It’s time for a royal commission into banking regulation


Pat McConnell, Macquarie University

The handling of recent financial scandals show that regulators are confused about what they do, or should do. And as a result the regulation of the financial system, which is vital to a strong functioning economy, is just not working effectively.

We can see the problem in the recent testimony to the House Economics Committee. Recounting the sequence of events that led the Commonwealth Bank to inform regulators of the alleged breaches of money-laundering legislation, CBA Chair Catherine Livingstone said:

We were having board meetings at the time I was being called to Canberra by the Treasurer. When the board meeting, which went over multiple days, finished, which was lunchtime on the Wednesday, I immediately phoned the other two regulators, ASIC and APRA.

This raises a raft of questions. Having known about the allegations of money laundering since 2015, why did CBA not inform the regulators until August 2017? Why did the treasurer warn CBA before CBA talked to the two regulators? When did the Treasurer first hear of the money-laundering breaches? And why did the treasurer not instruct AUSTRAC (an agency of the Attorney General’s department) to inform ASIC and APRA?

In a previous parliamentary hearing, Greg Medcraft, Chairman of ASIC, had said:

I met two days before with the chairman of the Commonwealth Bank, the chair of risk and the chair of the audit committee… There was no mention of what happened. Then I saw the announcement and, about a week later, the chair called me in to apologise. Timeliness and transparency are big issues in this one

So, either ASIC and/or APRA were aware of the allegations of money laundering at CBA and took no action until prompted by the treasurer, or the communications between the various agencies of government are not working as planned. Either way, this is no way to regulate a modern financial system.

Even more regulatory confusion

Just as he is due to leave his role as head of ASIC, Greg Medcraft managed to end two high profile cases with modest wins.

Both ANZ Bank and NAB have settled with ASIC for their parts in manipulating the BBSW intereset rate benchmark. Although the settlement remains to be approved by the Federal Court.

Westpac remains the hold out, and the prosecution’s case has opened in the Federal Court.

But in the euphoria at ASIC, a niggling question remains – what about the Commonwealth Bank?

For some time, Medcraft has warned that action against CBA had not been ruled out and that information was being gathered. Recently Medcraft confirmed that the regulator had “plenty of time” to take action against CBA.

This also raises a number of questions. Not least why ASIC has not filed claims against CBA or announced that there would be no action taken against the bank. If CBA has no case to answer then ASIC should come out and exonerate the bank and relieve its long-suffering shareholders.

But if CBA has even a minor case to answer, and the regulator has held off hoping that the bank would settle without going to court, then ASIC may have been much too clever for their own good.

As a result of a shareholder action following the alleged money-laundering scandal, ASIC is now looking at whether the CBA board “complied with continuous disclosure laws when it decided not to alert investors to the suspicious behaviour”.

This leaves ASIC in an extremely difficult position – looking at a possible failure to disclose the money-laundering scandal at CBA, while at the same time hinting that CBA may have done the same thing with BBSW.

But ASIC is not the only regulator to be operating in the dark. The latest Banking Executive Accountability Regime (BEAR) legislation only adds to the confusion on how best to regulate financial services.

When questioned in recent Senate Estimates about the regulatory impact statements that have been done for new BEAR legislation, Helen Rowell, deputy Chair of APRA, replied that she personally had “not seen them; I couldn’t say whether anyone else within APRA has seen them”.

This is despite the fact that APRA has been given an extra A$40 million over four year to handle the new legislation – for what, and where did this figure come from?

Again, this is no way to regulate a banking system. The confusion around what regulators do and how they do it, must be sorted out.

Where next?

The most obvious answer to clearing up this mess is to initiate a royal commission that looks specifically at banking regulation. In particular, what form a modern banking regulation system should take; which regulators should do what; what the responsibilities of parliament, ministers and regulators should be; and how regulators should share information and tackle common problems (such as banking culture).

Such a royal commission should concentrate on clearing up issues of regulatory philosophy, structure, legal requirements and administration. Whether or not there is an all-purpose banking royal commission, the failures in the current system have to be remedied.

Of course, the government has only got itself to blame for getting in this mess.

The government’s own Murray Inquiry into the Financial System made a recommendation that could have helped. The inquiry recommended the establishment of a new Financial Regulator Assessment Board (FRAB), which would:

advise government annually on how financial regulators have implemented their mandates. Provide clearer guidance to regulators in Statements of Expectation and increase the use of performance indicators for regulator performance.

Sounds sensible? Not to the government, as it chose to accept all of the major recommendations of David Murray’s inquiry except for this one.

And, instead of having one professional body that looks at the performance of regulators, there has been a nonstop procession of “independent” inquiries, by banks themselves, the banking industry and even regulators. No big picture, just a patchwork of unconnected recommendations. And undoubtedly more to come.

The ConversationAn opportunity missed.

Pat McConnell, Visiting Fellow, Macquarie University Applied Finance Centre, Macquarie University

This article was originally published on The Conversation. Read the original article.

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Why retirement village contracts need to be regulated like insurance


Timothy Kyng, Macquarie University

While you may think signing a retirement village contract is similar to buying a house or apartment, it isn’t. Retirement village contracts resemble insurance contracts more than purchase agreements, only they aren’t regulated like insurance products.

The lack of regulation increases the risk for retirees. They face considerable delays in receiving their payments when they leave, costs due to the delay, and the potential loss of all payment from companies that don’t need to meet the financial standards of an insurance company.

Most retirement village contracts provide the consumer with a combination of the right to reside in the retirement village (until death, incapacity for independent living, or voluntarily relocation) and an “exit payment” upon leaving. As both the amount and timing of this payment depends on the resident’s death or ill health, the payment is a de facto insurance payout.

This makes the retirement village contract a combination of the right to reside and a de facto insurance policy. But the insurance policy comes from companies that wouldn’t normally be allowed to sell insurance.

Retirement villages are mostly small private companies or not-for-profit organisations. This means they aren’t required to publish their annual financial statements, hold reserves, or have reinsurance arrangements like an insurance company. The consumer can’t be confident that the retirement village is financially healthy and able to pay out the exit fee, due to the absence of information about their accounts and financial condition.

Fees and more fees

There is a great variation in the structure of the fees that retirement villages charge – entry fees, ongoing fees and a so-called “deferred management fee”, which is an amount taken out of the money refunded to departing residents.

These fees can be substantial – the entry fee alone is often comparable with the cost of buying an apartment. Although the amount varies by location, one operator told a Victorian parliamentary inquiry the entry fee was equivalent to 80% of the cost of a house nearby.

A retirement village contract might have an entry fee of A$1 million, a deferred management fee of 6% of the entry fee per year of residence, and a maintenance fee of A$500 per month.

For a contract with a A$1 million entry fee, after five or more years of residence, the deferred management fee is A$300,000, so the exit payment is A$700,000. But the deferred management fee can vary greatly. It may be 10% per year for three years, or 3% for 10 years etc.

The exit payment can also include some share of the resale value of the apartment. But the retirement village needs to be able to pay out this exit payment.

The need for proper regulation

The assets held by retirement villages are almost all invested in real estate. This is risky, as they aren’t diversified and their assets can’t be easily turned into cash.

When a retirement village has to pay a departing resident their exit payment it may take a long time to sell their apartment, which could involve a loss on resale. This can also lead to delays in receiving exit payments.

After signing their retirement village contract, residents are also in a weaker bargaining position than a traditional tenant in a normal pay-as-you-go rental arrangement. This is because residents have already paid their rent in advance for the rest of their life, and it usually costs a lot of money to get out of these contracts.

In some retirement village contracts the resident may be forced to spend a lot of money on renovations – such as for a new bathroom and kitchen – so that the apartment can be sold and they can get the exit payment.

This issue is compounded by the complexity of the contracts, which can be hard for both consumers and financial advisers to understand.

This creates substantial risk for consumers, and the lack of a requirement to publish financial statements and related information makes it very difficult to assess the financial soundness of a retirement village operator.

If retirement village contracts are in fact insurance agreements, then they should be regulated differently – by the Australian Prudential Regulatory Authority and not by state governments, as is now the case.

The ConversationIf retirement villages were properly regulated then consumers would be better protected from failure of operators and better protected from delays and capital losses when they get their exit payment.

Timothy Kyng, Senior Lecturer, Department of Applied Finance and Actuarial Studies, Macquarie University

This article was originally published on The Conversation. Read the original article.

Legal Status Foreseen for Christianity in Buddhist Bhutan


Country’s religious regulatory authority expected to consider recognition before year’s end.

NEW DELHI, November 4 (CDN) — For the first time in Bhutan’s history, the Buddhist nation’s government seems ready to grant much-awaited official recognition and accompanying rights to a miniscule Christian population that has remained largely underground.

The authority that regulates religious organizations will discuss in its next meeting – to be held by the end of December – how a Christian organization can be registered to represent its community, agency secretary Dorji Tshering told Compass by phone.

Thus far only Buddhist and Hindu organizations have been registered by the authority, locally known as Chhoedey Lhentshog. As a result, only these two communities have the right to openly practice their religion and build places of worship.

Asked if Christians were likely to get the same rights soon, Tshering replied, “Absolutely” – an apparent paradigm shift in policy given that Bhutan’s National Assembly had banned open practice of non-Buddhist and non-Hindu religions by passing resolutions in 1969 and in 1979.

“The constitution of Bhutan says that Buddhism is the country’s spiritual heritage, but it also says that his majesty [the king] is the protector of all religions,” he added, explaining the basis on which the nascent democracy is willing to accept Christianity as one of the faiths of its citizens.

The former king of Bhutan, Jigme Singye Wangchuck, envisioned democracy in the country in 2006 – after the rule of an absolute monarchy for over a century. The first elections were held in 2008, and since then the government has gradually given rights that accompany democracy to its people.

The government’s move to legalize Christianity seems to have the consent of the present king, Jigme Khesar Namgyel Wangchuck, who is respected by almost all people and communities in the country. In his early thirties, the king studied in universities in the United States and the United Kingdom. Prime Minister Lyonchen Jigmey Thinley is also believed to have agreed in principle to recognition of other faiths.

According to source who requested anonymity, the government is likely to register only one Christian organization and would expect it to represent all Christians in Bhutan – which would call for Christian unity in the country.

All Hindus, who constitute around 22 percent of Bhutan’s less than 700,000 people, are also represented by one legal entity, the Hindu Dharma Samudaya (Hindu Religion Community) of Bhutan, which was registered with the Chhoedey Lhentshog authority along with Buddhist organizations a year ago.

Tshering said the planned discussion at the December meeting is meant to look at technicalities in the Religious Organizations Act of 2007, which provides for registration and regulation of religious groups with intent to protect and promote the country’s spiritual heritage. The government began to enforce the Act only in November 2009, a year after the advent of democracy.

Asked what some of the government’s concerns are over allowing Christianity in the country, Tshering said “conversion must not be forced, because it causes social tensions which Bhutan cannot afford to have. However, the constitution says that no one should be forced to believe in a religion, and that aspect will be taken care of. We will ensure that no one is forced to convert.”

The government’s willingness to recognize Christians is partly aimed at bringing the community under religious regulation, said the anonymous source. This is why it is evoking mixed response among the country’s Christians, who number around 6,000 according to rough estimates.

Last month, a court in south Bhutan sentenced a Christian man to three years of prison for screening films on Christianity – which was criticized by Christian organizations around the world. (See http://www.compassdirect.org, “Christian in Bhutan Imprisoned for Showing Film on Christ,” Oct. 18.)

The government is in the process of introducing a clause banning conversions by force or allurement in the country’s penal code.

Though never colonized, landlocked Bhutan has historically seen its sovereignty as fragile due to its small size and location between two Asian giants, India and China. It has sought to protect its sovereignty by preserving its distinct cultural identity based on Buddhism and by not allowing social tensions or unrest.

In the 1980s, when the king sought to strengthen the nation’s cultural unity, ethnic Nepalese citizens, who are mainly Hindu and from south Bhutan, rebelled against it. But a military crackdown forced over 100,000 of them – some of them secret Christians – to either flee to or voluntarily leave the country for neighboring Nepal.

Tshering said that while some individual Christians had approached the authority with queries, no organization had formally filed papers for registration.

After the December meeting, if members of the regulatory authority feel that Chhoedey Lhentshog’s mandate does not include registering a Christian organization, Christians will then be registered by another authority, the source said.

After official recognition, Christians would require permission from local authorities to hold public meetings. Receiving foreign aid or inviting foreign speakers would be subject to special permission from the home ministry, added the source.

Bhutan’s first contact with Christians came in the 17th century when Guru Rimpoche, a Buddhist leader and the unifier of Bhutan as a nation state, hosted the first two foreigners, who were Jesuits. Much later, Catholics were invited to provide education in Bhutan; the Jesuits came to Bhutan in 1963 and the Salesians in 1982 to run schools. The Salesians, however, were expelled in 1982 on accusations of proselytizing, and the Jesuits left the country in 1988.

“As Bhutanese capacities (scholarly, administrative and otherwise) increased, the need for active Jesuit involvement in the educational system declined, ending in 1988, when the umbrella agreement between the Jesuit order and the kingdom expired and the administration of all remaining Jesuit institutions was turned over to the government,” writes David M. Malone, Canada’s high commissioner to India and ambassador to Bhutan, in the March 2008 edition of Literary Review of Canada.

After a Christian organization is registered, Christian institutions may also be allowed once again in the country, given the government’s stress on educating young Bhutanese.

A local Christian requesting anonymity said the community respects Bhutan’s political and religious leaders, especially the king and the prime minister, will help preserve the country’s unique culture and seeks to contribute to the building of the nation.

Report from Compass Direct News

Religious freedom survey in Belarus: persecution continues


Belarusian President Aleksandr Lukashenko’s repressive religious policies remain unchanged, Forum 18 News Service finds in its survey analysis of freedom of religion or belief.

“Legal” restrictions include: requiring all religious activity by groups to have state permission, and be limited to one geographical area; barring meetings for worship or other religious activity in private homes that are either regular or large scale; requiring all places of worship to be state-approved; and routinely expelling both Catholic and Protestant foreign religious workers.

As one Belarusian Protestant notes, “They have created conditions so you can’t live by the law. We would need to close half our churches in order to operate technically in accordance with the law.” By reducing religious communities’ aspirations, they are being contained within an invisible ghetto of regulation.

The authorities have crushed independent political, business and social organisations inside the country, and fear the potential of the largest remaining internal group of independent organisations – churches. This fear is reinforced by the fact that a number of key figures in the opposition are also committed Christians.

Report from the Christian Telegraph

UZBEKISTAN GOVERNMENT INTERFERENCE SLOWS CHURCH GROWTH


Three Christians have each been sentenced to 15 days in prison in the Andijan region of eastern Uzbekistan after police raided a home. Uzbekistan is located in Central Asia, north of Afghanistan, reports MNN.

According to Forum 18 News, speaking on condition of anonymity because of fear of retaliation, three additional Protestants at the house were detained in a homeless center for between four and eleven days, for not having their identification documents with them.

In a separate case, a Baptist in the capital city of Tashkent was given a ten-day prison sentence after approximately 20 officials from various state agencies — including the Presidential Administration — raided a prayer meeting in a registered church.

Officials told church members that they need special permission for any services aside from those on Sundays, though Forum 18 said the news service can’t find any legal requirement for this alleged regulation.

Vice President of Russian Ministries Sergey Rakhuba says they have work in the region, and he confirms that attacks against Christians are on the increase. “It looks like officials are targeting everybody who is talking about their faith, claiming that they are there to destroy their country.”

Rakhuba says these aren’t isolated cases of oppression. He says it’s happening all over the country. “People we work with are sending us messages saying that this is the beginning of another wave of very intense and very serious persecution.”

Ironically this has nothing to do with a new religion law in Uzbekistan, according to Rakhuba. “The believers were in their homes. They were in their churches. They were doing what their constitution allows. They were praying and reading the Bible. But government officials arrested them under their terrorist act or regulation, implying that they’re trying to [create an uprising] against their country, which it totally not true.”

Rakhuba says authorities are even trying to fabricate violations of the religion law. “They will stop somebody in the car, or arrest somebody on the streets, and then they plant New Testaments or Bibles or other literature, claiming that they were trying to distribute it on the streets, when they’re not trying to do that.”

He says even the long time Russian Baptist are having difficulties in the country.

Because the government’s taking such a hard stand on evangelical Christians, the church has gone underground. “That’s really who they are after. The more pressure they create, the more success we see in the underground movement, just like any other place on earth.”

Rakhuba reports that the underground church movement is growing like wildfire. Russian Ministries’ Schools Without Walls program has been created to work well in underground situations — training the next generation church leaders. “You don’t have to have schools or classrooms or schedules or approvals. You just have to have a leader” who’s willing to go and train.

Report from the Christian Telegraph