Customer will “ultimately pay” for regulation

by Madison Utley12 Jun 2019

The increasing regulatory power being granted to ASIC – and the ensuing emphasis placed on compliance – has sent shockwaves across the lending landscape, impacting lenders of all sizes and infringing on the best interest of the consumer, according to a credit and risk specialist.

“ASIC is reinventing itself as something remarkably similar to the aggressive US Securities and Exchange Commission (SEC). Those that I speak to in the industry say this is not only going to expose operators to more ASIC action, but to more rejected applications and lower levels of business. They see many lenders leaving because they cannot adapt to the new environment,” explained Andrew Tierney, a credit and risk specialist with nearly a decade of experience at Equifax.

In April's federal budget, the coalition government announced it would be giving ASIC more than $400m in additional funding – up 25% compared to the year before –  to “implement a more ‘in-your-face’ enforcement strategy,” according to Tierney.

While Tierney acknowledges that regulation can be a useful tool to protect the consumer, he feels certain that the ideal balance has yet to be achieved. 

“If you think of it as a pendulum, before the royal commission, ASIC was a very low-touch, toothless-tiger at one extreme end of the swing. The pendulum has now swung the other way and we are in an aggressive compliance culture.”

It’s not just lenders likely to struggle under the new model, although they certainly will – especially smaller institutions less able to absorb the additional expenses associated with compliance.

“There is the feeling in the marketplace that it will be the customer who ultimately pays in the end, because those costs will get passed through,” said Tierney.

“What everybody in the industry is hoping is that the pendulum settles somewhere in between,” he added. 

For now, lenders need to be proactive about not allowing the demands of compliance to erode their profit and strip them of their sustainability. 

“While this has highlighted that we have areas we need to fix up, we do have the tools to do it. But we need to work on those tools to make them better, to make them able to address the issues we have, and to take away the need to fund manpower,” Tierney said.

“The only way it can be done is with data. Open banking is not only a neat solution to the higher bar that the regulator is putting in place, but it is additionally a tool that can maximise profits in the new age of cautious lending,” he concluded.