Banking royal commission: ASIC’s collaborative approach draws Hayne’s fire

The Australian, June 1, 2018

The corporate watchdog’s offer to “work with’ banks breaking laws banning unfair contracts with small businesses has drawn fire from financial services royal commissioner Kenneth Hayne.

Mr Hayne this morning asked the head of the Australian Securities and Investments Commission’s deposit-taking and credit team, Michael Saadat, why it didn’t just tell banks they needed to comply with the law.

Counsel assisting the commission, Michael Hodge, QC, contrasted ASIC’s approach to the new unfair contracts law, which came into force in November 2016, with a more rigorous approach taken by rival regulator the Australian Competition and Consumer Commission.

Mr Saadat admitted ASIC had not taken a single bank to court since the law came into force, despite having concerns today that Suncorp’s contracts might breach the law.

And he also admitted that it had been in part spurred into the action it has taken by the urgings of small business ombudsman Kate Carnell.

He was taken to a March 9, 2017 joint media release with Ms Carnell in which ASIC deputy chairman Peter Kell said that if the regulator found “a potentially unfair term we will work with the lender to remove or amend the term”.

Commissioner Hayne asked Mr Saadat: “Why work with the lender, why not just say, ‘do it’?”

Mr Saadat said that “there was more than one lender that had these terms in their contract and we had to balance the different options”.

“If the lender is prepared to make changes in response to the concerns we have raised that can be a quicker process than going down the road of taking court action.”

Mr Hayne asked why ASIC said it would work with banks that were not complying, rather than saying those who weren’t complying should do so.

“Perhaps our language was a bit more circumspect,” Mr Saadat said.

“But the key messages in this media release is that we wanted the banks to make changes.”

Mr Hayne: “Or come and talk to you?”

Mr Saadat: “About the changes that were required, yes.”

He was also taken to documents showing that the ACCC began demanding sample contracts from companies it regulates in mid-2015, more than a year ahead of when it came into force.

ASIC considered doing this but decided not to, he said.

Instead, it decided to wait until banks had reviewed their contracts and then see if they complied with the law.

“Our primary goal was to review revised contracts to look at the changes that banks were making as a result of the UCT provisions being extended to business contracts,” Mr Saadat said.

“We had feedback from the banks that they were likely to use the full transition period of 12 months to update their contracts.

“For us there didn’t seem to be much point looking at old contracts if they were going to be updated.”

Some banks had taken a “minimalist” approach to revising their contracts such as just inserting the word “reasonable” into particular terms, which ASIC was concerned was not sufficient, Mr Saadat said.

Commissioner Kenneth Hayne asked: “Did the banks’ approach surprise ASIC?”

Mr Saadat: “No.”

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