Australia’s banking sector shocked the world with blatant misconduct which highlighted selfish means for short-term financial gain.
The intervention by the Royal Commission has brought to light four of Australia’s biggest banks where wealth managers placed profit in preference to customer interests. The guilty parties are the Commonwealth Bank of Australia, Australia and New Zealand Banking Group, National Australia Bank, and Westpac Banking Corp, who acknowledged their guilt in separate statements.
All four banks have promised to provide a more comprehensive response by the end of this month during which all of them will also be facing questions from a parliamentary committee.
Some of the shocking allegations include collecting fees from dead people, convincing a legally blind pensioner to stand guarantor for a loan without updating her about the risks involved and selling a complicated insurance policy over the telephone to a boy who has Down Syndrome.
The banking sector went into a state of upheaval in the wake of the recent revelations by the Royal Commission, which sent share prices crashing and destroying the credibility of some of Australia’s biggest companies.
Royal Commission condemns misconduct
Banking royal commissioner Kenneth Hayne, QC, who conducted public hearings condemned the misbehaviour of the guilty parties and called for stringent punishment while criticising regulators for not being able to exercise enough control on banks for their misconduct.
Although the interim report drafted by Hayne was harshly-worded in describing poor ethics of the banking industry, it did not come up with immediate recommendations for legal action or suggest any particular reforms. The commission will publish the final report in February 2019.
During public hearings that lasted for almost 60 days, the proceedings covered instances of bribes, fraud, extortion through fees and board-level scams.
The three-volume report puts the primary motive of gross violations of these banks as being a “widespread culture of avarice.”
“Too often, the answer seems to be greed,” said the report. “…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?” it said.
Lack of adequate regulatory measures cited
According to Treasurer Josh Frydenberg, the Royal Commission’s report proves that the present corporate regulator in Australia, the Australian Securities and Investment Commission (ASIC) needs to play a more active role in curbing misconduct in the Australian financial market.
Frydenberg went on to say, “They do need to pursue litigation, to impose the penalties that are available to them, rather than some of these negotiated settlements which have seen the perpetrators of these offenses or misconduct get off too lightly.”
The consensus seems to be that the ASIC is quick to negotiate settlements with banks regarding breaches. Whenever there is a proven case of misconduct, it results in an apology by the perpetrator and a long, drawn-out negotiation between the ASIC and the entity concerned. This could be followed by a media release or an infringement notice, expressing ASIC’s ‘concerns’ regarding the lapse.
The Australian government is mooting new legislations for increased penalties and prison terms for financial crimes to give more power to the regulator. This move is a positive step, as it seems that the ASIC is not able to be forceful enough with the existing powers vested in them.
The primary observation of Commissioner Haynes is that whenever misconduct was revealed, there was neither any punishment meted out nor were the consequences proportionate to the seriousness of the offence. While ASIC seldom went to court to pursue disciplinary action against offenders, the Australian Prudential Regulation Authority (APRA) never did.
Content of the interim report
The opinions of Commissioner Haynes feature in the executive summary from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry interim report.
The findings of the commission have brought to the notice of the public, misconduct of financial services entities, some of which the regulators were aware of and some of which it was not.
Why did it happen? How can this be prevented from recurring in the future? These issues cover a significant part of the interim report.
The first question presents an answer in a single word – greed. The report cites the motive as pursuing short-term profit while compromising on “basic standards of honesty.” The sale of services and products became an end to the means for these Australian banks.
There was an exponential increase in products and services while banks clamoured for a slice of the pie. The customer was side-tracked for the more substantial and tempting reward of huge profits from sales.
However, asks the report, what can be done to prevent this from recurring?
In continuation with the commission’s work, both entities and regulators are trying to predict the outcome and responded to the commission’s revelations. There is talk about remediation for consumers who have been impacted, discontinuing certain products or practices, and selling entire divisions. There are even murmurs about enforcement and more intense focus on the regulation of certain activities.
According to existing laws, entities need to ‘do all things necessary to ensure’ services are provided “efficiently, honestly and fairly.” However, the recent actions by the banks in question have been contrary to law. As a response to these illegal and unethical actions, saying “Do not do that” would hardly serve the purpose.
The interim report further asks questions like whether the law as it stands today needs to be different and what needs to be done for entities to act with fairness and honesty, obeying the law, and not to deceive or mislead.
The report also questions why entities should not provide suitable services with adequate care and skill in the best interests of the parties to whom they offer those services.
While the immediate role of the interim report seems to be to reveal and ask questions at this stage, it remains further to be seen what actions will ensue in the next round of the commission’s public hearings that are due to commence shortly.