Australian Royal Commission Scolds Banks, Regulators As Scandals Mount

Tom Burroughes

1 October 2018

The Royal Commission on Australia’s banking and financial services sector delivered an expectedly damning interim report verdict on the industry, arguing that “greed” and a sales-driven culture had contributed to a series of problems. Some of its criticisms have echoes of the kind of arguments made ahead of reforms to the UK's financial advice sector half a decade ago.

As already chronicled by this news organisation and others, a raft of banks, wealth managers and advisors have been exposed for over-charging clients, charging them for non-existent services, and lapses such as operating lax anti-money laundering controls. The scandals have rocked the image of Australia’s sector. In recent times, systems such as the country’s compulsory pension savings regime – its “superannuation” model – have been held up as model for other nations to adopt. But the Australian saga might give them pause.

Issues at firms such as AMP, Commonwealth Bank of Australia, National Bank of Australia, Macquarie, ANZ and others, have been almost daily news items over recent months.

Established by the government the year, the Commission said: “Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained? But it is necessary then to go behind the particular events and ask how and why they came about.”

“Banks, and all financial services entities recognised that they sold services and products. Selling became their focus of attention. Too often it became the sole focus of attention. Products and services multiplied. Banks searched for their ‘share of the customer’s wallet’. From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales,” it said.

The report said that when misconduct was revealed, it either went unpunished or the consequences “did not meet the seriousness of what had been done”.

The Commission had tough words for the Australian Securities and Investments Commission: “The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct.
The prudential regulator, APRA, never went to court.”

“Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct,” the report continued.

“Infringement notices imposed penalties that were immaterial for the large banks. Enforceable undertakings might require a ‘community benefit payment’, but the amount was far less than the penalty that ASIC could properly have asked a court to impose,” it said.

A further round of public hearings will be held as the Commission prepares to issue its final report, the organisation said.