Fitch: Conduct Risk a Growing Threat for Australian Banks

(The following statement was released by the rating agency)SYDNEY/SINGAPORE, April 06 (Fitch) Recent revelations about alleged conduct issues at a number of Australian banks highlight increased regulatory scrutiny of conduct and culture in the financial system. Fines, class-action law suits, increased regulatory oversight and remedial action are all possible outcomes from this push, says Fitch Ratings.The alleged conduct issues cover a range of different areas including bank bill swap rate manipulation, claims payment problems in life insurance operations, and poor financial advice in wealth-management businesses. The emergence of conduct issues from other areas of the banks' operations is also possible.The current regulatory push should ultimately result in a stronger compliance culture within Australia's banking system, which in turn should help limit similar issues occurring in the future. This is likely to take some time to filter through all levels of the institutions, while the more immediate impact would be banks suffering some reputational damage. Penalties, fines and the cost of remedial action are unlikely to be meaningful relative to the size of the banks involved, and it is unclear as to what class-action lawsuits may emerge, the prospects for their success, and the ultimate cost to the banks. Nevertheless, these actions are likely to evolve over many years if they are undertaken - which, again, should help limit the financial burden of adverse findings on the affected banks.Conduct risk has become an increasingly relevant issue for banks in other developed markets - including the US, UK and Europe - over the past several years. Conduct costs from regulatory fines and litigation-related expenses remained high for global trading and universal banks in 2014 and 2015. To date, the costs associated with conduct risk for these banks have been manageable at each issuer's ratings level. However, resolution with the authorities is often only a first step, as civil cases can follow. Contact: Tim RocheSenior DirectorFinancial Institutions+61 2 8256 0310Fitch Australia Pty LtdLevel 15, 77 King StreetSydney, AustraliaJustin PatrieSenior DirectorFitch Wire+65 6796 7232Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com.The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.