Fitch Concerned About Violations In Australian Banks

fitch ratingsFitch Ratings has been observing the increasing number of discrepancies in the conduct and culture breaches in Australian banks. The credit rating firm has warned that these deliberate breaches could result in significant financial damages by way of penalties.

Banks and financial institutions in Australia have been charged with multiple cases of malpractices in recent years including interest-rate manipulation, faulty financial advice by wealth management firms, and issues with claim payments in life insurance.

In a statement, Fitch said,

Recent revelations about alleged conduct issues at a number of Australian banks highlight increased regulatory scrutiny of conduct and culture in the financial system. Fines, class-action law suits, increased regulatory oversight and remedial action are all possible outcomes from this push

The corporate regulator Australian Securities and Investments Commission (ASIC) is suing ANZ and Westpac, which are two out of the country’s four largest banks for interest-rigging. Many firms in Australia have been accused of offering poor financial advice to customers. The most recent case of misconduct to hit the news has been the accusation that insurance company CommInsure deliberately blocked claim payments to severely affected customers.

Fitch Ratings stated that these issues are likely to come up across all levels of these financial institutions and the immediate impact would be a major blemish on their reputation. It added that these incidents will increase the scrutiny of regulatory authorities, ultimately improving bank practices.

Fitch however said that the fines and related cost of these malpractices are relatively minimal when seen against the annual profits of $37 billion that the banks make. Additionally even if class action lawsuits emerge they are likely to be long-drawn, limiting the extent of financial loss.

Fund managers in Australia have also been cautioning the banks of the consequences of conduct breaches, giving the example of U.K banks that have paid £27 billion in fines for irregular practices in selling insurance products, although there was no loss was incurred by their customers.

Another ratings firms, Moody’s recently raised concerns regarding ASIC’s legal suit against ANZ Banking Group. It warned of serious impact on the Group if the regulatory agency wins its case. The ASIC subsequently filed a case against Westpac as well. These banks have been charged with manipulation of the bank bill swap rate which is an interest-rate benchmark utilized in the country’s money market.

The ASIC cases are civil suits that can result in a fine of $1 million for every lapse. This implies a fine of $16 million for Westpac and $44 million for ANZ. Both the banks have denied the allegations and are currently fighting these cases.