Welcome to Edition 49 of Boardroom Brief.
This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
This week, it’s all about the banks, with the Royal Commission kicking off in Melbourne and the introduction of further legislation aimed to increase transparency and accountability in the banking sector.
KEY BOARDROOM BRIEF
RBA confirms interest rates likely to remain unchanged for the near-term. Last week, the RBA communicated to the market in three parts: its February decision statement, an address by Governor Lowe, and its Statement on Monetary Policy. As widely expected, interest rates have been held at 1.5% and the RBA’s core views on economic outlook remain the same (namely, a gradual lift in GDP growth and inflation is forecasted throughout 2018 and 2019). Whilst the next move in interest rates is likely to be a rise, the RBA has said that any such increase in rates will be gradual and unlikely in the near-term. Westpac - having picked up on a theme of ‘gradual improvement’ throughout the RBA’s public positioning last week - believes that a clear policy shift is evident: The RBA will not pre-empt an improvement in the economy despite an upturn in global growth and inflation. Westpac remains of the view that wages and inflation will continue to disappoint, and that GDP growth will hold below trend in 2018 and 2019. You can read the Statement on Monetary Policy here.
Banking Executive Accountability Regime (BEAR) Bill passes both houses of Parliament. Last week, the Senate passed the BEAR Bill, imposing higher standards of behaviour in the banking sector, leaving only now the Governor-General to give it royal assent. This legislation is part of a broader suite of financial services reforms delivering on the Turnbull Government’s commitment to put consumers first, ensuring Australians can have trust and confidence in the banking system. Where the BEAR obligations are not met, APRA will be empowered to seek substantial fines, more easily disqualify individuals and ensure banks’ remuneration policies result in financial consequences for individuals. Banks will be required, among other things, to register their senior executives and directors (accountable persons) with APRA and provide greater clarity regarding their responsibilities. For large authorised deposit-taking institutions (ADIs), the BEAR will commence on 1 July 2018 and for small and medium ADIs, the regime will commence from 1 July 2019.
Australian Government publishes its Open Banking Report. The Australian Government’s Report of the Review into Open Banking recommends a regulatory framework under which an open banking regime would operate and the necessary legislation required to support and enforce the regime. The Report constitutes the Government’s first stage in advancing a broader consumer data right, which is about giving customers more access to, and control over, their information. Specifically, the Report sets out 50 recommendations for implementing Open Banking in Australia - covering the regulatory framework itself, what data should be shared and with whom, what safeguards are needed to inspire confidence in data sharing, how data should be transferred, and how Open Banking should be rolled out. Directors of financial services companies, particularly in the “Alt-Fi” and Fintech areas, should consider the potential opportunities that an open data regime might provide for their business. The Government invites interested parties to make submissions on recommendations by 23 March 2018.
THE WEEK AHEAD
Banking Royal Commission. All eyes will be on Melbourne this week as the Banking Royal Commission gets under way. To the surprise of many, the Commission has already published a background paper on the banking industry, which, if nothing else, explains clearly why the security and performance of that sector is of such concern to regulators. Authorised Deposit-taking Institutions (ADIs) hold $4.6 trillion in assets, around two-and-a-half times the size of Australia’s $1.8 trillion nominal economy, and financial and insurance services is the largest contributor to real industry gross value added in Australia.
Volatility. The CBOE’s volatility index, otherwise known and the VIX (or more poetically the “Fear Index”) spiked last week in reaction to tumultuous trading on Wall Street. But is interesting to note that the VIX itself has been volatile – perhaps indicative of the differing views among commentators whether the last week’s trade represents a long overdue “technical correction” or a sustained period of uncertainty as the US navigates a return to a more normalised interest rate environment. Either way, Directors will need to be on alert particularly if contemplating market-facing activities such as ECM or M&A, which may become increasingly tricky both to price and execute.