August 17, 2018 / 3:29 AM / 3 months ago

Australian regulator defends light touch at banking inquiry

* Royal Commission has uncovered widespread misconduct

* Regulator says preferred “behind-the-scenes” approach

* Publicising issues could have hurt fund members - APRA

By Paulina Duran

SYDNEY, Aug 17 (Reuters) - An Australian regulator defended its “behind-the-scenes” approach to dealing with breaches by large institutions in the A$2.6 trillion ($1.9 trillion) pension system, telling an inquiry on Friday it was to limit damage to fund members.

Under questioning at a quasi-judicial inquiry into financial-sector wrongdoing, Helen Rowell, the deputy chairman of the Australian Prudential Regulation Authority (APRA), said in the past decade APRA, in its role as the superannuation regulator, had not taken court action against a single entity for failing to act in the best interests of members.

“The reason we take the behind-the-scenes approach is to try and get the issue addressed ... without having that in the public domain causing more adverse impact on those members,” Rowell said.

Her evidence comes after the powerful inquiry has revealed several examples of major breaches, dishonorable conduct and fee-gouging by some of the country’s largest financial institutions that hold retirement accounts for about 12 million workers.

Rowell was pressed over APRA’s light-touch approach to the Commonwealth Bank of Australia, after it found out the country’s largest bank had misled members when trying to sell them high-fee products.

“Surely it is unacceptable from a regulator’s perspective,” said Michael Hodge, a barrister assisting the inquiry.

“It would be preferable if there was complete disclosure to the members”, she answered.

Lawyers assisting the inquiry asked Rowell why APRA had not considered whether National Australia Bank Ltd, CBA and other firms that had charged excessive fees or not delivered services as charged, were breaching laws that required them to act in the best interest of its members.

Rowell said APRA did not want to intervene in an industry-wide investigation being done by the corporate regulator, the Australian Securities and Consumers Commission (ASIC).

“ASIC’s responsibility is not for the sole-purpose test (of acting in the best interest of members),” Hodge said in response, adding ASIC’s responsibilities were limited to breaches of the Corporations Act and licensing of financial institutions.

The Royal Commission inquiry has exposed a series of malpractices and predatory behaviour at Australia’s top financial institutions, hitting their shares and leading to board or senior management shake-ups.

Reserve Bank of Australia Governor Philip Lowe was scathing in his criticism of the country’s biggest banks in comments on Friday before a parliamentary economics committee in Canberra.

“I have to say that I have been incredibly disappointed and in many, many cases appalled by what has come out from the Royal Commission,” the central bank chief said.

While Commissioner Kenneth Hayne, a former High Court justice leading the inquiry, cannot file criminal charges himself, his final report due next year could recommend prosecutions and sweeping reform of Australia’s financial system to prevent abuse of power and unwind conflicted remuneration structures.

The country’s major banks are already preparing for change by spending more on compliance and governance, provisioning for fines, selling wealth management businesses and returning to core lending.

Further upheaval is on the cards including the break-up of some of the country’s biggest companies.[ nL3N1SE2EX] ($1 = 1.3751 Australian dollars) (Reporting by Paulina Duran; Editing by Stephen Coates)

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