The Australian Securities and Investments Commission (ASIC) has released a “principles-based” responsible lending road map that seeks to replace the flawed Household Expenditure Measure (HEM) – a relative poverty estimate – used widely by banks in the lead-up to the Hayne Royal Commission:
ASIC commissioner Sean Hughes said the examples provided by the regulator were aimed at striking a balance between giving lenders and brokers both maximum flexibility and detailed guidance…
“The provision of credit is a decision for a lender and not a decision for ASIC,” Mr Hughes said. “These guidelines have been made to assist lenders make good lending decisions, we are not adding new or additional requirements that do not already exist”…
Mr Hughes said the regulator decided against applying prescriptive minimum standards because the credit risk ultimately lies with the bank and its representatives…
The regulator has included 39 detailed examples to accommodate the changing business landscape which has included new styles of employment and expenses…
Banks are also being told by ASIC to go beyond a basic spending benchmark known as the Household Expenditure Measure or HEM when gauging the reliability of a customer’s submitted expenses…
Australian Banking Association CEO Anna Bligh said the industry was pleased the regulator had avoided the route of black-letter-law and instead adopted a principles-based approach.
As these reforms are ‘principles-based’, they are only one step above industry self-regulation. This means they will likely only curb credit excesses at the margin by ensuring that banks give at least some consideration to expenditures outside of the HEM.
While they are better than nothing, they are hardly the revolution needed after the malfeasance uncovered by the Hayne Royal Commission.
