Senate accuses ASIC of failing to act on bank misconduct

The Senate economics reference committee is currently scrutinising the Australian Securities and Investment Commission’s (ASIC) failing to conduct proportionate investigations and enforcement actions in response to reports of misconduct.

During the committee’s public hearings on 4 October, various stakeholders, including farmers, legal representatives, financial advisers, and the National Credit Providers Association, presented their insights.

These hearings marked the culmination of the inquiry following ASIC’s appearance before the committee in June 2023.

In a collective submission, Niall Coburn, a barrister from the High Court of Australia, spoke on behalf of 63 affected farmers who had all engaged in commercial loans and many had had their property repossessed due to alleged misconduct.

In many instances, these farms had been in families for generations, leading to severe financial and emotional devastation, and, tragically, even suicides, he told the committee.

Mr Coburn asserted that ASIC had consistently failed to adequately investigate these systemic complaints or acknowledge their systemic nature.

The complaints revealed a recurring pattern of alleged systemic predatory lending and asset-based lending, where loans were granted based on asset value rather than the borrowers’ ability to repay.

The alleged misconduct also involved breaches of the banks’ own internal compliance procedures and various forms of the Banking Code of Practice that amount to breaches of ASIC licence conditions.

Mr Coburn highlighted specific examples when Australia and New Zealand Banking Group (ANZ) took over Landmark and Westpac acquired Elders, leading to the “stripping back” of their loan books.

Issues often originated from engineered default situations, where banks repossessed land, machinery, and livestock, while disregarding appropriate mediation channels and commissioner Kenneth Hayne’s requirements, he explained.

Cattle farmer shares distress from bank’s repossession

During the inquiry, Gerard O’Grady, a cattle farmer, shared his experience of losing his cattle and property after taking out a loan with Elders Rural Bank over a five-year term.

Despite his business doing well and showing further development potential, when Elders sold its shareholding to Bendigo Bank, the Rural Bank did not support his development efforts, resulting in the loss of his cattle and property.

Mr Coburn mentioned that such stories were common, as farmers’ loans were highly complex and subject to increasing interest rates.

For instance, an agreement with an initial 8 per cent interest rate could quickly escalate to 18 per cent if overdraft limits were exceeded, leading many farmers into bankruptcy.

“When the bank moves on a farmer, they send in a receiver and then they take everything from the farmer, their house, their livelihood, their livestock, they sell machinery and they end up with nothing,” Mr Coburn said.

ASIC ‘inept’: Senator Bragg

On the day of the hearings, Liberal senator Andrew Bragg criticised ASIC after data from the Senate economics committee revealed a significant decline in the number of cases referred to the Commonwealth Director of Public Prosecution (CDPP) by ASIC.

The data indicated that ASIC’s referrals had more than halved in the past five years, with only two referrals made so far in the current financial year.

The rate of prosecutions initiated from ASIC referrals also dropped significantly, from 75.6 per cent in 2018–19 to 19.5 per cent in 2022–23, which Senator Bragg deemed “ugly statistics”.

“These figures signal that ASIC has made Australia a haven for white-collar crime. ASIC has given up on their sole obligation to enforce corporate law,” Mr Bragg said.

Royal commission oversight

Despite the recommendations of the Hayne royal commission, which had raised similar issues and called for the enactment of a national farm debt mediation scheme, it appears that such measures have not been implemented, Mr Coburn reiterated.

The royal commission found that banks, despite their internal policies and procedures, had breached loan-to-value ratios (LVRs) and safe lending policies by including 100 per cent of the livestock value in LVR calculations.

This practice was contrary to all banks’ policies and procedures, as detailed in the KPMG report to the royal commission.

The royal commission also highlighted how farmers were mistreated by banks, particularly in cases of predatory or asset-based lending and when they were charged interest rates linked to overdrafts they could not afford.

Mr Coburn emphasised that no action, court cases, or major investigations had been initiated, despite the involvement of all major banks in Australia.

“This alleged misconduct involves all of the major banks in Australia. It is a shameful situation that nothing has been done,” Mr Coburn said.

“ASIC has failed to properly investigate these systemic complaints or consider the systemic nature of complaints.

“This has resulted in bankrupt farmers left with no financial resources to make out a legal defence, thus disabling them from taking action for misconduct.”

Credit licence costs highlighted

Moreover, Michael Rudd from the National Credit Providers Association expressed concern about the continuous and substantial annual increases in the ASIC Cost Recovery Levy imposed on Australian credit licensees, particularly small and medium-sized credit providers.

This approach had forced some providers to exit the sector, potentially resulting in more financial exclusion and fewer regulated credit options for Australians in need.

The increase in the levy from $8.49 per $10,000 of credit provided in 2017/18 to an estimated $52.29 per $10,000 of credit provided in 2022/23 was considered unsustainable for small and medium-sized credit providers.

Additionally, the levy for these providers was disproportionately high compared to larger credit providers, creating an uneven playing field.

[Related: ANZ grilled over seizure of farmers home]