Banking Royal Commission: Westpac most resistant of big four banks to obeying the law: ASIC memo

Westpac was the “most resistant” of the big banks to obeying the law and had “poor culture”, according to an ASIC memo.

David Malcolm from Westpac leaving the banking royal commission at the Federal Court in Melbourne. (David Geraghty/The Australian)

Westpac was the “most resistant” of the big four banks to obeying the law and had “poor culture” and weak risk controls, Australian Securities and Investments Commission staff told chairman Greg Medcraft in a May 2015 memo.

The financial services royal commission today heard details of a briefing note ASIC staff prepared for Mr Medcraft ahead of a meeting with Westpac’s chairman, Lindsay Maxsted.

It followed a lengthy dispute between the regulator and the bank over credit card increases Westpac (WBC) gave to hundreds of thousands customers without asking them any questions about their financial situation, in apparent breach of its responsible lending obligations.

According to ASIC data tendered to the commission, the mail-outs were immensely lucrative to Westpac, resulting in more than 247,000 customers accepting an increase and the bank reaping net profit of $23m between 2011 and 2014.

“Of the big four banks, Westpac appears most resistant to ASIC and the laws we administer,” ASIC staff told Mr Medcraft in the meeting briefing note.

“Across DCI’s [ASIC’s deposit-taking and insurance team] multiple dealings with Westpac, there is a sense that they only tell us about issues when they think we are likely to find out about them through other means, and that they are reluctant to give us any more information, eg in complying with notices.”

This is a reference to notices ASIC can send banks and other finance industry players requiring them to provide information.

“Across DCI’s multiple dealings with Westpac and unlike the other majors, Westpac continues to strenuously resist public outcomes despite ASIC’s consistent messages about the importance of transparency.”

ASIC’s staff gave as an example Westpac’s credit card increases. The regulator had in 2012 told the banking industry that recently introduced responsible lending laws required them to ask customers for information about their financial situation before giving them a credit card increase.

However, Westpac rejected ASIC’s position.

“Despite clear messages about our expectations of compliance with responsible lending requirements by credit card issuers, and in contrast to the other card issuers, Westpac refused to change its practices until faced with the very real direct threat of legal action,” ASIC staff told Mr Medcraft.

Staff told Mr Medcraft a September 2012 letter to the Australian Banking Association made the regulator’s position clear but “Westpac ignored this and didn’t bother to engage with ASIC in a discussion about this”.

“ASIC only found out by conducting our follow up review 15 months later.

“The business was able to overrule regulatory affairs/compliance, which is indicative of poor culture and weakness in independent control functions.”

Westpac now accepts it should have asked customers for financial information.

In 2016, it paid more than 3,400 customers who shouldn’t have been given a credit card increase some $11m in remediation.