Banking regulator Wayne Byres is expected to face questions about an official probe into fraud risk in the $1.6 trillion mortgage market when he appears at Senate estimates this week, after it was confirmed major banks provided the regulator with external audits on the topic at least nine months ago.
The Australian Prudential Regulation Authority (APRA) in late 2016 kicked off a review covering mortgage fraud control, and in response to a Freedom of Information (FOI) request from Fairfax Media, APRA said it received external audits from five major banks in April and May last year.
APRA declined to release the audits under FOI laws, citing strict secrecy provisions in the APRA Act, and said it had not produced a final report on the topic "yet".
Even so, APRA chairman Mr Byres is likely to be asked about the review in Canberra this Thursday, when he may also face questions about the royal commission into financial misconduct.
Last year, in response to a question on notice from Greens senator Peter Whish-Wilson about the fraud review, APRA said it had required the relevant banks to engage external auditors to investigate their verification of key borrower information.
The review was broader than fraud, it said, covering "whether that information faithfully represents the borrower’s economic circumstances".
APRA also said to Senator Whish-Wilson last year that it would respond to banks later in 2017, and it had not determined if the information would ultimately be made public.
Senator Whish-Wilson on Friday said there could be valid reasons for APRA not providing detailed information about individual banks in this instance. But there was also a case for APRA being transparent about the potential risks of mortgage fraud, he said, given its potential impact on banks and the financial system.
I think markets should be well-informed, they should have this kind of information so people can adequately assess the risk,
Greens senator Peter Whish-Wilson
"If one bank has got, for example, and exceptionally higher than acceptable or standard ratio of problem mortgages, that may affect their valuations on the sharemarket. But I don't think that's a good enough reason to be keeping it in-house.
“I think markets should be well-informed, they should have this kind of information so people can adequately assess the risk,” Senator Whish-Wilson said.
Australia's major banks make up about a quarter of the ASX200 by value, and mortgages are the biggest assets on their balance sheets.
The APRA Act prohibits the regulator from releasing information about the institutions it supervises as part of its prudential work, and Mr Byres has previously said he could face two years' jail time for breaking this rule.
The issue of potential mortgage fraud has been discussed in financial markets in recent months after UBS analyst Jonathan Mott in September suggested up to $500 billion in bank mortgages were "liar loans," or those based on factually incorrect information.
APRA chair Wayne Byres will face questions over the mortgage fraud review on Thursday.
Photo: Jessica Hromas
Last month Mr Mott also said his analysis of banks' disclosures on household incomes were inconsistent with data on incomes sourced from the Census, the Tax Office and the Bureau of Statistics.
Commonwealth Bank chief executive Ian Narev was asked about Mr Mott's latest research this month and indicated the bank stood by its numbers, which point to a very different conclusion. Despite the discussion about loan information accuracy, very few customers are falling behind on their mortgages, with banks' bad debts still near historic lows.
APRA typically releases some of the findings of its investigative work through speeches from its officials, prudential guidelines, reports or other such publications.
There has been no such detail provided on the fraud review, though a speech from Mr Byres in November said reviews of banks' files by external auditors had found there was "more to do" to improve how banks assessed borrowers' expenses, and identified all of a customers' debts.This article was first published by https://www.smh.com.auBy: Clancy Yeates