By Sarah Danckert
The head of Australia's corporate watchdog has again sounded the alarm over Sydney and Melbourne's housing markets, saying they're in the midst of a price bubble.
Australian Securities and Investments Commission chairman Greg Medcraft issued the warning at the regulator's annual forum in Sydney where he also revealed the watchdog was still considering taking action against the Commonwealth Bank over the alleged rigging of a key interest rate.
His remarks came as Treasurer Scott Morrison flagged restrictions on interest-only loans for investment properties ahead of the May federal budget.
Just last week, Reserve Bank of Australia assistant governor Michele Bullock indicated a greater focus on ways to curb investor loans as house prices continued to rise.
ASIC chairman Greg Medcraft is cracking down on unrealistic valuations in financial reports. Credit: Alex Ellinghausen
"I've been saying for a while I thought it was a bubble, other people are catching up now," Mr Medcraft said on Monday.
Mr Medcraft said ASIC was working with the banking regulator, the Australian Prudential Regulation Authority, to mitigate the risks a hot property market throws up.
"We had a meeting and we focused on the housing market ... And there we have worked together on the responsible lending," Mr Medcraft said.
Recently, APRA introduced curbs on loans to investors to take some heat out of the major city residential markets.
"Clearly the issue with the housing market at the moment is that if you lift rates, that's a good tool, but you affect the rest of the market," Mr Medcraft said.
Trump election 'not all negative'
Mr Medcraft also said the election of Donald Trump as US President could have benefits for Australian financial markets in terms of improving local debt markets for big businesses.
"The election of Donald Trump may not necessarily be all negative for Australia. Next week, we're having a discussion about mutual recognition of debt markets," Mr Medcraft said.
Mr Medcraft has previously warned about Mr Trump's plans to roll back the financial regulation the US brought in after the global financial crisis through the Dodd Frank Act.
Ontario Securities Commission chair and chief executive Maureen Jensen said Canadian regulators were concerned about the repeal of the Dodd Frank Act.
"We are worried because we're seeing statements on Twitter every night about how regulations are going to be rolled back. Hopefully we won't see a large rollback," Ms Jensen said.
"Canada is really worried about the trade situation and we're engaging on that."
A considerable concern for regulators is the potential repeal of regulations governing how complex financial derivatives (also know as the over the counter derivatives or OTC market) are sold and how those sales are recorded. OTCs were a key element in creating the instability that led to the financial crisis.
However, Ms Jensen said she expected the US to retain its regulation of derivatives. "I don't see a full rollback," she said.
Cyber threat
Mr Medcraft also warned about the potential impact of cyber attacks on the stability of the financial system.
"A cyber attack is the next black swan event," Mr Medcraft said. A black swan event is a term used in financial markets to describe events that are impossible to foresee.
"The level of attacks that happen is enormous and there's a lack of transparency."
Rate rigging
Mr Medcraft also said the regulator was taking action against three of the big four banks – Westpac, ANZ, National Australia Bank – over their alleged rigging of the bank bill swap rate (BBSW) on behalf of the banks' customers. The bank bill swap rate is a key rate that helps banks set the interest rates they charge on business loans. The rigging of the market has been referred to in some quarters as a "victimless crime".
"It's not necessarily just complying with the law, it's about what is the right thing," Mr Medcraft said.
"Is it the right thing by your customer to manipulate the foreign exchange rate or the bank bill swap rate if your customer does not know you are manipulating the rate?"
Speaking to the media on the sidelines of the conference, Mr Medcraft said ASIC was still considering taking action against the Commonwealth Bank for allegedly rigging the BBSW.
Mr Medcraft said ASIC was within the six-year statute of limitations for bringing the case against CBA.
"There's still a lot of time there," Mr Medcraft said.
"We haven't settled yet, have we? If we can do that and have a non-court-based outcome, clearly I'd like to spend the money elsewhere," Mr Medcraft said.
"I won't compromise, it has to be the right outcome."
Monetary Authority of Singapore managing director Ravi Menon said the financial sector continued to be "plagued by egregious conduct", pointing to recent cases in Singapore where traders had been convicted and sentenced for rigging the Singapore Interbank Overnight Rate (SIBOR).
"Reform of the financial services industry will not be complete until trust and ethics are at the core of the sector. The industry must itself take collective responsibility," Mr Menon said.