Ahh, banks. Banks banks banks. Those big buildings where they keep all our money, in the form of gold coins stuffed into big sacks with dollar signs on them. Some of them have a room full to the brim with said coins, and rich people are allowed to swim around in it. It may not be fair, but it’s the way the world is.
Yesterday arvo, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – known as the ‘Banking Royal Commission’ by people who value their time – handed down its final recommendations, after what felt like years worth of news stories about flagrant misconduct from our financial institutions.
The report itself is a three-volume, thousand-page monstrosity that you are almost certainly never going to read. So let me walk you through the big findings and recommendations, so that you can engage in a conversation about the royal commission for roughly five minutes before the other person realises you don’t actually know what you’re talking about.
But for that five minutes you will feel like a genius.
What is the Banking Royal Commission?
The royal commission was established on the 14th of December 2017 following extensive public pressure. Recent media reports had exposed a culture of greed within some of our financial institutions, and – to put it bluntly – the people wanted blood.
A royal commission, in case you weren’t entirely clear, is a public inquiry called by a government to investigate with extensive powers within set parameters. Once it starts, the government can’t stop it. Governments tend to not love calling them unless it is absolutely necessary, because they naturally turn up a lot of bad behaviour and dereliction of duty on the part of the government itself.
This is why Scott Morrison voted against a banking royal commission 26 times before he finally caved to the pressure. He also described calls for a royal commission as a “populist whinge.” Will this stop him taking credit for this one? It absolutely will not.
The commission was headed by Kenneth Hayne, a former High Court judge. You can see him in the lead image of this very article, looking stern next to a mildly panicked Josh Frydenberg.
What did the Royal Commission discover?
The public hearings, in addition to providing excellent visual of an endless procession of white dudes in suits sweating heavily on a witness stand, also revealed a lot of shoddy conduct, which included:
- Banks and financial services charging customers for services they never actually received (the so-called “fees for no service” scandal).
- People being sold financial products they didn’t actually need.
- Exorbitant bonuses being given to executives based on profit without concern for the interests of the consumer.
- The regulator, ASIC, generally acting a bit toothless in the face of provable misconduct.
- Dead people being charged for services. I’m no expert, but that probably shouldn’t happen!
- Many failures of the system when it comes to financial services and loans for farmers and people with poor English skills.
- A whole bunch of intermediary businesses – like mortgage brokers – fostering “aggressive” sales-based culture which led to poor outcomes for consumers.
- Many other not great instances of misconduct, mostly led by intense focus on profit at the expense of all else.
Hayne placed the blame for most of this misconduct squarely at the feet of the executives and boards in charge of our financial institutions:
There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management. Nothing that is said in this report should be understood as diminishing that responsibility.
He also indicated that the root cause of the problem was a focus on making huge profits at the expense of actually providing proper service to customers:
The conduct in issue was driven not only by the relevant entity’s pursuit of profit, but also by individuals’ pursuit of gain, whether in the form of remuneration for the individual or profit for the individual’s business. Providing a service to customers was relegated to second place.
What did the Royal Commission recommend as a solution?
Justice Hayne actually made 76 recommendations, all of which the federal government says it will implement in some way. Realistically, they couldn’t not do exactly that, considering the political heat. Here’s a more detailed summary as provided by our friends at the Sydney Morning Herald, but here’s some big takeaways for you:
- Nobody was named and shamed, but Hayne made 24 referrals for “further action” and indicated the potential for more than 20 prosecutions.
- Regulators – like ASIC and APRA – will keep on as they are, but they’ve basically been told to pull their socks up and start laying down the law or someone else will. They will be overseen by a new independent authority.
- A compensation scheme will be set up, funded by the financial services industry, as a last resort for customers who haven’t been able to find justice with their own institution.
- There will be a toughening of laws and provisions around unsolicited selling, making it harder for companies to flog financial products to customers.
- Mortgage brokers will need to act in the best interest of their customers, and not the bank who is issuing the loan. Commissions for mortgage brokers will also be overhauled.
- A national scheme will be set up to oversee and mediate farm debts.
Well, the government needs to implement the findings. The Coalition will be keen to do this, as they will want to be seen as ‘tough’ on the banks in the lead-up to the federal election in May. As many are saying, the recommended changes aren’t insanely tough, so it won’t be too bitter a pill for the Libs to swallow.
The Finance Sector Union, for example, is very unimpressed:
Haynes bark at the hearings has proved to be worse than his bite. These are mostly cosmetic changes rather than structural. Some media describe the recommendations as ‘explosive’. If explosive is a penny bunger rather than a stick of dynamite then maybe.
— Finance Sector Union (@FSU_Australia) February 4, 2019
The banks and their peak bodies – at least at this point – are welcoming the findings and saying they will support any regulation that comes from it. They also say they’re reflecting on their own internal cultures and are committed to change. To what extent you believe that is totally up to you.
Treasurer Josh Frydenberg gave an address promising that all recommendations will be followed up on and addressed legislatively in some way or another.
It’ll probably a take few days for it all to settle in, but there you have it: the banks and financial institutions of Australia have been up to no good! That’s your takeaway!