Banking Royal Commission

Commissioner Kenneth Hayne

The Royal Commission Report into Misconduct in the Banking, Superannuation and Financial Services in this country was handed down today.

The terms of reference commenced by telling interested parties that Australia has a systemically strong and stable banking system, superannuation and financial services industry, with the world’s best prudential regulation and oversight.

At this point you might be asking why we had to have a Royal Commission into the banking industry if the above paragraph was correct. 

After years of complaints from customers about extortionate bank fees and charges, whistle-blowers, consumer groups and opposition political parties, the time arrived when it was no longer possible to ignore the situation.  The current government adopted a stalling process for a long time, claiming an enquiry was not needed. Eventually they were forced to capitulate.

During the hearing proceedings, Kenneth Hayne, a former High Court judge, together with his assistants, closely questioned the various representatives of the banking and finance industries.  The people questioned were from the top of the hierarchy tree in their organisations.

There were nervous people, some red faces, some set jaws and from time to time, following embarrassing revelations of financial misconduct, immediate board resignations took place. One banking CEO stood apart from the others; his belligerent and dismissive attitude, punctuated by scornful replies and much muttering under his breath, indicated a man who considered himself above all this petty questioning. Or maybe a man caught with his hand in the till, so to speak.

In the final wash up of the Royal Commission, a number of malpractices came to light.

Mortgages, when examined, showed considerable lack of ability on the part of bank officers to follow procedures. Maybe there weren’t any procedures to follow? People were lent money without their living expenses being verified and, in some cases, only a one-line summary of expenses were required. One lending institution, seeing which way the wind might blow, changed their loan requirements before the Commission and loan applicants now have twelve expenses categories to complete; this new approach found some loan applicants wanting and loans were refused.

The other big money spinner for financial advisers was the practice of charging fees for financial advice, which was never given.  When the customers realised what was happening and asked for reimbursement, they waited years for their money to be reimbursed.

This financial chicanery also extended to dead people. In one jaw-dropping revelation it was found a dead client was charged for financial advice for over a decade. You might wonder how this came about; it’s possible when large sums of money are sitting about accumulating more wealth, that no one pays much attention to the detail. In fact, you could say, as happened in one case, that a matter of less than $70 per month over two years is hardly a matter of concern. Handy extra pocket money (money pocketed at the expense of another) for the advisor. However, when the cost to the ‘big four’ banks is set at well over $1 billion in remediation it is no small matter after all.

Board members and heads of financial institutions were called out on the behaviour of their companies; APRA the regulator, came in for its share of criticism and finally the whole sorry mess drew to a close.

When the final report was issued, the nearly 1000-page report made 76 recommendations and 24 referrals for further action.  Organisations within the industry made their appraisals and commented on the implications of the report. Culture within the banking organisations, governance, the regulators, executive remuneration, professional advice, employee misconduct, insurance, banking and superannuation were commented on and actions which might be taken were considered.

The burning question is, if and when any of these recommendations will be actioned.  Very conveniently a Federal election is in the offing within the next few months; the government will go into caretaker mode and all political action will centre around who will govern in the next parliament.

As for the report, it may well be sitting gathering dust on a shelf while the relevant parties in the next government decide whether to take any action or whether it is all just too hard and given enough time it will all simply fade away.