Bankers face public grilling by ASIC on responsible lending practice

ASIC plans to use its powers to hold public hearings for the first time, forcing bankers to detail their responsible lending practice.

ASIC chairman James Shipton. Picture: Hollie Adams

The corporate regulator plans to use its powers to hold public hearings for the first time in its 21-year history, forcing bankers to explain the way they calculate whether customers can afford to borrow to buy a house as part of an inquiry into responsible lending practices.

Australian Securities & Investments Commission chairman James Shipton said the unprecedented use of the regulator’s power to hold public hearings would “robustly test some of the issues and views that have been raised in submissions” to it.

ASIC has been at war with the banks for more than a year over what steps they should take to verify whether customers can afford to pay back loans.

Much of the stoush has centred on the banks’ reliance on household expenditure benchmarks as a ready reckoner, instead of actual customer expenses — an issue that also received an airing at last year’s financial services royal commission.

At a lunch in Melbourne yesterday, Mr Shipton laid out ASIC’s priorities for the year ahead in the post-Hayne inquiry world. He said that in addition to the responsible lending probe, ASIC would also be swinging its enforcement muscle behind prosecuting “cases with a high deterrence value and where there has been egregious harm”, cracking down on shoddy insurance and trying to improve corporate governance at the big end of town, including the scandal-ravaged big banks and AMP.

ASIC will also focus on protecting vulnerable customers and will continue its work on cleaning up poor advice in the financial advice business, which has been at the epicentre of the earthquake of wrongdoing that has ravaged banking over the past five years, he said. It is also preparing to become the conduct regulator for superannuation, alongside the Australian Prudential Regulation Authority.

“We are prioritising enforcement cases which hold individuals accountable for governance failures in financial institutions and superannuation trustees,” Mr Shipton said.

“We are also conducting enhanced and intensive supervision of entities that are crucial to our financial system — particularly through our CCM (close and continuous monitoring) program that monitors the big four banks and AMP as well as our review of the corporate governance practices of 21 large listed companies.”

Mr Shipton said close and continuous monitoring was one of its key new supervisory practices, and would work alongside its new “why not litigate” approach to taking legal action against corporations and executives.

The number of ASIC investigations against the “big six” or their officers had soared by 74 per cent since February last year, Mr Shipton said — against at 21 per cent surge in the overall number.

“In everything that we do, we will consider harmful practices within the financial system, particularly where they impact those who are vulnerable (including our indigenous communities),” he said. “Importantly, we will take regulatory action to ensure consumers in financial hardship are treated fairly and that financial services providers act responsibly and with accountability.”

On insurance, he said ASIC was “looking to take enforcement action against entities and individuals who engage in the misselling of insurance products, particularly to vulnerable consumers”. He said ASIC was also ready to use its new product intervention powers, which enable it to ban financial products that might cause “significant consumer detriment” for up to 18 months.