In September 2018, Westpac admitted to breaches of responsible lending obligations when issuing home loans to customers and agreed to pay a $35-million civil penalty to resolve Federal Court proceedings under the National Credit Act.
However, the Federal Court was tentative in its approach to the matter brought forward by the Australian Securities and Investments Commission (ASIC).
The judge presiding over the case, Justice Nye Perram, had sought a friend of the court to consider whether the Westpac case even constituted a breach of the NCCP (reportedly stating that “there is no fact before [him] that any unsuitable loans were made”).
Following his review of the case, Justice Perram judged that a lender “may do what it wants in the assessment process”, noting that other provisions of the NCCP impose penalties if lenders make unsuitable loans as a result of that process.
In response, ASIC announced that it would appeal Justice Perram’s decision to the Full Federal Court of Australia to address “uncertainty” caused by the verdict.
The regulator’s decision to appeal the case has come under scrutiny, with policymakers the latest to question ASIC’s appeal.
Appearing before the parlimanetary joint committee on corporations and financial services on Tuesday (19 November), ASIC chair James Shipton and commissioner Sean Hughes were asked to explain the regulator’s reasoning for appealing the judgement, given its wishes to introduce principles-based, rather than prescriptive, responsible lending guidance (RG 209).
Committee member and Liberal MP Jason Falinski alleged that ASIC’s decision to contest Justice Perram’s judgement (that a lender “may do what it wants in the assessment process”) conflicted with ASIC’s push for principles-based guidance.
However, Mr Hughes reiterated that in appealing the decision, the regulator is seeking further clarity from the Federal Court to assist lenders in shaping their approach to responsible lending.
“Reasonable minds may disagree on that particular issue, but our view is that [the judgement] creates additional uncertainty. And we think that an appellate judgement would create guidance and a clear steer, one way or the other, to lenders as to what precise inquiries they need to undertake to satisfy their obligations,” he said.
“[The] essence of the appeal is to define the law as set by the parliament. It is not to punish Westpac in relation to individual loan transaction decisions.”
ASIC chair James Shipton added that ASIC’s appeal was consistent with its remit, adding that he believed there was no conflict between its appeal and its commitment to introducing principles-based guidance.
“We have, as Mr Hughes was saying, an obligation to clarify points of law. We have an obligation in this particular matter and in other pieces of legislation to administer the law,” Mr Shipton said.
“In our duties and our obligations of administration of the law, we will, from time to time, test the proper adherence to that law.
“I don’t see anything inconsistent with our statements about nuance or our statements about principles-based and judgement.”
He added: “Ultimately, this is a matter for the courts. Ultimately, the courts will help everybody determine the level of certainty so that we are better armed to administer the law and the lenders are better armed to abide by the law.”
The ASIC chair also noted that the regulator had received support from financial industry stakeholders to appeal the judgement, adding: “In fact, there is a very large volume of voices that believe that pursuing and trying to find clarity by utilising our important obligations to administer the law and see clarity of the law is actually going to be very beneficial to the financial sector.”
The Full Federal Court is yet to make a judgement regarding ASIC’s latest appeal. However, last month, the corporate regulator successfully appealed the Federal Court’s decision in relation to its dispute with Westpac regarding the meaning of “personal advice”.
The appeal related to the Federal Court’s decision that Westpac Securities Administration Ltd (WSAL) and BT Funds Management Ltd (BTFM) did not provide personal advice to 15 customers in two telephone campaigns conducted by members of Westpac’s Super Activation Team.
The decision was reversed following the appeal, with the Full Court finding that in calls to 14 of the customers, Westpac staff did provide them personal advice, in breach of WSAL and BTFM’s Australian Financial Services Licences.