Watchdog warns big banks

ASIC is talking with banks about the way they provide statements to customers who are in default on their loans.

Watchdog warns big banks

THE corporate watchdog has all but drawn the curtain on the regulatory soap opera involving off-balance-sheet or  "shadow'' bank ledgers, where some customers in default on their loans have alleged the big banks failed to provide them with a complete set of statements.

In a letter from the Australian Securities and Investments Commission to one of the 11 aggrieved customers, the watchdog says it is satisfied that the statements provided were a continuous record of transactions and not conflicting or contradictory.

However, in deference to its federal parliamentary oversight committee, which has taken a lively interest in the matter, ASIC says it is discussing the issue of shadow ledgers with the four major banks and the Banking Financial Services Ombudsman.

"We will report again to the PJC (the parliamentary joint committee on corporations and financial services) on the outcome of our discussions in the near future,'' the letter says.

Last June, the PJC, which was then chaired by Liberal Senator Grant Chapman, passed on the customer complaints it had received to ASIC for investigation.

Senator Chapman said in a covering letter that the committee was concerned that a number of banks continued to engage in practices that appeared to be  "seriously flawed'' in terms of best-practice customer relations.

He also said that allegations of malpractice and unconscionable conduct by banks suggested that a "systemic'' problem existed in the industry.

ASIC was urged to pay particular attention to two matters - the non-provision of bank statements and internal dispute resolution processes followed by the banks.

Shadow ledgers, which record the accumulation of a customer's debt when all or part of the debt has been written off for tax purposes in a bank's main ledger, has continued to dog the banking industry since a 2000 public hearing by the PJC was supposed to resolve the issue.

The committee ruled that withholding statements from customers in default aggravated an already fraught situation, making it more difficult for them to budget, refinance their loans and submit tax returns.

An undertaking to provide full statements to customers in default was described by the committee as a  "step forward''.

Last June, in response to Senator Chapman's letter, ASIC denied it had jurisdiction, saying it was not a core regulator of loans.

The watchdog said the simple failure to provide bank statements was outside its ambit unless there was misleading or unconscionable conduct.

ASIC had previously antagonised Labor members of the PJC by asking - on a number of occasions - to take on notice questions about the effectiveness of the banks' internal resolution processes.

New ASIC chairman Tony D'Aloisio decided to break with the past.

He took on the issue of the 11 customer complaints about bank statements, adding a further three, more recent cases that had come to the watchdog's attention.

Mr D'Aloisio also undertook to look into the concerns of Labor, which was then in opposition, about bank internal dispute resolution.

ASIC has yet to report back to the PJC, which will be reconstituted under a Labor chairman after the coalition lost the November election.

It is understood, however, that about half of the cases referred to ASIC by the PJC pre-dates its inquiry in 2000.

Overall, the watchdog, which examines 11,000 complaints a year, decided there was no evidence of the "systemic'' issue raised by Senator Chapman.

But the banking industry should not regard itself as in the clear.

Nick Sherry, who has ministerial responsibility for superannuation and corporate governance, said last May as Labor's financial services spokesman that Labor in government would require ASIC to monitor the effectiveness of internal and external bank dispute resolution.

It's clear that Labor wants more robust and timely systems in place.