The Hayne Spring didn’t last long. Having seen our sleepy watchpuppies kicked awake by the banking royal commission, the government wants them to quit barking and to be very careful about who they try to bite.
By one means or another, the Australian Securities and Investments Commission, the Australian Prudential Regulatory Authority, the Reserve Bank of Australia and now the Australian Financial Complaints Authority have all been hit over the snout with a rolled-up newspaper and forced to cool it.
Only AUSTRAC, the curious anti-money laundering, dubious transfers and whatnot mob, appears free to roam. Well, it is proving a handy revenue raiser.
Unlike the others, it has been the NSW Supreme Court that has cooled AFCA’s enthusiasm.
From reports of the case, it seems an effort by AFCA staff to get on the front foot and help a dudded investor against the might of the investment advice industry is not the way the law will permit them to work.
For the other regulators, the job has been done by a wink, a nod and the odd tongue lashing by the government.
Josh Frydenberg has made clear that lenders have taken the Hayne Royal Commission (the one the government fought hard not to have) far too seriously.
To the extent that lenders have become too cautious about lending money and would-be borrowers have been absolved of responsibility for themselves, I am in the rare position of somewhat agreeing with the Treasurer.
But the wind from Canberra has blown cold more broadly, sending a shiver through the watchpuppies’ supposed independence.
ASIC was warned off having any policy ideas and subsequently ran a mile from any criticism of the buy now, pay later stock market darlings.
For about as long as ASIC has existed, it’s been my complaint that it has lacked a certain fire in the belly, a desire to get on the front foot with the many shonks, spivs and corporate cons that operate in its bailiwick. Eliot Ness never worked there.
Now ASIC has been told its job is to remain reactive.
Poor old APRA copped plenty of deserved stick in the immediate aftermath of the royal commission, but has subsequently been blamed for being too demanding about banks’ lending standards.
(It was largely missed that APRA’s prime responsibility is the welfare of our banks, not their customers. Our silly system of having multiple regulators inevitably means issues fall in various valleys between our “three peaks”.)
On top of the too soft/too hard balancing act, there are reports that suggest it is now having to entertain the publicity-seeking ambitions of the odd backbencher.
But it’s the RBA’s apparent slide under political pressure that is most disappointing because, as an institution, we had become used to it being better than that.
ASIC (if for its Storm Financial record alone – and it wasn’t alone) and APRA (HIH Insurance, anyone?) weren’t that flash to begin with. The RBA inevitably has made mistakes from time to time, but it had built a strong reputation for acting on principle.
Ever since Governor Lowe was either tricked into or willingly agreed to that unfortunate photo op with Mr Frydenberg in July last year, there’s been a sense of the RBA being heavied to not rock the government’s boat.
For me, the RBA backflipping last week on BNPL surcharging was a signal that something precious and hard won had been lost.
In the greater scheme of things it would matter little that Governor Lowe will allow Afterpay and the like to continue to ban merchants from directly recovering the high fees from customers who use BNPL.
And Dr Lowe did retain the option to maybe do something about it down the track. That amounted to an admission that he would wait for the horse to bolt before shutting the gate.
What’s sad is that the sound economic principle of unqualified transparency was abandoned for the sake of some dubious infant industry protection – protection that happened to be favoured by government members and all those with vested interests in a bubbling sector of the stock market.
Protectionism is always at the expense of someone else. Tilting the playing field, allowing Afterpay to do what other payment systems are not allowed to do, inevitably comes at a cost.
Dr Lowe’s excuse was effectively that BNPL was small so it didn’t matter much if principles were breached.
But the only justification for Afterpay’s extremely high market cap is the expectation that it will become a very large player. It’s questionable whether the RBA should be party to sub-optimal regulation to help deliver that expectation.
And if we’re now officially entering a new era of protectionism, there are plenty of industries that could claim a bigger social pay-off (jobs) than a credit provider.
One argument against infant industry protection is that the protected firms never reach childhood, let alone grow up. They turn themselves into rent-seekers, the all-too-common Australian way of doing business.
As always when there’s political pressure about, it’s wise to ask cui bono – who benefits? And then follow what politicians are in the pockets of those who benefit.
So far, a vast amount of money has been made by BNPL shareholders and the financial markets who run the start-ups game. The actual companies have made little if any profit.
And it’s all based on a form of consumer credit where the upfront cost of the transaction – up to 6 per cent – is hidden, the credit providers allowed to force merchants to keep it hidden.
If merchants had the option of surcharging for the BNPL fees, it would be up to the consumer to pay for whatever the perceived advantage might be or select a cheaper option. The market would not be distorted and those of us who don’t use Afterpay wouldn’t be subsidising those who do.
The BNPL promoters claim merchants pick up so much extra business, it’s worth their while to wear the fees. Well, if the BNPL promoters were confident about that, they would have no problem leaving the surchange/don’t surcharge choice up to the merchants, as it is for credit card fees.
But the one thing you can rely on with the fintech loophole seekers is that they are not interested in a level playing field and that the descriptions of their core business are nothing less than fanciful.
Not only is an Afterpay spade not a spade, they would have you believe it’s not used for digging and is actually more of a butterfly net.
And the reduced RBA is saying that’s perfectly OK.