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Issue #1647      July 16, 2014

Expanding the power of financial institutions

As many as 400,000 customers may have been victims of fraud and other improper conduct by the Commonwealth Bank of Australia (CBA) between 2003 and 2012, and yet the government stands by and does nothing. In fact, it is doing worse than nothing. It is not only rejecting the findings of a Senate Committee and its calls for a Royal Commission into fraud at the CBA and other banks but is pressing ahead with plans to further deregulate the finance sector.

Commonwealth Bank of Australia building in Martin Place, Sydney.

The apology for “poor advice” by the bank’s CEO Ian Narev and its limited review process is enough as far as the Abbott/Hockey government is concerned. In fact, the process announced by the CBA is more of the same. The CBA refuses to have all accounts externally and independently reviewed or to notify all customers who might be eligible for compensation.

Instead, it has offered to carry out its own internal review of the accounts of those who come forward and if they are not satisfied they can then take their case to an “independent review panel” appointed by the bank. One can only wonder what else are they hiding!

An apology to shareholders for being caught out might have been more credible.

The Senate Committee investigated accusations concerning a group of financial planners at Commonwealth Financial Planning (CFPL) and Financial Wisdom Limited (FWL), CBA subsidiaries, who a whistle-blower had accused of putting clients’ money into risky investments without their permission, the forging of documents and earning hefty commissions along the way.

“Unlawful activity”

“These actions were facilitated by a reckless, sales-based culture and a negligent management, who ignored or disregarded non-compliance and unlawful activity as long as profits were being made,” Senate Committee chairman Senator Mark Bishop said.

“ASIC appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing, or troubling trends that place the interest of consumers or investors at great risk,” Bishop said. Bishop didn’t mince words: “To be blunt, the committee found ASIC [the Australian and Securities Investments Commission] wanting.”

The government has so far refused to call a Royal Commission to investigate the operations of major banks, in sharp contrast to its eagerness to spend millions of dollars on a Royal witch-hunt into the trade union movement. But it has cut funding to an already under-resourced ASIC. ASIC should also be the subject of a Royal Commission into banks.

Merilyn Swan, who fought the bank on behalf of her parents, said recently: “It’s the ‘can’ bank; I’ve found that they can be deceptive; they can be misleading; they can certainly ruin your financial future; they can cover up and they can go out of their way to make life extremely difficult for you.’’

The new unofficial name of the Comm Bank is the Con Bank, and its marketing slogan “Commbank Can” has become the “Commbank Con”.

The government, instead of tightening financial regulations, has introduced a package of measures to wind back Labor’s quite limited Future of Financial Advice (FoFA) reforms that were introduced following the global financial crisis.

The FoFA reforms included a ban on conflicted remuneration structures, such as commissions and volume-based (eg percentage of amount invested) payments for signing up new investments; a duty requiring advisers to act in the best interests of their clients when giving personal advice; and a requirement for advisers to obtain client agreement to ongoing advice fees (opt-in rather than automatic). One of its aims is to prevent bank-employed financial advisers being rewarded for recommending the products of their employer’s investment companies.

The appointment of David Murray to the Abbott government’s review of the financial sector is rather ironic. Murray was CEO of the CBA from 1992-2005. He is tasked with making recommendations to reduce the “the regulatory burden on the financial services sector” which has control over $5 trillion in banking, superannuation, insurance and financial investments – much of it workers’ savings.

The government is also involved in secret talks around the Trade in Services Agreement* (TISA) and the Trans Pacific Partnership Agreement** (TPPA) which aim to further deregulate the financial sector.

International agreements

The main drivers of these agreements are the global financial conglomerates who sit at the negotiating table instructing the US, the EU, Canadian, Japanese, Australian and other governments.

One of the main aims of these agreements is to establish investment regimes which enforce the right of corporations to pursue maximum profits while removing and undermining restrictions which seek to regulate their activities in the interests of people (eg banking, investment, health, jobs, etc), the environment, trade union or other democratic rights and national sovereignty.

These treaties are being negotiated under conditions of the strictest secrecy. While corporations draft and share the negotiating texts, the people who will be adversely affected by their decisions are denied access in the name of “national security”. WikiLeaks has provided an important public service by exposing the nature of some of their contents.

Further deregulation on agenda

The financial services sections prohibit any restrictions on the repatriation of profits or funds. Governments may not impose capital controls to halt attacks on their currencies or restrict “hot money” flows, even in a crisis.

Financial services include banking, life and non-life insurance, reinsurance, trading derivatives and foreign exchange, funds management, credit ratings, financial advice and data processing. The rules apply to measures that “affect” the supply of financial services through foreign direct investment (including takeovers of domestic banks, etc) and offshore provision by remote delivery or services purchased in another country (cross-border).

They also aim to achieve a minimalist regulatory regime, preferring a self-regulatory (i.e. no government intervention) model of financial regulation.

They seek the lifting of all restrictions on cross-border data flows and transfers and the processing and storing of data offshore. Never mind privacy concerns or control over personal data. These would be over-ridden.

Restrictions would be lifted on the buying and selling of financial products across borders and providing investment advice, without establishing a commercial presence and without being subject to separate licensing and approval requirements that generally apply to firms commercially present in a market.

Australia would be required to treat foreign institutions “no less favourably” than domestic ones. This includes the right to hold a licence, to government assistance during a crisis, and so on. They would be given what is known as “national treatment”.

The government would have no control over the corporate ownership or structure (eg branch, 100% owned subsidiary, joint venture, etc) of foreign operators.

One of the most dangerous provisions is a prohibition on the introduction of tighter regulations and rules governing the financial sector after signing the treaty. The reversal of privatisations would not be permitted.

The other extremely dangerous and alarming provision is the inclusion of investor-state dispute settlement (ISDS) commitments. ISDS provisions allow corporations to directly sue governments for damages in closed international tribunals for which there is no appeals process. The outcomes could be costly to taxpayers. For example, the 2012 US$1.77 billion award to Occidental Petroleum for Ecuador’s termination of a contract (breaching ISDS provisions of an investment treaty with the US) has now swelled to over US$3 billion with the addition of compound interest calculated from the date of the “violation”.

Foreign financial institutions would not only be free to have a commercial presence without restrictions on the transfer of capital, but protected from expropriation and dispute settlement requirements as presently required by domestic banks and insurance companies.

As can be seen by the provisions being negotiated, such treaties completely over-ride the sovereignty of nation states. Democratic processes are completely ignored with elected members of parliament having no say or access to documents, let alone an open public discussion. In some of these treaties it could be some years after signing that their details are revealed! They make a mockery of parliamentary democracy and undermine Australia’s sovereignty. They increase the risks of financial crises and the loss of superannuation and bank savings.

It is also evident that Abbott’s winding back of FoFA, refusal to hold a Royal Commission into the CBA, its cuts to ASIC, and the Murray inquiry into the financial system are moving in the direction dictated by finance capital and the outcomes they expect from their secret treaty negotiations.

The Multilateral Agreement on Investment and the Free Trade Area of the Americas agreement were defeated by massive international campaigns. There is a global campaign against the TPPA and action is also required against TISA calling for them to halt negotiations and make details public. Guardian readers are urged to write to Trade Minister Andrew Robb and their local MPs and Senators. For more information visit:

aftinet.org.au

iuf.org, Trade Deals That Threaten Democracy.

*TPPA – between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

* TISA – Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, European Union (representing its 28 members), Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Turkey and the US.

Next article – The end of public higher education in Australia

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