Nicole Smith, and the chair of NAB wealth, Andrew Hagger, both of whom have appeared at the royal commission’s hearings. In it ASIC rejects a proposal put forward by NULIS and NAB on negotiated commitments. ASIC says an EU is an appropriate outcome for the matter.

Is that factually accurate, does that reflect ASIC’s position, Mr Hodge asks.

“It reflects that we typically obtain EUs more regularly than licence conditions in these circumstances but that’s not a reflect on one being above the other, it’s just the reality in terms of the outcomes we take in these cases,” Mr Kell says.

“You would not seek an EU unless you were prepared to take the next step,” Mr Kell says.

Mr Hodge thinks there are two ways ASIC considers EUs: if it has decided it’s in a position to commence a court action but it thinks it can achieve more with an EU; and an EU is something that it will look to it but, if the entity didn’t agree to it ASIC could commence a court proceeding.

3 HOURS AGO | 3.07pm
What would a court have said?

One thing ASIC did initially was to frame the EU a little more widely so that it would prohibit a “needs-based” discussion between the bank and customer, Mr Hodge says. Yes, Mr Mullaly agrees.

ANZ pushed back and said it would only agree to something that was similar functionally to the questionnaire it was already conducting.

Can you say you managed to get something in this EU that went beyond what you would get from a court proceeding, Mr Hodge wants to know.

“Yes, we’ve stopped the conduct. And we’ve got a monitoring process (in place),” Mr Mullaly replies.

ANZ paid a community benefit payment of $1.25m as a result of the action taken.

Letters went back and forth until June 2018 and the EU was signed in July 2018.

Did CBA try to call ASIC’s Mr Kell to see whether it could get a media release rather than an EU? Mr Mullaly thinks there was a meeting in which CBA indicated it didn’t want to resolve the matter through an EU.

CBA also tried to get the EU postponed until after the Westpac case was finished paid a community benefit payment of $1.25m.

What civil penalty might it have obtained had it gone to court, Mr Hodge asks. Mr Mullaly doesn’t know, but doesn’t think it would be significant.

Would it have been worthwhile to know whether a court thought that offering super in conjunction with a questionnaire about a person’s financial situation constituted personal financial advice, Mr Hodge asks.

It’s a matter that’s untested but the Westpac case before the court is a test case, Mr Mulally says.

Was there any assessment made as to whether there was consumer harm from being switched into ANZ and CBA super products?

“We were concerned there could be significant consumer harm,” Mr Mullaly says. “We did do some assessment as part of our preparation to try an ascertain whether there was real harm and the results were relatively equivocal.”

In order to know whether there was a significant body of loss it would be necessary to do a lot more analysis, Mr Hodge suggests. Yes, Mr Mullaly agrees.

So in the EU there’s no requirement on CBA or ANZ to undertake that analysis.

Do you think that super is a product that should be sold in bank branches, Mr Hodge asks.

I’ve never turned my mind to it, Mullaly replies. There’ a role to be played, it just needs to be done in accordance with the law, he adds.

3 HOURS AGO | 2.51pm
What did ASIC want?

If a court made an order, would there be any time to give effect to it, other than at once, Commissioner Hayne asks, somewhat pointedly.

That may be the case, Mr Mullaly replies.

You could have commenced proceedings and applied for an injunction for the conduct to stop, Mr Hodge argues. We could have, Mr Mullaly replies, but the advice received was that it wouldn’t go in ASIC’s favour.

ANZ has never admitted breaching the law, Mr Mullaly adds.

When does ANZ say they’ll accept an EU, Mr Hodge asks.

It was on May 27, 2017, Mr Mullaly replies.

ASIC’s guidelines are that it will only accept an EU in certain circumstances, including that it will achieve a better outcome than going to court.

What was the better outcome in this case?

“We thought we could get the conduct to stop. We thought we could get ANZ to take ‘two steps back behind the line’ in terms of giving advice, and could do it in a more timely way,” Mr Mullaly says.

What both banks did was to try to make sure the way the EU was framed was very specific about the conduct they agreed to stop, Mr Hodge points out. “Yes,” Mullaly agrees. ASIC had to push back on the banks wanting it to include what they could do, he adds.

It took two months for ASIC to reply to ANZ’s letter but Mr Mullaly doesn’t know what happened in that time. “We need to do better, we need to be quicker,” Mr Mullaly admits.

ANZ and ASIC exchanged correspondence through August and September 2017. In October 2017 ASIC sent a first draft EU to ANZ.

Commissioner Hayne interjects, asking why it took so long. “Surely you begin these negotiations with an understanding of what ASIC wants ... and you get a proper understanding of what you want by writing it down in the form of a draft undertaking, don’t you?”

“The process we took was to set out in letter form the high level matters we wanted them to agree to. One of the complexities of this matter is it turns on some clauses... and we were having negotiations with ANZ and CBA along those lines.”

Is it not an essential first step for a regulator to determine what it wants from a member of the regulated community, Commissioner Hayne asks.

“Well I think we did set that out, in letter form,” Mr Mullaly replies.

3 HOURS AGO | 2.35pm
A successful application of the regulatory process?
ASIC's Tim Mullaly. Picture: Supplied
ASIC's Tim Mullaly. Picture: Supplied

In August 2015, the date for action to be taken by the project team was pushed back until November 2015. Eventually ASIC commenced a proceeding against Westpac in December 2016. At the beginning of 2017, it continues to engage with CBA and ANZ. It told the banks it believed they had contravened the law.

In April 2017, ASIC drafted a concise statement to commence proceedings against ANZ. A statement was not drafted against CBA at that time, Mr Mullaly says, because there was “more movement” by CBA in relation to its concerns.

“CBA were willing to put out a media release,” Mr Hodge suggests. We didn’t consider that offer was satisfactory, Mr Mullaly says. Ultimately both indicated they were willing to enter into an enforceable undertaking (EU).

By February 2017, ASIC was looking to settle a statement of claim against ANZ in the following month. Ultimately that became the concise statement, Mr Hodge says.

Had you drafted the statement with the intention of commencing [court] proceedings, Mr Hodge asks.

The intention of the statement was to ensure ANZ were aware if we werent able to resolve the matter outside of court, that we would go to court, Mr Mullaly says.

Mr Hodge repeats the question and we hear that the statement was a tactic ASIC used to try to get ANZ to agree to an EU.

“I feel like we might be at cross purposes,” Mr Hodge says.

He brings up an email from ASIC to ANZ in May 2017. The concise statement is attached. It says ASIC intends to commence proceedings and that if ANZ was willing to admit contraventions of the act it should reply to the email. “So this was a bluff, was it,” Mr Hodge asks.

“If they wanted to go to court, we would go to court,” Mr Mullaly says. This is part of a process. We needed ANZ to understand that we were serious.

Mr Hodge’s tone becomes more urgent.

“Do you think financial institutions might take ASIC more seriously if, when it drafts a concise statement and says it’s going to file it, it does it?”

“Well, we do that all the time,” Mr Mullaly says. “We would have filed if we hadn’t got the response we wanted. And we got the response we wanted.”

Mr Hodge goes to the response from ANZ on May 12. It was a “without prejudice” letter and shows that ANZ didn’t offer an EU.

ANZ claimed it was “surprised and disappointed” that ASIC was not going to complete the process that had been contemplated. It proposed a mediation to resolve the issue.

On May 15, ANZ’s general counsel sent an email to Mr Mullaly. He said he could imagine the pressure on Mr Mulally but asked that they have a final “chat” before ASIC commenced its prosecution.

“When the general counsel starts engaging in the process, we’ve got their attention,” says Mr Mullaly.

Mr Hodge appears bewildered:

“You’ve got their attention? Is that honestly what you regard as a successful application of the regulatory process?”

Mr Mullaly says he isn’t sure what Mr Hodge means. He may be alone on that point.

Why did you not commence proceedings on May 15 as you said you would, Mr Hodge asks.

“Because we had been contacted by ANZ and they had indicated they wanted to engage in resolving the matter.”

The investigation began in June 2014 and was resolved in July 2018. Surely you dont see that as a timely resolution, Hodge asks. “There was no guarantee that if we had’ve gone to court in May 2017 that we would be anywhere near resolving the matter,” Mullaly replies. “These matters take time through the court,” he adds, saying an enforceable undertaking had the potential to stop misconduct faster.

4 HOURS AGO | 2.13pm
Was Westpac a test case?

The misselling of mysuper products became part of ASIC’s wealth management project, the commission hears.

The start date of the project was September 2014. In an April 2015 board meeting for the project, ASIC stated a target of issuing proceedings by October of that year in at least one of the three cases against the banks.

The board met every month and at that time the target date for outcome was to issue civil penalty proceedings by the end of October 2015.

Does Mr Mullaly know if ASIC managed to institute any proceedings by the end of October 2015, Mr Hodge asks.

No, it did not, because matters were still under investigation.

The team was looking at a range of matters, including fees for no service and conduct by advisers, Mr Mullaly adds.

If ASIC felt that administering the questionnaire and then making a recommendation of a super product was contravention of the act, what evidence did it need to gather, Mr Hodge asks.

ASIC needed to understand the process that was taking place, so it needed evidence from customers and bank staff, Mr Mulally says.

The allegations that Mr Mullaly has outlined to the commission was that the process the banks admitted they used, contravened the act, in his view, Mr Hodge contends.

“The banks admitted to the conduct but they certainly didn’t admit that they were breaching the law, and they’ve never admitted it,” Mr Mullaly says.

But they admitted the facts, Mr Hodge pushes. And then you need to go to court to see if it’s a contravention, he says.

ASIC took the view that it needed to understand individual cases to see if personal advice had been given, Mr Mullaly says. The legal advice was there was a risk in taking the case to court.

“But you’re the regulator... there’s always going to be a risk that a court will not agree with you. Surely the fact that there’s a risk the court won’t agree with you isn’t a reason not to go to court, Mr Hodge argues.

The Westpac case is a test case, Mr Mullaly says. But it doesn’t involve a questionnaire followed by recommendation of a super product, Mr Hodge replies. Mr Hodge and Mr Mullaly argue about the differences between the Westpac case and the CBA, ANZ cases and whether Westpac constitutes a test case.

4 HOURS AGO | 2.06pm
ASIC’s Tim Mullaly appears

We’re back after lunch and ASIC’s senior executive leader of the financial services enforcement team Tim Mullaly takes the stand.

Senior counsel assisting Michael Hodge QC begins questioning Mr Mullaly on the enforceable undertakings obtained with CBA and ANZ.

ANZ, CBA and Westpac were identified as having sold super products to consumers through call centre staff or bank staff at bank branches, rather than through advisers. Westpac is presently the subject of a reserve decision in the Federal Court, so Mr Hodge won’t be asking about that.

In relation to CBA and ANZ, their conduct was concerned with bank branch staff selling the super products. The staff member would administer a questionnaire to a consumer and at the end the staff member may suggest other bank products and the super product.

A “delinking statement”, general advice warning, was to be made before discussing the super product. In practice, the questionnaire was given, the general advice warning given and then the super product was recommended.

What were ASIC’s concerns?

The branch staff would be giving personal financial advice without being trained or authorised to do so, Mr Mullaly says.

In 2012 and 2013, CBA came to ASIC and gave presentations to ASIC advising what its plans were. Mr Mullaly can’t comment on that, he wasn’t present for those conversations.

Mr Hodge asks if Mr Mullaly went back to look at the presentations when they were investigating CBA.

CBA had told ASIC it would use the “financial health check” questionnaire as part of the process.

In June 2014, ASIC commenced surveillance in relation to the conduct, the sales process. It had received a complaint that May concerning pressure sales within CBA, Mr Mullaly adds.

ASIC ended up issuing 42 notices in relation to CBA and ANZ and conducted 13 examinations in relation to CBA and seven in relation to ANZ, Mr Mullaly confirms.

5 HOURS AGO | 1.15pm
IOOF’s board’s ‘fundamental misunderstanding’

Mr Hodge reveals to the court that IOOF amended its reserve policy after the reserves had already been used to pay compensation to members. The 2013 version mentioned nothing of using reserves to pay compensation, but by 2015 it explicitly stated reserves could be used to pay compensation.

Did anyone at APRA notice this, Mr Hodge asks.

Mr Glenfield isn’t aware, he would need to check.

If Questor was responsible for the loss, it should have been paying for that loss rather than using the reserve, mr Hodge says.

“I think that’s a point that I’ve made to them,” Mr Glenfield says.

The members were disadvantaged because of the reserve’s depletion, but Mr Glenfield says members still had in their accounts the money they’re entitled to. So replenishing the reserve wasn’t an urgent matter, he’s suggesting.

Did Mr Glenfield ever respond to the “pub test” letter?

He didn’t accept IOOF’s view, he says to Mr Hodge.

Was it a breach to use reserves to compensate members?

Mr Glenfield says he’s not sure, and that he would need to take legal advice, but he thinks it’s not acting in the members’ best interests.

An internal APRA memo shows the regulator is concerned about the governance and conflicts management of IOOF. The APRA staff members were concerned, among other things, that IOOF’s board had a fundamental misunderstanding of its duties to its members, that IOOF directors had difficulties in identifying conflicts, that the IOOF board did not view compliance as an area that mattered.

It also raised the question of fitness and propriety.

Mr Glenfield brought these concerns to the board and says they understood their obligations as an RE, but not their fiduciary duties as a trustee to act in members’ best interests.

APRA has requested that IOOF split the RSE licensee board and IOOF has reverted back with its decision.

Mr Hodge has just been handed a letter IOOF sent to APRA this week confirming some of the changes requested were endorsed, while further discussions are required on one of the other requests.

Does APRA regard this as a successful intervention?

“I regard it as an ongoing matter,” Mr Glenfield says, but he raises the issue of the “dual hats” IOOF wears and its inability to manage the conflict.

“We’ve taken the view to drive them to get it into a long-term position that the members of IOOF will be given priority.”

“If we end up in a position with the RSEL being separated from the RE... from a long-term view that’s a successful intervention.”

Mr Hodge has no further questions and suggests to the commissioner that it may be a good time to break.

The commissioner agrees and the hearing is adjourned.

5 HOURS AGO | 1.02pm
ASIC staff warned against bias
ASIC Chair James Shipton appearing at a House of Representatives standing committee on Economics, at Parliament House in Canberra. Picture Kym Smith
ASIC Chair James Shipton appearing at a House of Representatives standing committee on Economics, at Parliament House in Canberra. Picture Kym Smith

Outside the commission, it’s been revealed that corporate watchdog ASIC’s staff that will be embedded in five of Australia’s biggest banks to oversee their conduct will be trained to maintain their distance from bank employees.

Australian Securities and Investments Commission chair James Shipton told a parliamentary committee in Melbourne that about 25 staff would be embedded across Commonwealth Bank, ANZ, NAB, Westpac and AMP. Mr Shipton said the starting point was for ASIC staff to be trained in maintaining professional scepticism ahead of spending months inside an institution.

You can read the full report here.

5 HOURS AGO | 12.54pm
Questor reserve policy wasn’t checked

In response, IOOF refused to replenish the general reserve funds.

In a letter sent to members at the time, IOOF said at no time had it received compensation requests from members and that it passed the “pub test”.

Mr Glenfield doesn’t agree with IOOF’s assessment, the commission hears.

In May 2017 an internal memo is sent to APRA’s escalation and enforcement committee. It says APRA is concerned that IOOF will continue to prefer the interest of its shareholders over members.

What happened to the specific breaches, Mr Hodge asks. Questor was referred to the enforcement committee. Legal advice came back that it was “less than clear cut”, recommending not to pursue the matter but to bring it into a broader review of IOOF.

Mr Hodge asks: Do you accept that for most regulators, not every case they will commence in a court will be clear cut?

Mr Glenfield accepts that, but says he also accepted the legal advice at the time.

In his statement, Mr Glenfield said Questor’s policy allowed for the reserve to be used for compensation. He also outlined the reasons it didn’t take action. One was that APRA didn’t have the power to direct the reserves be replenished; the second was that Questor’s policy allowed for the reserve to be used for compensation.

Did anyone check what the version of Questor’s reserve policy was at the time it was used to compensate members? No, Mr Glenfield replies.

He has never looked at the reserve policy.

5 HOURS AGO | 12.38pm
Members’ own funds used for compensation
APRA's Stephen Glenfield appearing at the financial services royal commission. Picture: Supplied.
APRA's Stephen Glenfield appearing at the financial services royal commission. Picture: Supplied.

A December 2015 letter sent to IOOF shows APRA raised a concern about two earlier incidents: one in relation to IIML and the other related to another Questor breach. The super members were again compensated from the reserves. APRA was questioning how IIML was acting in the best interests of the members.

APRA’s point was that if the company made a mistake it’s not in the interests of the members to use the reserve funds to compensate them rather than having the company compensate them out of its own money.

The CMT issue was recorded six months after this, but IOOF’s approach remained an ongoing concern for APRA, Mr Glenfield says.

There was a meeting with IOOF in March 2016, attended by Mr Glenfield. APRA believed IOOF appeared to operate its super fund within a silo and board and management appeared to make decisions to benefit shareholders over members.

“Part of what we were trying to do was to get the board and management to be more interactive with APRA,” Mr Glenfield says.

In July a letter is sent from an analyst to Mr Glenfield. It says IOOF’s decision to appoint two non-executive directors on the board was done to appease APRA and that IOOF did not intend to engage in genuine and critical consideration as to how it would better structure its governance going forward.

In December 2016, APRA sent a letter to Questor on the CMT issue. It says APRA believed the use of reserve money to compensate members was inappropriate and that acting in the best interests of the super fund members, Questor should use its own funds to replenish the reserve.

Was there an enforcement process in contemplation, Mr Hodge asks.

Mr Glenfield took a view that it wasn’t appropriate to use members’ money to compensate. So if they didn’t replenish it was considering an action to take. He says he was open as to the action to take.

5 HOURS AGO | 12.31pm
APRA’s Stephen Glenfield appears

The next witness, Stephen Glenfield, takes the stand. He is a general manager of the specialised institutions division at APRA.

Mr Hodge begins by asking Mr Glenfield about IOOF. In his written statement, he gave evidence about APRA’s dealings with IOOF and the Questor controversy.

Questor was a subsidiary of IOOF. It was the trustee of a super fund and the responsible entity for two investment management schemes: the IDPS-Like scheme and the Cash Management Trust. As the trustee it invested some of the super fund assets and IDPS Like scheme assets into the CMT.

In 2009, a portion of money was recorded as income rather than as an asset and distributed. Questor then tried to claw back the funds by reducing distributions being paid out of the CMT over a three-year period.

When did APRA first become aware of the issue? In 2016, we hear.

APRA then wrote to Questor about it. Questor then implemented its remediation approach. It reached a settlement with its custodian worth half of the amount it needed to claw back. It used the money to compensate members of the IDPS-Like scheme and the balance as well as the reserve to compensate members of the super fund.

Mr Glenfield agrees with Mr Hodge’s belief that the reserve is an asset of the fund. And the trustee hold the assets on trust for the members, so the reserve belongs to the members. (Mr Hodge had awful trouble getting IOOF to agree to this point when its chief executive Chris Kelaher was on the witness stand earlier in the week).

Mr Hodge asks if APRA’s concern was that, rather than use its own funds to compensate members, Questor used the reserve, which belonged to the members, to compensate them.

APRA had two concerns, Mr Glenfield says: with its “RE hat” on, it had distributed 100 per cent to the IDPS like. It may have had an obligation to balance the interests of the scheme and the CMT. And also from the position of the trustee, having received compensation less than the full amount they were not looking to get full compensation for members.

And this was the third issue of a similar kind APRA made in a period of just a few months.

6 HOURS AGO | 12.08pm
‘Is that an acceptable outcome?’
‘Surely it’s unacceptable from a regulator’s perspective?” Michael Hodge QC during questioning at the financial services royal commission. Picture: Supplied.
‘Surely it’s unacceptable from a regulator’s perspective?” Michael Hodge QC during questioning at the financial services royal commission. Picture: Supplied.

Mr Hodge goes back to the CBA call script.

“Do you agree that on its face, that it’s misleading?”

“I agree that it doesn’t provide complete information to enable them to make their choice or decision,” he’s told.

“And is that an acceptable outcome from APRA’s perspective?”

“It’s not desirable, I would say”

Mr Hodge is losing his patience now. “It’s ‘not desirable’? Surely it’s unacceptable from a regulator’s perspective?,” he says, quite incredulous.

“It would be preferable if there was full disclosure to the members,” says Ms Rowell.

For once Mr Hodge seems lost for words, other than to say he has no further questions.

Commissioner Hayne has a go now, asking Ms Rowell about APRA’s supervision of trustees.

APRA has no capacity to interrogate other parts of the entities other than the trustee, does it? Ms Rowell says it can and does do so.

The trustee asking the right questions is one thing, but if the flow of information to the trustee is controlled by other parts of the business, how can the trustee know what questions to ask, Mr Hayne continues.

It’s a practical reality that the information that comes to the trustee comes from its service providers, Ms Rowell says. That doesn’t mean the trustee can’t ask for more information or require independent review of the information provided to them.

Mr Hodge decides he does want another question, and asks Ms Rowell about the prospect of APRA directing a trustee to merge with another fund. Is it likely APRA would ever do that? “You couldn’t rule it out,” Ms Rowell says.

The likelihood of one of the trustees bringing the matter to court would be high, Mr Hodge suggests. So would APRA have to take the possibility of a court challenge into account, he asks. That would be one consideration, Ms Rowell confirms.

There are no further questions for Ms Rowell and she is excused.

6 HOURS AGO | 11.56am
Misleading call centre script

The documents that CBA provided to APRA included the call script and letter it proposed to use informing members of the issue. Ms Rowell hasn’t reviewed those documents, we hear.

Members are told they need to make an investment direction in order for contributions to be paid into their accounts. Mr Hodge suggests the letter is misleading. Ms Rowell seems to suggest that’s not the case.

Would someone within APRA have reviewed this correspondence before giving the okay?

Ms Rowell believes it was reviewed and deemed acceptable but she was not involved at the time. The same goes for the call script, she says.

Is it acceptable for CFS to make misleading statements to members, Mr Hodge asks. That would be acceptable, Ms Rowell replies, but she doesn’t have the full information available.

Mr Hodge points out that CFS acknowledged just days ago that some of the statements were misleading. Why did APRA approve them if they were misleading? Ms Rowell assures Mr Hodge that these matters are under discussion within APRA.

Mr Hodge brings up the call script that suggests to members that fees will increase for members if they don’t give an investment direction.

Was APRA aware that trustees were taking active steps to try to obtain investment directions rather than have ADAs transfer over to MySuper products? “We were aware that was occurring, that was part of the transition process,” Ms Rowell says.

Was APRA aware that many ADAs would have commissions embedded into them whereas MySuper products didn’t? Ms Rowell isn’t sure they were aware at the time.

Mr Hodge and Ms Rowell then get into a heated discussion on commissions and whether members had made a choice to be in an ADA before Ms Rowell eventually concedes Mr Hodge’s point.

Ms Rowell seems to suggests that it may be in a members’ interest to pay commissions despite no service being provided by an adviser.

She replies saying it can’t be looked at in isolation; the MySuper product needs to be looked at alongside the alternative products.

Mr Hodge points out that MySuper products have similar investment objectives but have lower fees. So how could that not be in the best interest of the members?

Did APRA have a concern about whether retail RSE licensees were acting in their own interests when they sought investment directions from members? Ms Rowell isn’t in a position to know whether there were any specific concerns at the time.

APRA does have concerns about the management of related party arrangements generally, Ms Rowell says, but not necessarily the ADA process in particular.

6 HOURS AGO | 11.36am
Colonial First State rectification

Mr Hodge brings up a letter sent in March 2014 from APRA to Colonial First State (CFS).

Was APRA encouraging Colonial to seek out investment directions, Mr Hodge asks.

“I don’t know that we were encouraging that, we were just setting out the different ways the breach could be rectified,” Ms Rowell replies.

The letter also said APRA wanted a speedy resolution to the issue. So when did APRA determine the issue was closed, Mr Hodge asks. Ms Rowell isn’t sure so Mr Hodge offers to help. He brings up a response from APRA in September 2017. It says APRA considered the item closed — three and a half years after the first letter was sent.

Is that “rectification completed in the short term”, Ms Rowell is asked

She says APRA was satisfied with the process in dealing with each set of contributions for each member and that it was done within six months each time. That was the process agreed at the time.

And was there an agreement that APRA wouldn’t take any enforcement action in respect of these contraventions, Mr Hodge asks. Ms Rowell says there was no explicit agreement but APRA and CFS agreed on a process that would resolve the issue.

APRA at the time suggested that the ADA transition for the other 60,000 for the First Choice Super product over to MySuper be accelerated. That would prevent further offences being committed. But CFS said it wasn’t going to do that.

Colonial said a number of issues would need to be resolved, Ms Rowell says.

Mr Hodge brings up the relevant email from CFS to APRA, saying the board didn’t approve bringing the timeline forward.

Why didn’t APRA take any enforcement action on the later contraventions?

Ms Rowell says she believes it would be because the agreed process for dealing with contraventions was implemented within the time frame agreed.

6 HOURS AGO | 11.27am
Colonial First State’s contraventions

Mr Hodge asks about APRA’s engagement with CBA’s Colonial First State about compliance with section 29WA of the SIS act.

Contravention of 29WA is an offence of strict liability, Mr Hodge points out. And for a contravention of that, how would it be prosecuted?

APRA would need to apply to the court for an infringement notice, Ms Rowell believes, but she’s not sure.

“It’s never happened that APRA has pursued a contravention of 29WA,” Mr Hodge states.

Apart from Colonial, were there any other entities that contravened 29WA, he asks.

“I believe there may have been some minor issues that involved 29WA but I don’t have the details,” Ms Rowell says.

She thinks the most significant was with Colonial but she’s not sure.

And the issue is that Colonial, between January 2014 and April 2014, contravened 29WA at least 15,000 times?

So the issue was that from January 1 2014 default contributions needed to be paid into a MySuper product and there was a particular division within Colonial RSE in which members made irregular contributions and there was no MySuper product in that plan. So when members made contributions there was a potential contravention of the act,” Rowell says.

Mr Hodge homes in on her use of “potential”: “When you say potential, it is a contravention, isn’t it?”

Yes, Rowell replies.

And APRA had warned entities that they had to pay default contributions into MySuper. And a trustee acting properly would put in place necessary systems but Colonial hadn’t done that and 15,000 members who’s default contrubtions didn’t go into a MySuper product.

After that, through until 2016 at least, Colonial continued to contravene the section? “There were smaller groups of members for which contributions were received,” Ms Rowell says.

Is it the case that every contribution not paid into a MySuper product is a contravention of the law, Mr Hodge asks. Ms Rowell believes that to be the case but isn’t sure.

Colonial gave updates to APRA on the contraventions. This was agreed with APRA, Ms Rowell says.

6 HOURS AGO | 11.25am
Regulatory roles

We move on to a paper by APRA and ASIC that Mr Hodge brings up.

The purpose is to try to clarify the roles of the two regulators in relation to superannuation.

It says APRA is responsible for ensuring licensees prudently manage their business and ASIC is responsible for RSE’s meeting their conduct obligations. Does that reflect accurately the roles of the regulators, Mr Hodge asks. “In broad terms,” Ms Rowell says.

In the section where it outlines the responsibilities of both regulators. Does it identify who is responsible for ensuring that the trustee acts in the best interests of members? The table on show to the court doesn’t express that point, Rowell says, but the summary at the beginning does.”

The summary says APRA is responsible for ensuring a trustee prudently manage their businesses.

If there was conduct a trustee engaged in that is not in the best interest of members, who would be responsible for that?

“Generally it would be APRA, unless it related to specific matters such as disclosure or advice or other elements which are under ASIC’s responsibility,” Ms Rowell says.

7 HOURS AGO | 11.02am
Sole purpose test

Mr Hodge asks about the sole purpose test. APRA could commence a civil penalty proceeding on that test but has never done so.

It hasn’t seen a situation that has been sufficiently serious to warrant that action, Ms Rowell says.

If a trustee is debiting money from member accounts and paying it to advisers who are not providing a service to members, is that consistent with the sole purpose test, Mr Hodge asks. Ms Rowell would need to consider that more fully she says, but that it would seem unsatisfactory.

This has been an ongoing area of investigation for ASIC. ASIC put out a report on it in 2016.

In the following two years APRA has engaged with ASIC, Ms Rowell says, but APRA does not want to intervene in ASIC’s process, Ms Rowell says.

ASIC’s responsibility is not for the sole purpose test and the trustee, Mr Hodge points out. Yes, Ms Rowell agrees. So it can’t be that the management of the issue should be left with ASIC. Ms Rowell argues she’s not saying that, that she’s waiting for ASIC to do its work before it sees if any further action is needed.

What about the question of the adequacy of the trustee systems to ensure the fees paid by members are being charged in exchange for services provided.

Ms Rowell says APRA wouldn’t look specifically at advice arrangements.

Could a trustee be acting in the best interests of its members if it doesn’t have systems in place to monitor that? In general it would be concerned if a trustee didn’t have systems in place, Ms Rowell says.

A trustee needs to make sure that the fees being debited are for advice related to super, Ms Rowell agrees. And if fees are being deducted for no services provided, that would mean they don’t have adequate systems in place, Mr Hodge asks. Yes, Ms Rowell says.

So has APRA taken any steps about the trustee’s conduct or future monitoring behaviour? The supervisors are dealing with those issues with ASIC on an entity by entity basis, she says.

7 HOURS AGO | 10.50am
Behind closed doors
APRA questioned over “behind closed doors” activities

Mr Hodge brings up the Productivity Commission’s criticism of the “behind closed doors” nature of APRA’s activities, and that it’s not effective for achieving general deterrence.

APRA disagrees with that observation, Ms Rowell says.

Do you agree that what APRA does publicly does not identify specific conduct of specific entities?

In general that would be the case, with the exception of EUs, which do become public, she says.

No trustee has been required to give an enforceable undertaking in the last 10 years, Mr Hodge points out.

What other public conduct does APRA engage in that would identify trustees? None, Ms Rowell concedes, but she says it’s more important for the industry to see the areas APRA wants to see changed and improved.

APRA’s activities are directed to trying to improve the stability of the trustees, Mr Hodge says. Ms Rowell disagrees, saying that’s not the case.

Mr Hodge asks if Ms Rowell agrees that commencing public enforcement action would be destabilising to a trustee. There is a risk that it may cause reputational and other issues that may make the problem worse, she says, but the impact on the members is what APRA is concerned with.

“The reason we take a behind the scenes approach is to try and get the issue addressed and if need be get the members moved to a different fund and entity without that being in the public domain and causing more adverse impact on those members.”

The adverse impact on the members would be what, Mr Hodge asks. If a significant number of members redeemed their funds quickly then it could drive worse member outcomes because the fund would be forced to liquidate assets at a lower value, Ms Rowell says.

Does APRA take that into account when deciding whether to take public enforcement action, Mr Hodge asks. Yes, Ms Rowell replies.

7 HOURS AGO | 10.51am
RBA ‘appalled’

Meanwhile, outside the commission, Ben Packham and Samanta Bailey report that RBA Governor Phillip Lowe has said he has been “incredibly disappointed” and “appalled” by the conduct of the nation’s banks exposed in the banking royal commission.

Dr Lowe told the House of Representatives economics committee today that the royal commission had highlighted deficiencies of trust, customer service and risk management in the conduct of the banks.

He said dealing with conflicts of interests in the banking sector must be a priority in the response to the royal commission.

You can read the full story here.

7 HOURS AGO | 10.40am
Potential litigation

Back on to Ms Rowell’s written statement. It has a chart that shows MySuper products have met their return targets. But there are big differences in the return targets, Mr Hodge says. Yes, Ms Rowell agrees.

Over the last few years, for its life cycle stages product, AMP has been decreasing its target return, Mr Hodge says. Ms Rowell wasn’t aware of that.

That decrease happens at the level of the investment manager and life insurance company and is then reported to the trustee. Is that an adequate arrangement, Mr Hodge asks.

It’s ultimately the trustee’s responsibility to make the decision on the investment strategy and the return targets, Ms Rowell says.

If a trustee doesn’t have contractual rights to insist on a different target, APRA would see that as unsatisfactory, she says. If it had contractual rights but no prospect of stepping in to step in to the relationship between related parties, that would also be inadequate.

In that case is the trustee acting in the best interest of its members? Ms Rowell repeats that it’s hard to give a specific answer to a general question but that APRA would “seek to understand the nature of the arrangement and the trustee’s actions”.

Has APRA formed the view within the last three years where a trustee is not acting in the interests of members? No, not specifically, Ms Rowell says.

If APRA formed the view that a trustee was not acting in the interests of members, what would its approach be? It would seek to understand the issue, it would form a view on an outcome that would address the concern and it would work with the trustee to provide that outcome, Ms Rowell says.

It could potentially commence litigation, she adds.

10.27: What about NULIS?

Mr Hodge goes back to Ms Rowell’s written statement and the “risk-based approach”, which is designed to identify areas of greatest risk and apply APRA’s resources to attend to these risks.

Ms Rowell’s statement seems to suggest that APRA is concerned with the stability of the system and the entities within the system as its primary focus, Mr Hodge says. Ms Rowell disagrees that that is what she said.

Mr Hodge brings up NULIS as an example. APRA regards NULIS as a well-functioning trustee.

“I would say we would have a view that they have operated reasonably soundly in a general sense,” Ms Rowell replies.

And is Rowell aware that before July 2016 a predecessor trustee invested all of the assets in the trust into investment-linked insurance policies issued by another MLC entity? She is generally aware of that. It is common for those relationships to exist, Ms Rowell says.

In relation to MySuper, the insurance company was using another related party to manage the assets and it was maintaining its profit at the expense of providing sufficient funds to the investment manager to be able to invest in unlisted assets, Mr Hodge says.

Ms Rowell ducks the question: “I don’t have sufficient familiarity with the details of those arrangements to be able to respond to that.”

Mr Hodge wonders if there’s any prospect that that would be something APRA is interested in.

“Yes,” Ms Rowell says. And as it becomes aware of how arrangements are operating in practice it will reassess its view in each case, she says.

What could APRA do about something like the MLC case?

It could engage with the trustee but “it’s very hard to make a general statement or response to that without having an understanding of the details,” she says.

If the issue didn’t present any risk to the stability of the fund and the trustee to meet its financial promises to members, would APRA have any interest in it?

“Yes we would,” Ms Rowell says, adding that the regulator has undertaken work recently to better understand the outcomes delivered to members and whether those outcomes are in the best interest of members in the long term.

7 HOURS AGO | 10.18am
Conflicts of interests

Mr Hodge asks about the conflicts of interest standard. By an entity having a detailed policy and register, does APRA regard that as the principles to be applied by the entity? Yes, Ms Rowell says.

It seems as if an RSE licensee can comply with this standard by making sure it has a detailed policy and register and in the register it has identified all of the interests. Is that right, Mr Hodge asks.

Yes but APRA would also have a view as to whether a policy and process was sufficient and adequate, Ms Rowell says.

Hodge asks: Are you familiar with the processes of AMP? Not in detail, no, Rowell says.

Do you know whether AMP’s policies and processes are regarded as adequate by APRA?

“I believe we have undertaken some reviews of those policies … we have made observations about where those policies and processes could be strengthened.”

Mr Hodge brings up a letter from APRA to AMP from January 2017. It’s concerned with a review of the business monitoring model. AMP replies back to the email indicating how it has responded to the review items. In early 2018, APRA replied saying it “effectively considers these items closed”.

Mr Hodge wonders: “There is a policy that AMP has in place that APRA is now content with but at a more fundamental level the trustee has entirely handed over control of the trust to others AMP group entities. Are you aware of that?”

Ms Rowell isn’t sure if APRA would characterise the relationship between the trustee and AMP group in the same way. She says there’s a trustee board and office of the trustee, they outsource the services and activities to the AMP Group and there are processes to monitor and review those activities.

How does APRA assess what’s going on with the outsourced providers, Mr Hodge asks.

APRA engages with the board about the information they receive. Is it adequate, how do they review and challenge what’s being provided to them.

APRA would also engage with management, Ms Rowell says.

8 HOURS AGO | 10.06am
Fit and proper tests

Mr Hodge asks if APRA has turned its mind to whether any individual is a fit and proper person at an RSE licensee?

“There have been a number of matters that have been raised with entities and individuals around behaviour that we were not happy with which leads to discussions internally about the nature of the concern, the seriousness of it and what the appropriate action is. That does raise questions around fitness and propriety so we would have turned our minds to that in a general sense,” Ms Rowell replies.

Is one of the concerns APRA has about having to apply to the court the cost involved in that?

“That is a consideration. I think our primary consideration is the outcome we’re trying to achieve … the removal of the individual from a responsible person role in the industry for a period,” Ms Rowell says. APRA can use enforceable undertakings to get the same effect, she adds.

Mr Hodge brings Ms Rowell to her written statement, in which she outlined some of the impediments on APRA seeking disqualification orders. She says the resources and expense of gathering evidence is one of the impediment and that APRA doesn’t have the power to recoup costs. She also mentions the legal cost and the length of time involved in court processes.

Mr Hodge asks: Both APRA and ASIC tend to raise as an issue that court processes take a long time. What is the basis of that judgment?

“Our previous experience in dealing with relevant tribunals and other court processes that deal with the wider financial sector,” Ms Rowell says.

But APRA hasn’t had any dealings with the courts in the super space in the last 10 years, we hear.

The hurdles for taking court action are quite high, Ms Rowell says, and the regulator has to have proof that there has been a contravention of the law rather than that there may be or could be a contravention of the law.

Disqualification of a person would be “at the very peak of the pyramid”, Mr Hodge says, so you would not expect that it would not be frequent that APRA would seek to disqualify somebody. “That’s correct,” Ms Rowell replies.

8 HOURS AGO | 9.56am
APRA’s Helen Rowell appears

APRA deputy chairman Helen Rowell takes the stand.

Senior counsel assisting Michael Hodge QC begins by asking Ms Rowell about how APRA approaches the regulation of the super industry.

“Does it take a different approach to regulating banking, insurance and superannuation,” Mr Hodge asks. In a sense, no, she says, though there are some nuances within each sector.

How do APRA’s principles-based standards relate to legislative prescriptions, he asks. If you meet the principles set out, then you would be expected to also meet the legislative obligations, Ms Rowell replies.

Actions APRA can take if an entity isn’t following the principles set out include heightened supervision, in-depth reviews and taking legal action if warranted, Ms Rowell says.

Can APRA ever say a super entity has contravened a prudential standard?

“That’s possible,” Ms Rowell answers.

And what are the consequences?

“It would depend on the matter but APRA could direct the institution to comply with the prudential standard. Its primary focus is trying to achieve the objective of the legislation and protect the interest of members.”

What about the “fit and proper” standard, Mr Hodge asks. APRA requires entities to establish a fit and proper policy if they don’t already have one. If they don’t comply it can take legal action but Ms Rowell isn’t sure what that action would look like.

The criteria for “fit and proper” are very general, Mr Hodge says. If an entity’s criteria was inadequate, then could APRA do something? Yes, Ms Rowell says.

As to the question of “Is a person fit and proper?”, how does APRA go about determining that? That requirement rests with the RSE licensee, Ms Rowell says, but APRA would review it as part of its supervision activity.

What if APRA formed the view that someone was not fit and proper?

“The first course would be to engage with the licensee, Ms Rowell says. If APRA wasn’t satisfied with the outcome it would pursue other avenues to address that.

One of the problems with that, Mr Hodge says, is the person APRA engages with at the licensee is the person who may not be fit and proper.

“We would engage with a different individual in respect of the assessment rather than the individual concerned,” Ms Rowell replies.

If there’s not an adequate response, what’s the next step for APRA? It would issue a “show cause” notice as to why it shouldn’t take further action, we’re told.

What if the response is “We think this person is fit and proper”, Mr Hodge asks. The ultimate action would be to disqualify the person and it would have to apply to the court to do that, Ms Rowell says.

That requirement has only in place since 2008. Before then, APRA disqualified 133 people. Since 2008 it has only applied to disqualify one person: one of the directors of Trio Capital. That issue was resolved via an enforceable undertaking.

9 HOURS AGO | 9.15am

Good morning and welcome to a big day at the superannuation round of the financial services royal commission.

Today we’re expecting some fireworks, with representatives from regulators the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) to face questioning.

Today’s witness list includes:

Helen Rowell, APRA
Tim Mullaly, ASIC
Peter Kell, ASIC

ASIC has already been in the news this morning, with The Australian’s Pamela Williams revealing a top level meeting between NAB directors led by chairm
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Fiona Bennett's APRA faces grilling 1 year 9 months ago #4013

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Treasury lashes corporate Australia, tells APRA to toughen up

Australian Financial Review Jul 26 2018 9:51 PM

James Frost

Treasury has delivered a strong critique of financial services companies, saying profits have been propped up by a lack of effective competition that led to a collective dulling of the senses for board members.

It also delivers an unflinching view of the banking regulator's preferred method of operation, saying it might be time to drop the co-operative approach in favour of taking a harder line against regulated firms.

The remarks were made as part of a response to a series of questions about misconduct by financial services companies posed by the Hayne banking commission.

Commissioner Kenneth Hayne asked for information about the culture of financial firms, the effectiveness of regulators and views about conflicted remuneration.

Treasury argues that while no financial system is free of misconduct, the Hayne inquiry has exposed serious failings worthy of consideration including persistent failures to meet legal obligations, delays in reporting breaches and resistance to compensating consumers

"Despite their conduct failures, many financial firms have continued to generate strong profits assisted by a lack of effective competition in the financial system," Treasury says.

"In these circumstances, boards seem to have had their 'senses dulled' to the significance of the misconduct by their firm and its employees, and shareholders have had little incentive to intervene."

The reference to "senses dulled" comes from the independent report commissioned by the Australian Prudential Regulation Authority into the governance, culture and accountability at Commonwealth Bank following the AUSTRAC debacle.

The options posed by Treasury as a response include direct regulation of corporate governance mechanisms, extending the banking executive accountability regime to a wider range of entities, and enhancing remuneration disclosure requirements.

Treasury notes the co-operative approach used by the regulator and its promises to apply "a greater supervisory intensity" towards repeat offenders.

"In light of the evidence emerging from the Commission, APRA's inquiry into CBA and its review of remuneration practices, APRA may need to continue to strengthen its work in relation to governance and risk culture."

Treasury says that as APRA prepared to implement the BEAR it may require a shift "towards enforcement" as the regulator's willingness to hold firms and individuals to account could have a significant impact on compliance.

Treasury acknowledges this shift would create additional funding costs and that while the regulator's funding levels have remained the same for almost a decade, in real terms the scope and intensity of its work has increased.
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