ASIC questions legality of bank rate hikes

ASIC questions legality of bank rate hikes

The corporate watchdog told a parliamentary hearing this week that the big banks could be in breach of the ASIC Act over the reasons given for hiking interest rates.

ASIC appeared before the House of Representatives Standing Committee on Economics yesterday (14 September) where chairman Greg Medcraft provided no opening remarks and instead launched straight into the inquiry.

Chairing the committee was David Coleman MP, who kicked off the questioning by raising the issue of recent rate hikes by the banks. He noted that some banks, in their public justifications for the out-of-cycle rate hikes, have named the regulatory impact but did not name any other factors.

Mr Coleman questioned if the interest rate increases were larger than could sensibly be justified by the regulatory impact.

He then asked ASIC chairman Greg Medcraft: "Would that concern you?"

"Yes, it would. I think what you are really saying is, are they profiteering on the announcement?" Mr Medcraft replied, before passing to ASIC deputy chair Peter Kell to elaborate.

"Yes, it certainly would concern us," Mr Kell said. "It would go in effect to, I suppose, whether the public justification or explanation for the interest rate rise was actually inaccurate and perhaps false and misleading, and therefore perhaps in breach of the ASIC Act."

The deputy chairman explained that ASIC is currently "looking at this issue" and will be working with the ACCC, which has been given a specific brief by Treasury to investigate the factors that have contributed to the recent interest rate setting.

"It is an issue we are concerned about," Mr Kell said. "We will have to look at any particular statement carefully. I would also ask if the committee has any particular statements they have concerns about?"

CBA blames regulator for rate hikes

David Coleman MP took the opportunity to read from a 27 June press release issued by the Commonwealth Bank of Australia (CBA) which informed the market of home loan pricing changes. It stated: "To meet our regulatory requirements, variable interest-only home rates for owner-occupiers and investors will increase by 30 basis points."

Mr Coleman said that there was "no wiggle room" in CBA's statement, which made clear that regulatory requirements were the sole reason for the rate hike.

"CBA has very clearly put on the record that it is to meet the regulatory requirement," he said.

"It is notable in this context that analysts who have looked at these rate rises have concluded that the rate rises will increase the profitability of the banks. Presumably, this is not the role of a regulatory change."

Mr Coleman said that it is important that the industry is aware and that bank executives are aware that "the ACCC has powers to interrogate these matters very carefully".

Back book repricing under scrutiny

APRA was grilled by the parliamentary inquiry earlier in the week, where Mr Coleman questioned whether CBA's and other lenders' back book IO repricing practices were "actually opportunistic changes" that had effectively used the APRA speed limits as excuses to garner profit.

He called on APRA chairman Wayne Byres to clarify whether lenders had put out "misleading" statements by using the APRA crackdown as reasoning for back book repricing.

Deflecting the question, Mr Byres said that APRA would wait to see what came out of inquiries by the ACCC and ASIC. He noted that ASIC would have "great interest" in the matter.

Source: The Adviser