Financial services: The changing landscape
An address by Jeremy Cooper, ASIC Deputy Chairman, to the Financial Ombudsman Service, National Conference, 11 June 2009, Melbourne
The global financial crisis was not, and still is not, a laughing matter. This is why there are no good jokes to tell about it. There was the comic strip explaining sub-prime mortgages and their ultimate impact on a Norwegian pension fund, but it was not very polite and so not suitable for sharing with you today. The remaining jokes are, I'm afraid to say, a sorry reflection on an industry known for its creativity. Maybe the regulator should be responsible for some decent jokes in any future financial crisis! (Look out). Anyway, here is a sample of what I am complaining about:
- What's the difference between an investment banker and a pigeon? A pigeon is still capable of making a deposit on a new BMW.
- A director decided to award a prize of $100 for the best idea of saving the company money during the credit crunch. It was won by a young executive who suggested reducing the prize money to $20.
Now many of you would be thinking that I probably shouldn't be hanging on to my job for too much longer after telling jokes as bad as that. Well you are partly right. I have recently been appointed to chair a year-long Review into the Governance, Structure, Efficiency and Operation of Australia's Superannuation System. This will be the first comprehensive review into Australia's compulsory $1.1 trillion superannuation system, focused on removing unnecessary costs, fees, commissions and complexity and boosting returns and retirement incomes. This is a full-time role and I will be finishing up at ASIC later this month.
The theme of this conference is 'Financial services – the changing landscape'. There would be few organisations more aware of how much has changed in financial services in recent times than ASIC. So I am pleased to be able to talk to this theme from the regulatory perspective.
As we all know, around two years ago, the world was at the height of its economic boom. London - lauded for its principles-based regulatory approach - was the new global financial centre and home to a new generation of investment bankers and hedge fund managers who were living it up.
Bonuses of millions of pounds were commonplace. Movida, one of London's most extravagant clubs, added a £35,000 cocktail to its menu. The Flawless comprised a mix of Louis XII cognac, Cristal Rose champagne, brown sugar, bitters, a few chips of 24-carat edible gold leaf and an 11-carat diamond ring at the bottom of the glass. Our very own Kylie Minogue was apparently 'shouted' one.
In the financial services sector, most Australians believed their super funds would continue to deliver double-digit returns and there were many other clear signs of a bull-market mentality.
Even when the tide started to turn in the UK and the US, Australia showed every sign that it would ride out the GFC unscathed. This time a year ago - June 2008 - the resources boom continued unabated, interest rates were high and the Aussie dollar was trading at around 94 US cents.
Well, we all know what happened next.
However, the S&P/ASX 200 is up nearly 30% since its low in March this year. ASIC also felt the market had demonstrated enough signs of stability for us to lift the ban on covered shortselling of financial stocks before the market opened on 25 May.
Yet, even if these figures evidence the green shoots of a longer term recovery, on the ground, consumers and retail investors are still feeling the pain. One need not look further than FOS' most recent dispute statistics to show that a market recovery will take time to work its way through to consumers and retail investors.
FOS data shows that from January to the end of April this year, the FOS Banking & Finance division recorded a 52% increase in disputes compared to the same period in the previous year. Likewise, the Investments, Life Insurance and Super division recorded a 68% increase in disputes.
This is in line with comparable agencies overseas. In its annual review of 2008-2009, the UK's Financial Ombudsman Service recorded significant increases in complaints received. For example, investments disputes were up 30% and disputes related to mortgages and unsecured loans were up 11% and 44 % respectively, reflecting the impact of the credit crunch.
These figures will not come as a surprise to any of you. However, they serve to illustrate how timely ASIC's new external dispute resolution regime is, and how necessary it is that we facilitate consumer access to effective and efficient dispute resolution at this challenging economic time.