tag:theconversation.com,2011:/au/topics/macquarie-bank-4208/articlesMacquarie Bank – The Conversation2023-09-05T05:12:29Ztag:theconversation.com,2011:article/2127802023-09-05T05:12:29Z2023-09-05T05:12:29ZWhat’s to stop Philip Lowe moving to a private bank after he leaves the RBA? It’s what his predecessors did<p>Surely Reserve Bank Governor Philip Lowe won’t move to a private bank after his term as governor ends next week.</p>
<p>After having chaired his last <a href="https://www.rba.gov.au/">board meeting</a> on Tuesday, there’s nothing to stop him, and – as shabby as it seems – he wouldn’t be the first.</p>
<p>There are three reasons why he shouldn’t join the board of or become chair of a private bank, all alluded to in the <a href="https://www.apsc.gov.au/publication/aps-values-and-code-conduct-practice/section-5-conflict-interest">public service code of conduct</a>.</p>
<p>One is concern that the former employee would reveal confidential Commonwealth information (which would be unlikely for someone as cluey as Lowe) or “provide other information that would give the new employer an advantage in its business dealings”, which would be more likely, even if unintentional.</p>
<p>Banks don’t seek out former Reserve Bank chiefs unless they think there’s something in it for them.</p>
<p>Another concern set out in the code of conduct is that the former employee would exploit their knowledge of the Commonwealth to lobby, or otherwise seek advantage for their new employer in dealing with the Commonwealth.</p>
<p>Banks such as Westpac, NAB, the ANZ and Macquarie Bank deal with the Reserve Bank all the time. It runs the payments system, it is responsible for the financial system, and it sets interest rates.</p>
<p>Every one of the four banks I just mentioned has employed either a former Reserve Bank Governor or Treasury Secretary.</p>
<h2>Perceptions matter when a Governor moves on</h2>
<p>Even where these high-profile hires don’t help the banks in their relations with the regulator, the public service code of conduct points to the “perception” that they will have a greater ability to influence regulators than other hires.</p>
<p>The third concern identified in the code of conduct – in my view the most important – has been labelled “<a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-8500.12466">ingratiation</a>” by a public service specialist at the Australian National University, Richard Mulligan. </p>
<p>It’s the possibility that <em>while still in the public service</em>, the employee will use their position to go soft on an organisation (or type of organisation) they see as a potential future employer.</p>
<p>The Reserve Bank’s own <a href="https://www.rba.gov.au/about-rba/our-policies/code-conduct-rba-staff.html">code of conduct</a> is silent on the question of taking up employment with the banks it regulates, although it does say that where there is a perception of conflict of interest, the employee has to discuss it with the relevant department head or governor.</p>
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Read more:
<a href="https://theconversation.com/the-rba-has-kept-interest-rates-on-hold-itll-be-cautious-from-here-on-208917">The RBA has kept interest rates on hold. It'll be cautious from here on</a>
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<p>The government’s <a href="https://www.ag.gov.au/integrity/publications/lobbying-code-conduct">lobbying code of conduct</a> in place since 2008 purports to ban heads of department from engaging in lobbying activities relating to any matter with which they have had official dealings for 12 months after they have left office.</p>
<p>But former governors needn’t lobby, and 12 months isn’t long to wait.</p>
<p>Philip Lowe’s predecessor, the man to whom he was deputy, <a href="https://www.macquarie.com/au/en/about/news/2021/glenn-stevens-appointed-next-chair-of-macquarie-group-and-macquarie-bank-following-peter-warne-retirement,-diane-grady-announces-her-intention-to-retire.html">Glenn Stevens</a>, finished up as Reserve Bank Governor in September 2016 and joined the board of the Macquarie Bank and Macquarie Group in December 2017. He has been chair of Macquarie Bank and Macquarie Group since 2022.</p>
<p>Stevens’ predecessor as governor, <a href="https://www.anz.com/content/dam/anzcom/shareholder/2007-Annual-Report.pdf">Ian Macfarlane</a>, finished as head of the Reserve Bank in September 2006 and joined the board of the ANZ bank in February 2007.</p>
<p>The governor he replaced, <a href="https://www.anz.com/content/dam/anzcom/shareholder/2007-Annual-Report.pdf">Bernie Fraser</a>, finished at the Reserve Bank in September 1996 and joined the board of the industry funds that became Australian Super in the same year, becoming chair of the super-fund-owned <a href="https://www.industrymoves.com/moves/fraser-steps-down-as-me-bank-chair">ME Bank</a> in 2000.</p>
<p><a href="https://web.archive.org/web/20151103062911/https://www.nab.com.au/about-us/our-business-at-a-glance/board-of-directors/kenneth-r-henry-ac">Ken Henry</a> stepped down as head of the Australian Treasury (and a member of the Reserve Bank board) in April 2011 and in November that year joined the board of the National Australia Bank. In 2015 he was made its chair.</p>
<p>The man Henry replaced at the Treasury, <a href="https://www.moneymanagement.com.au/news/financial-planning/westpacs-evans-retire">Ted Evans</a>, stepped down in April 2001 and joined the board of Westpac that year, becoming its chair in 2007.</p>
<p>I’ve dealt with each of these people while they were governors or treasury secretaries and I’ve never seen anything that made me doubt their integrity.</p>
<p>And yet in my view, none of them should have gone on to work for the type of organisations they used to regulate.</p>
<p>All of them were paid extraordinarily well. In 2021–22 Philip Lowe was on a package of <a href="https://www.rba.gov.au/publications/annual-reports/rba/2022/pdf/our-people.pdf">$1.037 million</a> including superannuation and a salary of $890,252.</p>
<p>None needed another high-paying job straight away, and (because of public service super) all had a generous income to look forward to in retirement.</p>
<p>I understand their need to continue to do interesting things, but I don’t think it’s too big a sacrifice to ask former regulators to do those things away from the types of organisations they had the privilege of regulating.</p>
<p>On retiring from the Reserve Bank in 1968, its first governor <a href="https://www.science.org.au/fellowship/fellows/biographical-memoirs/herbert-cole-coombs-1906-1997#anu">HC Coombs</a>, chaired the Council for the Arts and the Council for Aboriginal Affairs. He made an ever-greater contribution to Australia without doing what the Japanese call <a href="https://www.investopedia.com/terms/a/amakudari.asp">amakudari</a>, or “descending from heaven” to work for the organisations he once regulated. </p>
<p>A profile of the practice includes the admonition “<a href="https://thediplomat.com/2011/05/the-problem-with-amakudari/">don’t snicker</a>”.</p>
<p>When Lowe took the governor’s job in 2016 I wrote a <a href="https://www.smh.com.au/business/the-economy/meet-guy-debelle-and-philip-lowe-the-odd-couple-wholl-be-running-the-reserve-bank-20160916-grho4t.html">profile of him</a> for The Age and the Sydney Morning Herald, speaking to former teachers and colleagues off the record. Repeatedly, unprompted, they mentioned his moral compass.</p>
<p>Lowe is about to turn 62. He has years of useful work ahead of him. I don’t expect him to descend from heaven to do it.</p><img src="https://counter.theconversation.com/content/212780/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Former Reserve Bank and Treasury chiefs have gone on to run Westpac, the National Australia Bank, the ANZ, and Macquarie Bank. It makes regulating those banks hard.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2021012023-03-30T20:20:19Z2023-03-30T20:20:19ZThe Millionaires’ Factory lays bare the good and bad about Australia’s millionaire manufacturer – Macquarie bank<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/516272/original/file-20230320-22-2zpyob.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/516272/original/file-20230320-22-2zpyob.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/516272/original/file-20230320-22-2zpyob.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=917&fit=crop&dpr=1 600w, https://images.theconversation.com/files/516272/original/file-20230320-22-2zpyob.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=917&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/516272/original/file-20230320-22-2zpyob.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=917&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/516272/original/file-20230320-22-2zpyob.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1152&fit=crop&dpr=1 754w, https://images.theconversation.com/files/516272/original/file-20230320-22-2zpyob.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1152&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/516272/original/file-20230320-22-2zpyob.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1152&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.allenandunwin.com/browse/book/Joyce-Moullakis-and-Chris-Wright-Millionaires'-Factory-9781761067150/">Allen & Unwin</a></span>
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<p><a href="https://www.allenandunwin.com/browse/book/Joyce-Moullakis-and-Chris-Wright-Millionaires'-Factory-9781761067150/">The Millionaires’ Factory</a>, subtitled “the inside story of how Macquarie Bank became a global giant” by financial journalists Joyce Moullakis and Chris Wright is an impressive, informative book that I enjoyed reading. </p>
<p>As well as providing insights into the Australian financial giant’s evolution, organisation, scope and success, it says a lot about Australia’s financial history. </p>
<p>The large number of Macquarie alumni (the book suggests around 100,000) and current staff (more than 18,000 globally in 2022) will provide a ready market.</p>
<p>But for others, despite the many interesting character sketches and well-written “travelogue” through Macquarie’s exploits, the book may be somewhat heavy going – for one main reason. </p>
<p>Macquarie is a mammoth organisation that has been involved in a huge number of complex financial activities across the international stage. </p>
<p>Macquarie’s 2022 <a href="https://www.macquarie.com/au/en/investors/reports/full-year-2022.html">annual report</a> says it operates across 33 markets in </p>
<ul>
<li><p>asset management</p></li>
<li><p>retail and business banking</p></li>
<li><p>wealth management</p></li>
<li><p>leasing and asset financing</p></li>
<li><p>market access</p></li>
<li><p>commodity trading</p></li>
<li><p>renewables development</p></li>
<li><p>specialist advice</p></li>
<li><p>access to capital, and</p></li>
<li><p>principal investment.</p></li>
</ul>
<p>Outlines of key transactions alone, necessarily, form a large part of the book. </p>
<p>Unfortunately, most need virtually an entire book each to explain and, in any event, require a high level of financial expertise to properly understand.</p>
<p>Those who are not finance experts can skip over the specific deals and will still find much value in (at least) two parts of the book. </p>
<p>One is the information on the management and governance of the organisation, including the adaptability of its divisional structure to opportunities and challenges.</p>
<p>Macquarie has consistently shown a willingness to expand into new (generally “adjacent”) activities suggested by staff (rather than from the top) under a strict risk-control framework. </p>
<p>A second (related) element is its emphasis on the quality of its staff and its dependence on its staff to investigate, generate and develop new activities.</p>
<h2>Turning staff into millionaires</h2>
<p>The remuneration arrangements bring the promise of rich personal rewards if successful, while failure in a new activity that has received the go-ahead under strict risk controls is not a career-limiting outcome.</p>
<p>Some readers may find strange the continued recitation of names and characteristics of key Macquarie personnel – but it is the people involved who have made Macquarie what it is today. As the saying goes, in financial institutions the main assets walk out the door every night (or early morning in many cases).</p>
<p>One thing the book does not do is provide any tables or graphs showing the enormous growth of Macquarie since its creation out of Hill Samuel in 1985, its integral role in Australia’s financial system and its successful overseas expansion. </p>
<p>Of course, given the scope of Macquarie’s activities, relevant metrics for comparison purposes are not easy to identify. For example, Macquarie Bank (the “commercial banking” part of the group) is small compared to the four major banks, with resident deposits about one-third of the smallest of the big four, ANZ. </p>
<p>The Macquarie Group overall has about half the number of employees of ANZ, but its overall personnel expenses in 2022 were around 15% higher than the ANZ (reflecting the words “millionaires’ factory” used in the book’s title).</p>
<h2>Pushing boundaries</h2>
<p>The authors hint at, but do not address, several questions posed by Macquarie Group’s critics.</p>
<p>First, to what extent have Macquarie’s profits come from pushing the boundaries of tax arbitrage (such as moving profits from high-tax locations to low-tax locations and moving losses in the other direction), such that its resulting profit isn’t a reward for adding social value but is instead generated at the expense of taxpayers? </p>
<p>There are always loopholes in tax law due to imperfect drafting, or grey areas that fall between what is clearly within or outside of the law. The opportunity to exploit such loopholes is greater when several jurisdictions are involved, and the book refers to several, such as the <a href="https://theconversation.com/the-robbery-of-the-century-the-cum-ex-trading-scandal-and-why-it-matters-124417">“cum-ex” dividend arbitrage</a>. There are others.</p>
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Read more:
<a href="https://theconversation.com/the-robbery-of-the-century-the-cum-ex-trading-scandal-124417">The robbery of the century: the cum-ex trading scandal</a>
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<p>The profit motive underpinning Macquarie and its remuneration structure naturally lead towards attempts to exploit such opportunities even if the private gains are purely at the expense of government tax revenue and not involving any (or much) creation of social value. </p>
<p>The authors quote former Treasurer Peter Costello saying “they engineered tax breaks to within an inch of their lives”, which often led to changes to tax laws to prevent such activities. How much this is ethical behaviour is a matter of opinion!</p>
<h2>Heavily charging customers</h2>
<p>The second question is: in constructing value-adding deals with clients and customers, how much of the net benefit has accrued to Macquarie, and how much to its customers? </p>
<p>As well as the nickname of “Millionaires’ Factory”, Macquarie has also been referred to as the “fee factory”. </p>
<p>For example, in its now-abandoned infrastructure trust structures, various parts of Macquarie would obtain fees: when purchasing assets for the trust (and “clipping the ticket” via a profit on the sale price into the trust), fees from managing the trust, commissions from selling units in the trust to investors, etc.</p>
<p>Macquarie’s position as an innovative creator of financial products and structures has often given it a first-mover advantage, such that with no competing supplier, Macquarie has been able to extract a major part of the value created. </p>
<p>Obviously, some value for the client needs to be provided, and concerns that a perceived unfair distribution of benefits would make it hard to repeat the exercise limit the amount of value extraction possible. But what is “fair” is a matter of opinion!</p>
<h2>Exploiting the poorly informed</h2>
<p>The third question is: to what extent did Macquarie benefit from exploiting poorly informed (wholesale and retail) consumers and users of its financial products – as the <a href="https://www.royalcommission.gov.au/banking">Hayne Royal Commission</a> found to be the case for the four major banks and others? </p>
<p>Macquarie escaped from the Royal Commission with its image barely tarnished compared to the big four. One reason was that its then-chief executive, Nicholas Moore, was able to point to the remediation activities it had put in place prior to the commission once it had recognised the problems. </p>
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<span class="caption">Macquarie Group chief Nicholas Moore leaving the Hayne Royal Commission in 2018.</span>
<span class="attribution"><span class="source">Joel Carrett/AAP</span></span>
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<p>But Macquarie was also lucky in that the Royal Commission’s terms of reference only required it to look back as far as the global financial crisis. Had it been required to look back further, its findings might have been different.</p>
<p>Prior to the financial crisis, Macquarie (and other banks) created highly financially engineered, structured products and marketed them to retail (and other) investors. Even financially literate investors could not have possibly understood the risks or value of the products they were sold.</p>
<p>A vast majority of these products would not have met current <a href="https://asic.gov.au/regulatory-resources/financial-services/design-and-distribution-obligations-significant-dealing-notification-requirements/">design and distribution obligation requirements</a> aimed at protecting consumers. </p>
<p>This was typical of the time and Macquarie was not particularly different to other purveyors of such products. But whether, in the absence of effective regulation, Macquarie would revert to pushing these boundaries is a matter of opinion!</p>
<h2>An Australian success nevertheless</h2>
<p>There is no question that Macquarie is an Australian success story. </p>
<p>Its 2022 annual report indicates that A$100 invested in its shares at the time of its stock exchange listing in 1996 would have grown to $10,000 in 2022. </p>
<p>More importantly, it has provided or enabled funding for many investment projects of its customers, which might not otherwise have gone ahead.</p>
<p>By taking an active role in the management and governance of large projects (such as toll roads and utilities), it has enabled more efficient operation of such projects than might have otherwise occurred. </p>
<p>It currently is near the forefront of financiers focusing on “green finance”, where activities generating social and environmental benefits can be consistent with profiting from a first-mover position.</p>
<p>There will, no doubt, remain many critics of Macquarie’s profit orientation and a resulting possible conflict with broader social goals. They would gain much from reading this book, both to find specific instances of that conflict, but also to see that profit-seeking is not always inconsistent with social goals.</p><img src="https://counter.theconversation.com/content/202101/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As an investment bank, commodities trader and operator of toll roads, Australia’s Macquarie Group has inserted itself into most of our lives. A new book outlines some of the questionable tactics that took it to the top.Kevin Davis, Emeritus Professor of Finance, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1466672020-09-24T02:49:13Z2020-09-24T02:49:13ZIt’s not only Westpac. What’s behind the biggest fine in Australian corporate history<figure><img src="https://images.theconversation.com/files/359712/original/file-20200924-18-1t47qvj.jpg?ixlib=rb-1.1.0&rect=60%2C160%2C3589%2C1545&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Marlon Trottmann/Shutterstock</span></span></figcaption></figure><p>Westpac is to pay A$1.3 billion, by far Australia’s biggest-ever corporate fine for breaches of the <a href="https://www.austrac.gov.au/news-and-media/media-release/austrac-and-westpac-agree-penalty">Anti-Money Laundering and Counter-Terrorism Financing Act</a>. </p>
<p>The 93-page <a href="https://cdn.theconversation.com/static_files/files/1248/Westpac_my3kd4wbw7y7.pdf?1600907402">statement of agreed facts and admissions</a> prepared by Westpac and the Australian Transaction Reports and Analysis Centre (AUSTRAC) says Westpac contravened the Act more than 23 million times exposing Australia’s financial system to criminal exploitation.</p>
<p>It failed to pass on information to authorities about the origin of international funds transfers, and failed to pass on information to other banks in the transfer chain who needed to manage their own money laundering and terrorism financing risks.</p>
<p>“Westpac failed to identify activity potentially indicative of child exploitation risks by failing to implement appropriate transaction monitoring detection scenarios,” the agreed statement says.</p>
<p>“Three of the customers the subject of these proceedings had prior convictions relating to child exploitation offences.”</p>
<p>“One of these customers has been arrested in relation to further child exploitation offences since the commencement of these proceedings.</p>
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<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/1248/Westpac_my3kd4wbw7y7.pdf?1600907402">Westpac and AUSTRAC, Agreed Statement of Facts and Admissions</a></span>
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<p>In reaching the agreement, Westpac also admitted to <a href="https://www.austrac.gov.au/news-and-media/media-release/austrac-and-westpac-agree-penalty">76,000 additional contraventions</a> relating to information that came to light after AUSTRAC launched proceedings last year, some which also relate to "failures to reasonably monitor customers for transactions related to possible child exploitation”.</p>
<p>The action triggered the departures of Westpac chief executive Brian Hartzer and chairman Lindsay Maxsted <a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">late last year</a>.</p>
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Read more:
<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
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<p>The A$1.3 billion fine dwarfs the Commonwealth Bank’s <a href="https://www.austrac.gov.au/austrac-and-cba-agree-700m-penalty">A$700 million</a> settlement with AUSTRAC for serious breaches of anti-money laundering and counter-terrorism financing laws in 2018.</p>
<p>The Westpac debacle is far from an isolated instance of international banks demonstrating indifference to their potential involvement in organised crime.</p>
<p>Documents released by the <a href="https://www.icij.org/investigations/fincen-files/">International Consortium of Investigative Journalists</a> on Monday show that major banks around the world conducted US$2 trillion of suspicious transactions in the eight years between 1999-2017.</p>
<h2>Australian banks on the international stage</h2>
<p>Of a limited sample of transactions assessed, Australian banks received US$3.8 million of suspicious funds and sent out $167.9 million.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=240&fit=crop&dpr=1 600w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=240&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=240&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=302&fit=crop&dpr=1 754w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=302&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=302&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.icij.org/investigations/fincen-files/explore-the-fincen-files-data/">International Consortium of Investigative Journalists interactive</a></span>
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</figure>
<p>The Macquarie Bank was responsible for <a href="https://www.icij.org/investigations/fincen-files/explore-the-fincen-files-data/">US$122.1 million</a> of the US$167.9 million, the Commonwealth Bank for <a href="https://www.icij.org/investigations/fincen-files/explore-the-fincen-files-data/">US$42.1 million</a>.</p>
<p>The reports relating to Australian banks were filed by the US banks which dealt with them.</p>
<p>The Australian banks themselves might have also filed their own reports.</p>
<p>There’s little to suggest much was done about the reports by US banks at the time, either by the banks themselves or by the regulators they filed them to.</p>
<p>Indeed, the long timespan suggests the banks not only didn’t close suspicious accounts (which might have alerted account holders to suspicions) but also continued to open new ones.</p>
<h2>The crime that makes other crimes possible</h2>
<p><a href="https://www.buzzfeednews.com/article/jasonleopold/fincen-files-financial-scandal-criminal-networks">BuzzFeed</a>, which obtained the documents, said money laundering was a crime that made other crimes possible, and had itself become an integral part of the financial system.</p>
<blockquote>
<p>The networks through which dirty money traverse the world have become vital arteries of the global economy. They enable a shadow financial system so wide-ranging and so unchecked that it has become inextricable from what is regarded as the legitimate economy. Banks with household names have helped to make it so.</p>
</blockquote>
<p>Certainly after the 2019 report of the <a href="https://financialservices.royalcommission.gov.au/Pages/default.html">banking royal commission</a> it is reasonable to expect Australian banks to do more.</p>
<p>Commissioner Hayne held banks to higher standard than merely abiding by the law. He referred to “the kind of behaviour the community not only expects of financial services entities but is also entitled to expect of them”.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/westpacs-scandal-highlights-a-system-failing-to-deter-corporate-wrongdoing-127619">Westpac's scandal highlights a system failing to deter corporate wrongdoing</a>
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<p>This week’s shocking evidence suggests there’s work to do. </p>
<p>From the wreckage of the global financial crisis the <a href="https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-stability-board-fsb/">G20 Financial Stability Board</a> erected a new regulatory order requiring banks to have adequate capital. </p>
<p>To this was added a <a href="https://www.fsb-tcfd.org/">Task Force on Climate Related Financial Disclosures</a>. </p>
<p>It’s time for a third set of reforms, to ensure the financial system doesn’t serve as a <a href="https://cdn.theconversation.com/static_files/files/1248/Westpac_my3kd4wbw7y7.pdf?1600907402">conduit for serious crimes</a>.</p><img src="https://counter.theconversation.com/content/146667/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Clarke does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Westpac has admitted to more than 23 million breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act.Thomas Clarke, Professor, UTS Business, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1399192020-07-10T04:16:32Z2020-07-10T04:16:32ZBefore and after: see how bushfire and rain turned the Macquarie perch’s home to sludge<figure><img src="https://images.theconversation.com/files/340525/original/file-20200609-21201-1rw4yug.jpg?ixlib=rb-1.1.0&rect=12%2C169%2C4013%2C2848&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mannus Creek in NSW during the 2020 bushfire period.</span> <span class="attribution"><span class="source">Luke Pearce</span>, <span class="license">Author provided</span></span></figcaption></figure><p><em>This article is part of Flora, Fauna, Fire, a special project by The Conversation that tracks the recovery of Australia’s native plants and animals after last summer’s bushfire tragedy. Explore the project <a href="https://bushfires2020.netlify.app/">here</a> and read more articles <a href="https://theconversation.com/au/search?utf8=%E2%9C%93&q=%23bushfire+recovery+2020&sort=relevancy&language=en&date=all&date_from=&date_to=">here</a>.</em></p>
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<p>The unprecedented intensity and scale of Australia’s recent bushfires left a trail of destruction across Australia. Millions of hectares burned and <a href="https://www.abc.net.au/news/2020-01-09/nsw-bushfires-kill-over-a-billion-animals-experts-say/11854836">more than a billion animals were affected or died</a>. When the rains finally arrived, the situation for many fish species went from dangerous to catastrophic.</p>
<p>A slurry of ash and mud washed into waterways, turning freshwater systems brown and sludgy. Oxygen levels plummeted and <a href="https://www.nationalgeographic.com/science/2020/01/australian-fires-threaten-to-pollute-water/">water quality</a> deteriorated rapidly. </p>
<p>Hundreds of thousands of fish <a href="https://theconversation.com/the-sweet-relief-of-rain-after-bushfires-threatens-disaster-for-our-rivers-129449">suffocated</a>. It was akin to filling your fish tank with mud and expecting your goldfish to survive.</p>
<p>Take, for example, the plight of the endangered <a href="https://www.dpi.nsw.gov.au/fishing/threatened-species/what-current/endangered-species2/macquarie-perch">Macquarie perch</a> (<em>Macquaria australasica</em>), an Australian native freshwater fish of the Murray-Darling river system.</p>
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<a href="https://images.theconversation.com/files/340489/original/file-20200609-165349-ektyd1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/340489/original/file-20200609-165349-ektyd1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/340489/original/file-20200609-165349-ektyd1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/340489/original/file-20200609-165349-ektyd1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/340489/original/file-20200609-165349-ektyd1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/340489/original/file-20200609-165349-ektyd1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/340489/original/file-20200609-165349-ektyd1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/340489/original/file-20200609-165349-ektyd1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A Macquarie perch.</span>
<span class="attribution"><span class="source">Luke Pearce</span>, <span class="license">Author provided</span></span>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/fish-kills-and-undrinkable-water-heres-what-to-expect-for-the-murray-darling-this-summer-126940">Fish kills and undrinkable water: here's what to expect for the Murray Darling this summer</a>
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<h2>A special fish</h2>
<p>Macquarie perch were once <a href="https://www.environment.gov.au/system/files/resources/8e9c5e38-7b7f-4b91-9f8d-66fd90eca1c2/files/draft-recovery-plan-macquarie-perch.pdf">one of the most abundant fish</a> in the Murray-Darling Basin. Revered by the community and once responsible for supporting extensive <a href="https://finterest.com.au/wp-content/uploads/2020/01/True_tales_of_the_trout_cod_book.pdf">Indigenous, recreational, commercial and subsistence fisheries</a>, they are an iconic species found nowhere else in the world. However, they have very specific needs. </p>
<p>Macquarie perch like rocky river sections with clear, fast-flowing water, shaded by trees and bushes on the banks.</p>
<p>Massive change wrought on our rivers over the past century means Macquarie perch are now only found at a handful of locations <a href="http://www.environment.gov.au/cgi-bin/sprat/public/publicspecies.pl?taxon_id=66632">in the Murray-Darling Basin</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-sweet-relief-of-rain-after-bushfires-threatens-disaster-for-our-rivers-129449">The sweet relief of rain after bushfires threatens disaster for our rivers</a>
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</em>
</p>
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<p>One habitat - Mannus Creek near the NSW Snowy Mountains - is particularly special because it was relatively pristine before the fires. In fact, this creek contained the last population of the threatened Macquarie perch in the NSW Murray catchment. A <a href="https://researchoutput.csu.edu.au/en/publications/maccas-in-the-mannus-macquarie-perch-refuge-in-the-upper-murray">study in 2017</a> found a Macquarie perch population that was restricted to a 9km section of the creek but was doing quite well. </p>
<p>That was until bushfire rapidly swept through the catchment <a href="https://www.theguardian.com/environment/2020/feb/15/last-population-macquarie-perch-nsw-river-carnage-bushfire-ash-fish-species">in January</a> this year. </p>
<p>Some of us visited the creek three weeks after the fires. The intensity, ferocity and speed of the fires meant nothing was spared. The former forest floor was literally a trail of death and destruction – <a href="https://e360.yale.edu/features/fire-fallout-how-ash-and-debris-are-choking-australias-rivers">dead and charred kangaroos, wallabies, deer, possums and birds</a> were everywhere. </p>
<p>All that remained of Mannus Creek was green pools in a blackened landscape, still smouldering days after the fire front passed. We immediately feared for the Macquarie perch we’d sampled, which were quite healthy less than a year before.</p>
<p>To our surprise, some Macquarie perch had survived. But with most of the catchment fully burnt, and no vegetation to stop runoff, we knew it was a ticking time bomb. </p>
<h2>A desperate rescue attempt</h2>
<p>With little time, researchers had to remove as many fish as possible from Mannus Creek before the rains arrived. The plan was to create an “insurance population” in case rain caused the water conditions to <a href="https://www.abc.net.au/news/2020-02-12/native-fish-rescued-from-bushfires-in-kosciuszko-national-park/11953776">deteriorate</a>. </p>
<p>They rescued ten fish. Days later, rain washed ash and silt into the channel. Within hours, the once-pristine creek became flowing mud with the consistency of cake mix. </p>
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<p>A government rescue team arrived a few days later to rescue more fish, and despaired at the “<a href="https://www.smh.com.au/environment/conservation/wall-of-mud-and-ash-fish-disaster-moves-across-murray-darling-basin-20200123-p53u6i.html">wall of ash and mud</a>”. </p>
<h2>An ark across Australia</h2>
<p>Those ten individual Macquarie perch now live in an “ark” of at-risk species, <a href="https://www.theguardian.com/environment/2020/feb/15/last-population-macquarie-perch-nsw-river-carnage-bushfire-ash-fish-species">spanning government and private hatchery facilities</a>. </p>
<p>The ark is housing not only the Macquarie perch <a href="https://www.theguardian.com/environment/2020/feb/05/freshwater-hell-scientists-race-save-endangered-fish--bushfire-ash-stocky-galaxias">but other threatened species</a> too. The rescued individuals, and perhaps their entire species, would have almost certainly perished during runoff events without these interventions. </p>
<p>Now a waiting game begins. </p>
<h2>What next for the Macquarie perch?</h2>
<p>Nobody knows for sure how many fish survived in Mannus Creek, nor how long it will take for the creek to recover. It could be <a href="https://www.theguardian.com/environment/2020/feb/12/triple-whammy-hits-push-australian-rivers-crisis">years</a>. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/340488/original/file-20200609-165375-1rxofrh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/340488/original/file-20200609-165375-1rxofrh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/340488/original/file-20200609-165375-1rxofrh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/340488/original/file-20200609-165375-1rxofrh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/340488/original/file-20200609-165375-1rxofrh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/340488/original/file-20200609-165375-1rxofrh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/340488/original/file-20200609-165375-1rxofrh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/340488/original/file-20200609-165375-1rxofrh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Ash and mud flow into Mannus Creek after the fires.</span>
<span class="attribution"><span class="source">Luke Pearce</span>, <span class="license">Author provided</span></span>
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<p>The challenge now is to support the rescued fish until it’s safe to either return them to the creek, or breed offspring and introduce them to their natural habitat. </p>
<p>Fish must be kept healthy and disease-free in captivity, and enough genetic diversity must be maintained for the population to remain viable.</p>
<p>If these rescued fish are held in captivity for too long, they might die. But equally worrying is that affected waterways may not recover in time to allow reintroduction. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/sure-save-furry-animals-after-the-bushfires-but-our-river-creatures-are-suffering-too-133004">Sure, save furry animals after the bushfires – but our river creatures are suffering too</a>
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<p>While maintaining the rescued populations, we must redouble our efforts to improve their <a href="https://www.researchgate.net/publication/229658153_Smoke_on_the_water_Can_riverine_fish_populations_recover_following_a_catastrophic_fire-related_sediment_slug">natural habitats</a>. </p>
<p>Burnt areas can allow pest plant and animal species to take hold and change habitats, so these threats need to be controlled. Finding similar, unburnt refuge areas is also crucial to prepare for future events and protect ecosystem resilience. </p>
<p>Working through these considerations - and quickly - is essential to giving these species the best hope of survival.</p>
<p>Funding, equipment and human resources are desperately needed to help our rivers recover. But we know that without an effective on-ground intervention, recovery could take decades. </p>
<p>For the iconic Macquarie perch, that would be too late.</p>
<p><a href="https://bushfires2020.netlify.app"><img src="https://cdn.theconversation.com/static_files/files/1103/Explore.gif?1594552012" width="100%"></a></p><img src="https://counter.theconversation.com/content/139919/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lee Baumgartner receives funding from the Australian government to perform critical research into the impacts of human activities on fish and aquatic systems in South East Asia. He sits on a range of state and federal advisory panels and is a passionate advocate for sustainable practices in the Murray-Darling Basin. </span></em></p><p class="fine-print"><em><span>Katie Doyle receives funding from the Ian Potter Foundation and NSW State Government to undertake research relating to protecting Australian freshwater fish and aquatic biotic from human activities and a changing climate. </span></em></p><p class="fine-print"><em><span>Luiz G M Silva received funding from state and federal agencies, as well as private enterprises, to conduct studies to understand the impacts of anthropogenic activities, particularly dams and irrigation infrastructure, on freshwater fish. He is affiliated with various scientific societies on fisheries and aquatic sciences with a broad experience on Neotropical fish ecology. </span></em></p><p class="fine-print"><em><span>Luke Pearce is employed by the NSW Department of Primary Industries and receives funding from the NSW Recreational Fishing Trust</span></em></p><p class="fine-print"><em><span>Nathan Ning receives funding from the Australian government to undertake research relating to the impacts of human activities on fish and aquatic ecosystems in both Australia and South East Asia. </span></em></p>When the post-bushfire rains finally arrived, the situation for many fish species went from dangerous to catastrophic. A slurry of ash and mud washed into waterways, sending oxygen levels plummeting.Lee Baumgartner, Professor of Fisheries and River Management, Institute for Land, Water, and Society, Charles Sturt UniversityKatie Doyle, Freshwater Ecologist, Charles Sturt UniversityLuiz G M Silva, Freshwater Fish Scientist, Charles Sturt UniversityLuke Pearce, Fisheries ManagerNathan Ning, Freshwater Ecologist, Charles Sturt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/842822017-09-20T20:34:06Z2017-09-20T20:34:06ZWhat we can do once the banks give us back our data<p>Macquarie Bank has <a href="https://www.businessinsider.com.au/macquarie-has-beaten-the-big-four-to-open-banking-which-lets-customers-offer-their-data-to-fintech-startups-2017-9">started a trial</a>, giving customers access to the data the bank has collected on them. These might include the number and types of account held, average balances, regular payments and income and credit score information. This information helps to determine both the need for products and the risk of a customer.</p>
<p>This idea is called open banking and will see customers use their data in a whole range of ways – to ensure they are getting a good deal on their credit cards or mortgages, to see how they are faring financially against people in similar situations, and even to make paying taxes easier.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/simpler-account-switching-would-help-keep-our-banks-honest-66264">Simpler account switching would help keep our banks honest</a>
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</em>
</p>
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<p>Until recently our banks have had exclusive access to all of this data. The banks used it for marketing and product design. That is, your data was used to increase their profits. </p>
<p>The absence of sharing meant the data was a hurdle to customer switching. But the Productivity Commission <a href="https://www.pc.gov.au/inquiries/completed/data-access/report">has said</a> consumers should be given a “comprehensive right” to their data.</p>
<p>In fact, you can already see some of use cases for your data in services the banks themselves provide. For example, Ubank <a href="http://peoplelikeu.com.au/">has a tool</a> that allows customers to work out a budget, and compare themselves to others of similar ages, household types etc. And many banks and credit card companies allow you to dive into your spending habits, to see where your money is going. </p>
<p>Treasury is <a href="https://treasury.gov.au/consultation/review-into-open-banking-in-australia/">currently examining</a> how open banking should work in practice, and the Productivity Commission is <a href="http://www.pc.gov.au/inquiries/current/financial-system#draft">looking at</a> competition in the financial services sector. So this Macquarie Bank trial is just the beginning of open banking in Australia.</p>
<h2>Is it safe?</h2>
<p>You might be worried about how these other services will access you data. You don’t have to share your passwords or bank login, rather the data is shared using a standardised application programming interface or <a href="https://readwrite.com/2013/09/19/api-defined/">API</a>.</p>
<p>An API creates a standard for connecting to a service, similar to how there is a standard for writing down your home address. To mail a letter you write down a street number, street name, suburb, state, postcode. If you write down the latitude and longitude of the person’s house then the letter won’t get there, because it doesn’t abide by the standard.</p>
<p>API’s have security standards as well, with two elements. One is authentication - making sure that the machine seeking access is the machine it says it is - and the other is authorisation - making sure that the machine is permitted to access the API. In practice, the authentication component could be done by a trusted third party, such as Facebook or Google.</p>
<p>An open banking API would need to allow enough information about a customer to be accessed to allow for service comparisons. However, the data must not contain enough information to identify an individual. This is essential under Australian privacy law and proposed standards would also need to comply with the European General Data Protection Regulation (<a href="http://www.eugdpr.org">GDPR</a>).</p>
<h2>What will I use the data for?</h2>
<p>The fact that all this data has largely been held by the banks until now means there aren’t a lot of services for us to connect to immediately.</p>
<p>The most immediate example is to use your data to make sure you are getting the best deal you can on your loans. This is one of the reasons the British Competition and Markets Authority <a href="https://www.gov.uk/government/news/open-banking-revolution-moves-closer">decided</a> that open banking was necessary.</p>
<p>Under this scheme, if you want to compare service providers, you can download your anonymised data in a standard form and then upload it to a bank, a price comparison website or an app. In the case of the app, it would present to you your best options, given your current banking profile. This would include staying with your current bank or changing one or more accounts to a different institution.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/186747/original/file-20170920-938-1ga5uzp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/186747/original/file-20170920-938-1ga5uzp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/186747/original/file-20170920-938-1ga5uzp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/186747/original/file-20170920-938-1ga5uzp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/186747/original/file-20170920-938-1ga5uzp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/186747/original/file-20170920-938-1ga5uzp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/186747/original/file-20170920-938-1ga5uzp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">In open banking, customers get access to the data the bank has collected on them like credit score information.</span>
<span class="attribution"><span class="source">www.shutterstock.com</span></span>
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</figure>
<p>This data could also be used to get approval for a new loan. Your anonymous data, in combination with identity information, includes enough material for a lender to decide whether to give you a loan for a specific purpose. </p>
<p>These tools will foster more competition between banks as customers will find it easier to compare services and switch, but it will also mean customers can make sure they are getting the best product available at the bank they are currently at. </p>
<p>But beyond comparison and switching, there are a number of interesting examples of how you can benefit from the data in your bank.</p>
<p>A <a href="https://getpocketbook.com/">budgeting app</a> connected to your bank account, for example, can use your anonymous data to help you plan your finances. Using both your banking and “tap and go” payment history, it can help you analyse your spending and set goals. These services can even tap into outside data, such as interest rates, to help you determine what to do if rates go up. It’s that spooky moment when your phone becomes your conscience.</p>
<p>Online accounting software such as <a href="https://www.xero.com/au/">Xero</a> or <a href="https://www.myob.com/au">MYOB</a> allows daily reconciliation of business accounts. These software systems already use APIs provided by the major banks to reconcile current accounts, loan accounts and credit card services. One variant on the open banking API could let customers “mark” transactions that are employment related expenses or health related expenses to simplify tax returns.</p>
<h2>Going beyond fintech</h2>
<p>But beyond these examples there are any number of possibilities for what we can do with this data. For instance, we could see an app that helps you make shopping decisions to increase the amount of loyalty points you earn. That is, using data on prices, goals and financial history to benefit consumers and not just sellers.</p>
<p>There are already limited examples of such schemes. The Coles “Fly Buys” scheme is connected to Virgin Velocity points. Both Coles and Velocity prompt members to earn points. Adding an overlay of which credit card to use at the checkout is currently up to you. However, it would be perfectly feasible for an app in your phone to choose which credit card the phone uses to pay at the supermarket to give you maximum points.</p>
<p>There’s also an opportunity here to connect your stream of financial data to what might seem like unrelated data. For example, what if your smart watch prompted you to walk home if you’ve spent more on eating out than your budget allowed? That is, open banking might actually improve your fitness, or at least make you feel guilty about overspending.</p><img src="https://counter.theconversation.com/content/84282/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rob Nicholls is a member of the ALP.</span></em></p>Open banking will see customers use their data in a whole range of ways, including seeing how they are faring financially against people in similar situations.Rob Nicholls, Senior lecturer in Business Law, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/774752017-05-10T06:30:27Z2017-05-10T06:30:27ZBudget bank levy: too big to fail, not too big to take a hit<p>The budget announcement of a 0.06% levy on a subset of bank liabilities looks arbitrary, and is certainly politically opportunistic. But it could be rationalised as a response, albeit probably not the best response, to offset a number of distortions in Australia’s banking market. </p>
<p>The levy will certainly have consequences for bank pricing, forms of funding and competition – and will interact in complex ways with other prudential regulatory changes in the pipeline. </p>
<p>The levy will affect the four major banks and Macquarie. It will apply to liabilities other than deposits protected by the Financial Claims Scheme (ie. under A$250,000) and additional Tier 1 capital instruments. </p>
<p>As a ballpark estimate, it will apply to around 50% of a bank’s total funding. This will raise the overall cost of funding for the affected banks by around 0.03%.</p>
<p>The large banks are perceived to receive a competitive benefit (lower borrowing costs) from an implicit government guarantee associated with being <a href="https://theconversation.com/au/topics/too-big-to-fail-3747">“too big to fail”</a>. On this basis, the levy could be seen as a charge for that benefit. </p>
<p>As it is in Europe, Australia could establish a “resolution fund” to enable the Australian Prudential Regulation Authority (APRA) to facilitate a smooth exit (i.e. by merger) of a failing bank. Although the government is going to set this levy aside for budget repair, rather than being set up in another separate fund, it could be argued that it strengthens the government to support APRA in regulating the banks. </p>
<p>The nature of the regulatory system (such as capital adequacy requirements) creates a competitive imbalance favouring the big four banks. The <a href="https://theconversation.com/apra-fiddles-on-bank-risk-while-rome-burns-72976">imposition of higher minimum capital requirements</a> for mortgage loans by banks (five banks were actually subject to this levy) was only a partial response to this imbalance.</p>
<p>It’s often argued Australian banks have relied too much on funding other than “core/stable” deposits and capital, with potential consequences for safety and systemic stability. Indeed, the large banks have funded their increased share of home mortgage lending since the global financial crisis to a significant degree from wholesale borrowings.</p>
<p>However, there are better ways of dealing with these perceived distortions than the government’s quick, politically opportunistic, measure. And, together with other bank accountability measures introduced in the budget, it may neutralise whatever support exists for a banking royal commission.</p>
<p>The levy is likely to have significant effects on financial markets and consumers of financial services. The levy will flow through the banks’ funds transfer pricing systems to affect loan pricing. </p>
<p>In this regard it is somewhat silly to suggest simultaneously that the big banks shouldn’t increase loan interest rates, as the treasurer has, but that the measure will improve the competitive position of smaller banks. The latter will happen only if the large banks do respond in that way!</p>
<p>The large banks will have incentives to fund loans differently. In particular, by originating and then securitising loans (pooling various types of contractual debt, to get them off-balance sheet and funded by the capital market) they will avoid the levy on that part of their activities.</p>
<p>However, that benefit won’t apply if they use “covered bond” securitisation. This is when a bank issues debt securities collateralised against a pool of assets, giving the investor a claim against both those assets and the bank in general. The levy is thus likely to give a kick to traditional securitisation over on-balance-sheet lending, but stymie the growth of covered bond funding.</p>
<p>The levy will also affect the structure of bank deposit interest rates. Because retail deposits are exempt from the levy, the large banks can be expected to bid for these deposits – pushing up the interest rates offered relative to the cost of borrowing in wholesale and large deposit markets. </p>
<p>That’s going to compound the already apparent effect on relative interest rates due to recent and forthcoming liquidity regulations that APRA is applying. But it will worsen the relative returns that superannuation funds can get on (their large) bank deposits and possibly induce them to look to invest more in securitised products. </p>
<p>It’s worth noting that the budget involves changes that will increase competition for retail deposits. One example is the measure allowing individuals to make limited, tax-advantaged contributions to superannuation which can be subsequently withdrawn for a house deposit.</p>
<p>A further likely effect is to encourage banks to make more use of equity capital and additional Tier 1 (AT1) capital funding (that preferences share structures listed on the ASX and held by many retail investors), relative to Tier 2 capital funding (provided by the wholesale and institutional markets), or other wholesale funding. While more capital funding is still required to meet the “unquestionably strong” criteria proposed <a href="http://fsi.gov.au/">by the Murray inquiry</a>, and accepted by the government, it’s far from clear that increased reliance on the complex AT1 is desirable. </p>
<p>The revenue to be raised is large in absolute dollar amount – but is relatively small as a percentage of current bank profits (in the order of 4-5%).</p>
<p>It could be expected that the banks will pass on some part of the levy to customers, or avoid it by shifting to other forms of funding that do not incur the levy, such that the short-run direct impact on after-tax profits and shareholders is somewhat less than that 4-5% figure. </p>
<p>But the big unknown is how the change, in conjunction with a plethora of other ongoing regulatory changes affecting the financial sector, affects the competitive balance between the big banks, smaller bank competitors and capital markets and their prospects in the long run. </p>
<hr>
<p><em>This piece was co-published with <a href="https://pursuit.unimelb.edu.au/live/budget2017-fairness-security-and-opportunity">Pursuit</a>.</em></p><img src="https://counter.theconversation.com/content/77475/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The new levy on banks from the budget is a small hit to their profit but it could have unintended consequences.Kevin Davis, Research Director of Australian Centre for FInancial Studies and Professor of Finance at Melbourne and Monash Universities, Australian Centre for Financial Studies Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/405612015-04-22T02:55:20Z2015-04-22T02:55:20ZBanks chastened by Senate, but UK experience serves real lesson<p>The full extent of the arrogance of the Four (and a half) Pillars was on full display at the Senate Hearing into the financial product misselling scandal this week in <a href="http://www.canberratimes.com.au/business/banking-and-finance/banks-senate-hearing-we-need-to-lift-our-game-on-financial-advice-20150421-1mpzxm.html">Canberra</a>. </p>
<p>The only long-standing CEO who was in the position at the time of these scandals was Macquarie Bank’s Nicholas Moore (ANZ did send the deputy CEO Graeme Hodges, Westpac had better things to do). Moore admitted that, after being belatedly prompted by the Securities and Investment Commission (ASIC), 195 cases of possible misselling had been reviewed, of which 108 had been found eligible for compensation totalling A$9.5 million. Moore noted that some 189,000 letters had been sent out but give no idea of how many cases remain to be reviewed.</p>
<p>Relative newcomers, the National Australia Bank’s Andrew Thorburn and the Commonwealth Bank of Australia’s Ian Narev were thrown into the fray, fresh-faced and suitably contrite. “At the outset, I apologise once again unreservedly to the customers who received poor advice from us,” Narev told senators. But Narev has only been CEO for three years; where were the directors who were at CBA throughout the scandal? </p>
<p>Thorburn, (appointed as CEO in August 2014) admitted that NAB had also “let some clients down” but promised that “trust and transparency” would be the watchword for its customers over the next decade.</p>
<p>But a look at how such scandals are handled overseas might give a different perspective. Each quarter, the Financial Conduct Authority (the UK equivalent of ASIC) publishes a <a href="https://www.fca.org.uk/consumers/financial-services-products/insurance/payment-protection-insurance/ppi-compensation-refunds">report</a> on how customers are being compensated for Payment Protection Insurance (PPI) products that were mis-sold to them. </p>
<p>In January 2015, a total of £424.5 million was paid out to customers whose complaints were upheld by the UK’s major banks, bringing the total paid out on the PPI redress scheme since January 2011 to £18.5 billion (around A$35 billion).</p>
<p>And in another <a href="http://www.fca.org.uk/consumers/financial-services-products/banking/interest-rate-hedging-products">scandal</a> involving the misselling of complex Interest Rate Hedging Products (IRHP) to small businesses, current compensation paid by the major banks is running at some £1.8 billion but could grow <a href="http://www.euromoney.com/Article/3445742/Mis-selling-The-importance-of-Crestsign-v-RBS.html">much bigger soon</a>. </p>
<p>A <a href="http://www.researchonline.mq.edu.au/vital/access/manager/Repository/mq:20489?f0=sm_creator%3A%22McConnell%2C+Patrick%22">reading</a> of the PPI scandal might cause the boards of Australian banks to have a rethink as they chat convivially after their next board meeting. The PPI scandal emerged over a decade with customers’ complaints being arrogantly ignored by banks, until competition inquiries pointed out case after case of mis-sold PPI products. At this point it should be noted that the PPI cases involved quite small sums of money, often less than £100, not the hundreds of thousands of dollars lost by customers in the Opes Prime or Storm Financial scandals.</p>
<p>The UK banks stonewalled until a court case was decided against them and they were forced by the regulator to set up a comprehensive redress and compensation program. Note Andrew Thorburn of NAB is already well aware of the angst of PPI as the FCA recently <a href="http://www.theage.com.au/breaking-news-business/nab-staff-sacked-over-uk-scandal-20150415-3u34w.html?skin=text-only">fined</a> the troubled Clydesdale Bank (which NAB has owned since 1987) more than $40 million for continuing “serious failings” in handling customers’ complaints.</p>
<p>Now one could argue that UK banks are bad and that Australian banks are boy scouts. But is the alternative perspective that UK regulators are better than Australian ones? </p>
<p>As information trickles out about back-door payments and strong arm gagging of customers, the probability of the latter being accurate increases. </p>
<p>It is little wonder that the major banks back an industry compensation scheme for cases of misselling, not least because it will be the customer who ultimately pays for it. After all, an industry scheme was <em>sort of</em> endorsed by the Murray <a href="http://fsi.gov.au/">Financial System Inquiry</a>. But David Murray (CBA chief executive from 1992 to 2005) also pointed out that “government provision can avoid conflicted incentives, but it can come at a cost to taxpayers and involve moral hazard”. In the end, the taxpayer rather than the banks’ shareholders will pay up under such a scheme.</p>
<p>As the Australian financial products scandal drags on over years, the call for a Royal Commission will grow; after all the government has set up a Royal Commission to address issues raised by the <a href="http://www.tradeunionroyalcommission.gov.au/Pages/default.aspx">big end of town</a> into trade unions. If such a Commission is forced on this government - or the next - the banks will only have themselves to blame. They should get on the front foot now.</p><img src="https://counter.theconversation.com/content/40561/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pat McConnell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Major banks including the ANZ, NAB, the CBA and Macquarie have faced a public humbling, but professed contrition must become real action.Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/306552014-10-01T04:33:42Z2014-10-01T04:33:42ZWhat behavioural economics tells us about financial adviser greed<figure><img src="https://images.theconversation.com/files/60159/original/7yy9p7wt-1411713111.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some financial advisers are greedy, but others simply have a bias problem.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There’s no doubt incentives matter for financial advisers. If an employer pays a higher commission to an adviser for selling one product instead of another, it’s likely the commission-linked product will be sold more often. </p>
<p>This basic reasoning was behind the previous government’s future of financial advice (FoFA) reforms. The question is, why is this so – out of pure greed, or do financial advisers just not know better?</p>
<p>I <a href="http://eprints.qut.edu.au/75882/1/75882(pub).pdf">studied</a> the question of pure greed in experiments in 2011, in a study where an expert/adviser knew better than his or her client what was best for the client, and the expert earned different amounts of money based on the client’s decision. </p>
<p>About one third of the participants in our experiment were consistently driven by their own private benefit, that is they always chose the option that generated the highest profit for them. Roughly another third showed behaviour that can best be described as trying to do the best thing for the client, with the remaining third either behaving inconsistently or being driven by some sort of mixed preference, allowing for distributional concerns. </p>
<p>But is this the whole story? The setup of our experiment was such that the expert would know exactly what was best for his or her client. In the case of financial advice in the real world, this may not always be so.</p>
<h2>The bias in complex financial decisions</h2>
<p>Financial advice is an expert service. A customer asks an adviser for assistance with making a better decision, expecting that the expert adviser is more knowledgeable and – maybe more objective - than he or she is. </p>
<p>While there’s plenty of <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1651312">literature</a> documenting that household financial decision making is far from perfect, the standard assumption about economic advisers is that they do not make such mistakes. </p>
<p>Given that financial advisers are human beings, this is at least a questionable assumption. Financial products are, almost by definition, complex products. It is often hard to understand which aspect matter and, to make things worse, feedback about whether a decision was correct is slow and rare. This makes it hard for any decision maker to overcome a <a href="http://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow">cognitive bias</a>. </p>
<p>It is likely that even the most experienced financial advisers will be subject to biases in their decisions and the advice they provides to a client, even if they have only the best interests of a client at heart.</p>
<p><a href="http://www.nytimes.com/2011/11/27/books/review/thinking-fast-and-slow-by-daniel-kahneman-book-review.html?pagewanted=all&_r=0">Thinking, Fast and Slow</a> author Daniel Kahneman provides an answer to the question of how a financial adviser may react when facing complex decisions: he or she may substitute the hard question with an easier one. </p>
<p>For example, if the real question a client has is “should I invest in a hybrid security” or not, the adviser may substitute this question with the question, “how popular are hybrid securities among this customer group”? This is a different question, but as Kahneman documents, such substitutions usually go unnoticed. </p>
<p>And in this situation, the role of commissions to financial advisers becomes even more important. </p>
<p>For one reason, the adviser may simply substitute the question “what is best for the client” with “what is best for me” – which is definitely an easier question as the commission structure is easy to identify. Furthermore, this answer allows the adviser, should something go wrong, to blame his or her employer because the decision was simply reflecting the incentives he or she got from the employer.</p>
<h2>Why education is flawed</h2>
<p>Can education help in this case? Yes it can, but given that financial products are complex by nature and learning is slow given that there is no quick feedback, “technical” education is not the answer. </p>
<p>Instead, education should raise awareness to biases and provide advisers with strategies to overcome them. Technical solutions can help but do not solve all problems, as people are likely to overweight information confirming their predispositions and underweight information that conflicts with this predisposition. </p>
<p>This is where organisations employing advisers can play a critical role. As Kahneman points out, organisations have the potential to establish quicker feedback loops, as it’s much easier to see the mistake a colleague makes than to see your own mistake. This channel to avoid weak financial advice is one that tends to be overlooked in the current debate.</p><img src="https://counter.theconversation.com/content/30655/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Uwe Dulleck received funding from the Australian Research Council (ARC) and the Australian Securities and Investments Commission (ASIC). The ASIC funding was independent of the research discussed in this article.</span></em></p>There’s no doubt incentives matter for financial advisers. If an employer pays a higher commission to an adviser for selling one product instead of another, it’s likely the commission-linked product will…Uwe Dulleck, Professor of Applied Economics, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/106002012-11-08T00:58:47Z2012-11-08T00:58:47ZDown the Yellow Brick Road - or up the garden path?<figure><img src="https://images.theconversation.com/files/17381/original/d4b9kgrj-1352335550.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Yellow Brick Road and Macquarie Bank plan to offer mortgages against the Big Four banks - but the market will need a lot more information than so far released.</span> <span class="attribution"><span class="source">Sam Howzit/Flickr</span></span></figcaption></figure><p>Wealth management company <a href="http://www.ybr.com.au/aboutus/index.cfm">Yellow Brick Road</a> and Macquarie Bank have foreshadowed some sort of relationship which will provide a “much-needed alternative for Australian consumers” with the first step being a new mortgage product. </p>
<p>Challenges to the big four banks’ dominance of the mortgage market are welcome (even though this writer has shares in those banks, and also in Macquarie). But there is a lot more information needed before the positive spike in YBR’s share price following the announcement could be seen as warranted. </p>
<p>While, as an academic researcher I do not believe it appropriate to generally comment on business strategies of specific companies, I don’t think my social conscience can let this one pass. </p>
<p>Take the following description in YBR’s <a href="http://www.asx.com.au/asxpdf/20121107/pdf/42b1g692g3vrs6.pdf">two page announcement</a> to the Australian Securities Exchange. It reads: </p>
<blockquote>
<p>“Yellow Brick Road’s opening move is a 1.15% discount off the base rate of 6.65% for the first 12 months on residential home loan products. </p>
<p>After that, a discount off the base rate of up to 0.86% is guaranteed for the life of the loan… All successful applicants will get the discounted rate irrespective of their status.” </p>
</blockquote>
<p>Now, it may just be a drafting error, but “up to 0.86%” is not the same as “of 0.86%”. “Up to” could include zero! But even more relevant is the question of how the base rate is determined. </p>
<p>It may be 6.65% today, but what will it be in a year’s time? A quick search of the YBR website provided no information to answer this question - even among the list of FAQs provided. A discount on a base rate which might exceed the standard rates offered by other lenders would be a “Clayton’s discount” (for those who can remember the ads for “the drink you have when you’re not having a drink”). </p>
<p>Now, it maybe that the tie-up between YBR and Macquarie will enable funds to be raised at a rate to finance mortgages which means that the YBR base rate is competitive with loan rates of the Big Four and other lenders - although how is not clear. But more fundamental (or maybe it’s semantic) is the issue of what is meant by a base rate which no one pays? All successful applicants, it is stated, get the discounted rate. </p>
<p>I can imagine the possibility that a relationship between a wealth management company such as YBR and Macquarie Bank could yield potential economies and efficiencies. And I look forward to more information to assess that. </p>
<p>But a two page news release with the sort of information contained is really no news at all - even if it was listed on the ASX announcements as being a “price sensitive” announcement.“</p><img src="https://counter.theconversation.com/content/10600/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis owns shares in Australia's major four banks and Macquarie Bank.</span></em></p>Wealth management company Yellow Brick Road and Macquarie Bank have foreshadowed some sort of relationship which will provide a “much-needed alternative for Australian consumers” with the first step being…Kevin Davis, Research Director, Australian Centre for Financial Studies Licensed as Creative Commons – attribution, no derivatives.