EXTRA >> THE ANGER of small business directed at the behaviour of their lenders – particularly Australia’s biggest banks – is coming home to roost in a series of successful litigations by the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).

Yet for the businesses that have hit the wall since 2007 as a result of what has been called ‘predatory’ banking behaviour, and the families that have lost property, assets and life savings, it is a ‘too-late’ result that has taken a lamentable amount of time through existing channels. 

There is a cry gaining momentum – with some calling for a Royal Commission – from small business for fundamental change in banking behaviour and culture. Underpinning that call is the mood that even though the Australian public effectively secured the major banks through the Global Financial Crisis (GFC) with government guarantees, the big banks have taken advantage by buying out struggling financial organisations, integrating financial advice and insurance sales, and driving successive years of record profit at the expense of customer value.

While most of the larger fines and compensation agreements so far – such as the Commonwealth Bank of Australia’s (CBA) $80 million in refund packages to 216,000 of its Wealth Package customers for failures in applying fee waivers and interest concessions – are designed to make amends for poor practices during the GFC, many small business leaders claim the compensations and fines are menial compared with the damage still being done to Australian small-to-medium enterprises (SMEs).

With the big four banks combined declaring profits of more than A$30 billion combined last financial year – and growing – it is a serious argument compared with the results of ASIC and ACCC judgements so far.

CBA’s Wealth Package and Mortgage Advance Package offered concessions and benefits to customers including interest rate discounts and fee waivers for home loans, credit cards and certain loans and insurance. CBA overlooked supplying these benefits, which relied on manual staff inputs, and to the bank’s credit it owned up ahead of a potential ASIC whistleblower investigation. The bank insists the systems are now properly in place and the damage since 2008, about $80 million, has been compensated to affected customers.

That result is a good one – it’s how things should work in the banking sector when anomalies are discovered – compared with others that have come through ASIC and ACCC recently, and potentially others in the works.

Perhaps the worst behaviour so far has been the alleged manipulation of bank bill swap reference rates (BBSW), for which Westpac and ANZ have so far been accused by ASIC and taken to court.

ASIC recently started legal proceedings in the Federal Court in Melbourne against Westpac Banking Corporation for “unconscionable conduct and market manipulation in relation to Westpac's involvement in setting the bank bill swap reference rate in the period from April 6, 2010 and June 6, 2012.

ASIC reported the method by which the BBSW, the primary interest rate benchmark used in Australian financial markets administered by the Australian Financial Markets Association (AFMA), was calculated changed on September 27, 2013. ASIC’s charges against Westpac relate to conduct before that change.

ASIOC alleges Westpac traded in a manner intended to create an artificial price for bank bills on 16 occasions during the period under review.

ASIC alleges that on these days Westpac had a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower. ASIC alleges Westpac was seeking to maximise its profit or minimise its loss to the detriment of those holding opposite positions to Westpac's.

Further, ASIC has sought from the court pecuniary penalties against Westpac and an order requiring Westpac to implement a compliance program.

Earlier this year, ASIC launched action against ANZ Banking Group for allegedly rigging the BBSW on 44 days.

ASIC alleged in the Federal Court in Melbourne that ANZ also engaged in “unconscionable conduct and market manipulation” in relation to setting the BBSW from March 9, 2010 to May 25, 2012.

It is alleged that ANZ traded in a manner intended to create an artificial price for bank bills on 44 separate days during the period.

Like the Westpac case, ASIC is seeking declarations that ANZ contravened s.12CA, s.12CB and the former s.12CC of the Australian Securities and Investments Commission Act 2001 (Cth), s.1041A of the Corporations Act 2001(Cth) (Corporations Act), and s.912A of the Corporations Act, and wants pecuniary penalties against ANZ and an order requiring ANZ to implement a compliance program.

Prior to the ANZ and Westpac actions, ASIC investigated BBSW misconduct by UBS-AG, BNP Paribas and the Royal Bank of Scotland. ASIC accepted enforceable undertakings from those banks and those institutions also made voluntary contributions totalling $3.6 million to fund independent financial literacy projects in Australia.

ANZ is also being forced by ASIC to refund $5 million to 25,000 basic account holders for incorrect late payment and overlimit fees

ANZ admitted it failed to properly apply some fee reductions and fee waivers for customers who held an ANZ Access Basic account and who also held an ANZ consumer credit card or ANZ Everyday Visa Debit Card since 2007.

Similar to Westpac’s issue, the ANZ  failure arose as a result of breakdowns in the interaction between automated and manual processes, and in particular, the lack of reliability of some manual processes and controls. ANZ said it has since implemented a permanent automated solution with a system-based automated waiver, eliminating the need for manual intervention.

An Access Basic account is available to customers that meet certain criteria which include holding a Seniors Concession card, Pensioner Concession card, Centrelink Health Care card or a Repatriation Health card.

ASIC Deputy Chairman Peter Kell said, “ANZ’s Access Basic account is specifically designed for low income consumers who are unable to pay high fees. This matter highlights the importance of appropriately managing manual processes to apply fee waivers and discounts, and designing and maintaining robust systems to support such features.”

ANZ announced it intended to complete the remediation process by the end of April 2016.

Westpac has also agreed to pay out $1 million over four years to support financial counselling and literacy programs after ASIC pinged the bank for poor credit card limit increase practices.

ASIC was concerned Westpac failed to make reasonable inquiries about some consumers' income and employment status before increasing their credit card limit. In particular, ASIC was concerned that Westpac, in relying largely on its automated processes, was not making reasonable inquiries of individual cardholders, which is not consistent with the responsible lending obligations under by the National Consumer Credit Protection Act 2009 (the National Credit Act).

Westpac has committed to a number of steps to address ASIC’s concerns, including changing its credit limit increase processes; a  remediation program involving a review of credit limit increases previously provided; and engaging an independent external expert to provide assurance of the effectiveness of the remediation program. 

The recent ASIC action comes in the wake of moves against other financial institutions.

Bank of Queensland Limited improved its lending practices following ASIC’s concerns about the way it assessed applications for home loans. The Cash Store Pty Ltd and Assistive Finance Australia Pty Ltd failed to comply with their responsible lending obligations and the Federal Court awarded record civil penalties of $18.975 million.

Wide Bay Australia Ltd,  now Auswide Bank Ltd, made changes to its responsible lending policy as a result of ASIC’s intervention. ASIC has also tackled issues around interest-only home loans, releasing a special report to help credit licensees improve their lending practices by increasing their awareness of their obligations.

Compensation to customers of $4.5 million was part of the outcome from an ASIC-ordered independent review of ANZ’s OnePath branded companies.

ASIC said the ANZ Group self-reported the braches in relation to its life, general insurance, superannuation and funds management activities, which are operated through its wholly-owned OnePath group of subsidiary companies.

From early 2013 to mid-2015, around 1.3 million customers were affected by breaches, requiring refunds and compensation of around $4.5 million, rectifications and other remediation of approximately $49 million. Not all breaches required monetary remediation.

For example, 1,422 superannuation fund members had $28.7 million in contributions allocated to the incorrect super account of the member for a period up to 12 months. ANZ has now returned these funds to the correct accounts and provided more than $400,000 compensation for lost earnings and/or incorrect fees.

www.asic.gov.au

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FOLLOWING the vote in the Senate on April 18, the Road Safety Remuneration Tribunal (RSRT) will be abolished and the Road Safety Remuneration Act 2012 (Cth) repealed.

Legal specialists in the transport industry, Cooper Grace Ward, have reported the Bill abolishing the RSRT and repealing the Act is expected to receive Royal Assent on April 19, which means the RSRT and all orders of the RSRT will cease to take effect from the start of April 21, 2016. 

Cooper Grace Ward have provided the following background brief on this complex issue in  the transport industry:

The Contractor Driver Minimum Payments Road Safety Remuneration Order 2016

On December 18, 2015, the Road Safety Remuneration Tribunal (Tribunal) published its Contractor Driver Minimum Payments Order (2016 RSRO). The 2016 RSRO was to commence on April 4 2016 for a term of four years. It requires the payment of minimum hourly and kilometre payments for contractor drivers involved in the provision of distribution or long distance transport services. The term ‘contractor driver’ includes individual owner drivers and small companies where all vehicles are driven by family members of directors or shareholders. The 2016 RSRO also imposes compliance and audit obligations on parties in the supply chain.

Full details of the 2016 RSRO are discussed in Cooper Grace Ward’s legal alert dated February 4, 2016.

Applications to vary the Order

In March 2016, the Tribunal received 38 applications to vary the 2016 RSRO on various grounds including that:

• parts of the 2016 RSRO are ambiguous and not adequately defined;
• businesses would be unable to comply with the 2016 RSRO by April 4, 2016; and
• a delay in the commencement of the 2016 RSRO and the inclusion of transitional minimum rates would give the transport industry time to interpret, understand and comply with the Order.

On March 15 2016, the Tribunal heard the applications to the extent that they sought to vary the commencement date or to include transitional provisions in respect of its minimum payments. Consistent with the Road Safety Remuneration Act 2012 (RSR Act), the Tribunal prepared a draft variation of the 2016 RSRO for consultation. The draft variation included provisions:

• delaying the commencement date until January 1 2017; and
• allowing hirers to pay owner drivers ‘transitional amounts’ that periodically increase 12 months, 24 months and 36 months after the commencement date of the 2016 RSRO.

The Tribunal gave interested parties until March 21 2016 to make written submissions on the draft variation of the 2016 RSRO.

Altogether the Tribunal received approximately 800 submissions from owner drivers, hirers and industry associations, the majority of which supported delaying the commencement date of the 2016 RSRO until January 1 2017. The Tribunal scheduled three days of hearings over the Easter long-weekend.

Just days before the hearing, the Tribunal issued orders to more than 30 people requiring them to produce documents and attend the hearing in order to respond to questions arising from their submissions. The Transport Workers’ Union also required various witnesses to be available for cross‑examination.

Over three days of the Easter weekend, various applicants participated in the hearing and those who received summons were cross-examined in relation to those submissions. Cooper Grace Ward represented the National Road Transport Association (NatRoad), which was one of the applicants.

At the conclusion of the hearing, the Tribunal sought final submissions on a compromise position proposed by some of the applicants and reserved its decision in respect of the draft variation to the 2016 RSRO.

The decision

On April 1 2016, the Tribunal handed down its decision not to vary the 2016 RSRO. The 2016 RSRO would commence on April 4, 2016, as originally planned.

The Tribunal asserted that there was "significant support" for the making of the 2016 RSRO and suggested that there are a number of myths surrounding its application and operation. The Tribunal acknowledged that this confusion and uncertainty was in part due to the Fair Work Ombudsman inadequately performing its duties, but suggested that certain bodies and individuals had sought to "create and perpetuate myths" about the 2016 RSRO.

In deciding not to vary the commencement date, the Tribunal emphasised that the road transport industry has already benefitted from the three and a half month period between the making of the 2016 RSRO and its commencement date. This period provided affected parties with an opportunity to obtain sound advice and education about the 2016 RSRO.

The Tribunal also decided against adding transitional provisions to phase in its minimum payments clauses, arguing that this would only increase the compliance burden and complexity, making the 2016 RSRO less simple and easy to understand.

Stay

On Friday evening, April 1, 2016, following an application by NatRoad, the Federal Court in Brisbane handed down an Order in the following terms:

1.         Pursuant to section 39B of the Judiciary Act 1993 (Cth):

• (a) the order of the Road Safety Remuneration Tribunal of 18 December 2015 entitled ‘Contractor Driver Minimum Road Safety Remuneration Order 2016’; and
• (b) the order of the Road Safety Remuneration Tribunal of 1 April 2016, being the refusal to vary the order of 18 December 2015,
  be stayed until further order of the Court.

2.         All affected parties have liberty to apply to the Court on two days’ notice in writing.

3.         Costs be reserved.

4.         The matter be reviewed by the Court on a date to be fixed.

Other developments

On April 1, 2016, the Department of Employment released two independent reviews of the Road Safety Remuneration System, as well as its own discussion paper with options for reform.

The first review report, completed by Rex Deighton-Smith of Jaguar Consulting in April 2014, concludes that the Tribunal should "not continue in its current form".

The second review report, prepared by PricewaterhouseCoopers in January 2016, estimated that the two orders made by the Tribunal to date will have a net cost to the economy of $2.3 billion by 2027, even with safety gains factored in. The report concludes that there would be a significant net benefit to the economy and community if the Tribunal were abolished.

Both reviews found there is substantial regulatory overlap with work health and safety laws and other road safety regulation, and that the level of regulation is not justified based on the limited evidence as to the link between remuneration and road safety in the road transport industry.

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FOREIGN investment in Australia is operating under new restrictions from December 2015.

Analysis of the changes have identified how the Federal Government has moved to close loopholes and impose more realistic costs for international applicants, Mullins Lawyers director Tony Hogarth said.

“From December 1, 2015, the Foreign Investment Review Board (FIRB) has implemented new rules aimed at strengthening the regulation of foreign investment in Australia,” Mr Hogarth said.  

A significant change in the compliance regime has been the appointment of  the Australian Taxation Office (ATO) to regulate foreign investment in residential real estate, to improve compliance and strengthen the enforcement of the FIRB rules.

“The ATO now has the capacity to match its own taxpayer data with those from the states and territories relating to land titles, immigration, FIRB and AUSTRAC,” Mr Hobart said. AUSTRAC follows the movement of funds in and out of Australia.

Foreign nationals wanting to invest in Australia are also now required to pay an administrative fee before their investment application is processed. The fees apply for each application lodged from December 1, 2015.

Residential properties valued at $1 million or less now attract a $5,000 fee. Residential properties valued over $1 million have a fee of $10,000 then $10,000 incremental fee increases per additional $1 million in property value.

For commercial real estate there is now a $25,000 fee, while vacant commercial land attracts a $10,000 fee.

For proposed foreign investments in agribusiness, there are fees of $25,000, but that raises to $100,000 where the investment is greater than $1 billion. The agribusiness investment threshold is at $55 million to be indexed annually, but exceptions apply for some Free Trade Agreement (FTA) countries.

Agricultural land attracts fees of $5,000 to $100,000 and the threshold is at $15 million (cumulative) with exceptions for some FTA countries.

In addition, an administrative fee is now payable by developers when applying for advance off-the-plan approval. For developments of 50 or more residences, property developers can now apply for a new dwelling exemption certificate to enable them to sell new residential dwellings to foreign investors without the need to apply for FIRB approval.

The general ‘substantial interest’ threshold for acquisitions requiring notification has been increased from 15 percent to 20 percent, consistent with the Corporations Act 2001 takeovers threshold, Mr Hogarth said.

He said the ATO plans to establish a register relating to foreign ownership of residential real estate from July 1, 2016. The FIRB has already established a register relating to foreign ownership of agricultural land from July 1, 2015.

Significant changes have been made to the penalties, introducing civil penalties for the first time while previous criminal penalties have been expanded.

“Generally, the maximum ‘criminal’ penalty for individuals and companies has been increased to $135,000, or three years imprisonment, and $675,000, respectively,” Mr Hogarth said. 

He said ‘civil’ penalties cater for situations where a foreign person makes an acquisition without approval; a foreign person fails to comply with a condition of approval; a non resident acquires established residential property; a temporary resident acquires more than one established residential property; a temporary resident fails to sell an established residential property when it ceases to be their principal place of residence; and a temporary resident rents out an established residential property.

“By way of example, in the case of residential real estate, the maximum ‘civil’ penalty is the greater of 25 percent of the purchase price in addition to the relevant application fee, or 25 percent of the market value of the property in addition to the relevant application fee,” Mr Hogarth said.

“The civil and criminal penalties are now extended to third parties, who knowingly assist a foreign person to breach the FIRB rules. This raises the level of responsibility for real estate agents, lawyers and others involved in the sale of property to foreign buyers, to take care and provide proper advice in relation to the FIRB rules and requirements.

“Foreign investors and advisors need to be aware of their obligations and to abide by the FIRB rules to avoid incurring the significant penalties which may now be imposed,” Mr Hogarth said.

www.mullinslaw.com.au

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