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Banking royal commission to deliver interim report – live Banking royal commission to deliver interim report – live
(35 minutes later)
Treasurer Josh Frydenberg is due to hold a press conference at 2.15 A quick look at the ASX200 shows us it is actually UP since the report was released - the big banks have seen their shares increase.
It is fluctuating a little - but it is up about 25 points.
In his press conference, Josh Frydenberg did not rule out more legislation in response to this interim report.
Kenneth Hayne had some suggestions to use as a guide:
The law already requires entities to ‘do all things necessary to ensure’ that the services they are licensed to provide are provided ‘efficiently, honestly and fairly’.
Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, ‘Do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?
Should the existing law be administered or enforced differently? Is different enforcement what is needed to have entities apply basic standards of fairness and honesty: by obeying the law; not misleading or deceiving; acting fairly; providing services that are fit for purpose; delivering services with reasonable care and skill; and, when acting for another, acting in the best interests of that other? The basic ideas are very simple. Should the law be simplified to reflect those ideas better”
He again says what the government has previously promised - that if the commissioner, Kenneth Hayne, asks for an extension, the government would look at granting one.
Josh Frydenberg finishes his press conference with a promise to take the interim findings seriously:
Can I just say the behaviour that we have seen to date has been unacceptable. Fees charged to dead people, fees for no service, 300,000 plus breaches for providing insurance and advice that was unsolicited and against the rules.
[There are] many other examples of conduct which is unacceptable. But now that it has been revealed, now that we have the interim report into next year, the final report, it is incumbent upon those in the financial services sector and those regulators who are charged with enforcing the law lift their game because the public deserve it and the public expected”
Commissioner Hayne’s assessment of what had occurred in Australia’s financial industry in recent years is scathing.It should be reprinted as the first page of every economics and finance textbook in Australia’s universities.
Here is Hayne’s summation, found in the executive summary:
“Why did it happen?”
“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. When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done.
“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.
“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.”
Frydenberg says the government has released the report as soon as it has been able – within a matter of hours of the governor general receiving it – and that is a mark of how serious the government is taking it.
The question that needs to be asked is how did this culture of greed and selling as the dominant focus, how was that allow to permeate the sector to produce adverse outcomes for consumers without being stamped out earlier and without the penalties that exist to be properly enforced.”
But having had the report since this morning, Josh Frydenberg is really taken with the culture of “greed”.
The two key takeouts for me have been, and let’s be clear, this is a 1000-page report, three volumes, and I want to commend the commissioner and his team on the thoroughness of this report – but the greed that has permeated the culture, the compliance of the sector and secondly, the misconduct has gone to a large degree unpunished. Effectively unpunished.”
Josh Frydenberg said one of the take aways from the report is the regulator – Asic – may have been too close to the sector it was meant to be policing and the government had taken steps to address that:
I think it was a strategy which saw the regulator working too closely with the sector that they were regulating. We have increased the resources by more than $70m to Asic and as you know we have put in place Daniel Crennan QC to be an effective enforcer of compliance. But what this report does go to with Asic is a culture among the regulators which did not produce the best possible outcomes for consumers. I do point out that we have a new head of Asic in James Shipton and he has already undertaken a review, led by Daniel Crennan to work out what is the best strategy around enforcement and compliance.”
The banks, through their representative, Anna Bligh, will respond at 3.15pm.
Josh Frydenberg acknowledges that Australia’s financial system did manage to get it through the global financial crisis in a way the American – and indeed most of the world’s – systems did not.
But he says that is not a leave pass for Australia’s financial sector behave how they wish:
Australians expect their superannuation services, their insurance services, their banking services, their financial advice to be delivered in a way that puts their interest first. That the consumer comes first, second and third In fact, these financial entities have an obligation under their licence to act honestly, fairly.”
Josh Frydenberg does not hold back – and does not rule out new legislation:
Finally, the commissioner asked the question, “What can be done to prevent the conduct happening again?”
In doing so, he makes the telling observation that much more often than not, the conduct now condemned was contrary to the law.
This does raise the question, whether new laws are required, or whether existing laws simply need to be better in force. He also asked the question: ‘Should the existing law be simplified?
Rather than adding an extra layer of legal complexity to an already complex regulatory regime. This interim report is a frank and scathing assessment of the culture, conduct and compliance of our financial system. Australians expect and deserve better.”
Josh Frydenberg:
The interim report delivered today to the governor general shines a very bright light on the poor behaviour of our financial sector.
Banks and other financial institutions have put profits before people.
I repeat that.
Banks and other financial institutions have put profits before people. Greed has been the motive … as short-term profits have been pursued at the expense of basic standards of honesty.
Too often, simply selling products and services have become the sole focus of attention.
The culture and the conduct of the banks was, in the words of the commissioner: “Driven by an reflected in their remuneration practices and policies.”
This was coupled with deficiencies in governance and risk management. As a result, almost every piece of conduct identified and criticised in this report can be connected directly to some monetary benefit from engaging in conduct.
In the end, rules, systems, processes and practices are necessary, but having the right culture and performance depends, in the commissioner’s words: “Upon people applying the right standards and doing their job properly.”
This interim report also makes clear that, while behaviour was poor, misconduct when revealed: “Either went unpunished or the consequences did not meet the seriousness of what has been done.”
The commissioner makes a series of significant observations with respect to the effectiveness and the ability of regulators to detect, monitor and enforce compliance with the law.
Asic, the commissioner points out, rarely went to court to seek public annunciation of and punishment for misconduct. Indeed, in his words: “Little happened beyond an apology from the entity, drawnout remediation, and an infringement notice or an enforceable undertaking that acknowledged no more than ASIC had reasonable concerns about the entity’s conduct.”
Significantly, the commissioner observed infringement notices, impose penalties that were immaterial to the large banks. Again, in his words: “Too often, entities have been treated in ways that would allow them to think that they, not ASIC, not the parliament, not the courts, will decide when and how the law will be obeyed or the consequence of the breach remedied.”
The whole interim report can be found here.
The Treasurer reiterates what the commissioner, Kenneth Hayne, said when starting the commission – that it is not the role of the commission to decide remedies:
The commissioner does not determine disputes, award damages or other relief, or decide whether there has been misconduct. They are roles for a court.”
Josh Frydenberg has just started his press conference
Further on from Gareth Hutchen’s post, the interim report will focus on these main issues:
consumer credit
financial advise
small and medium (SMEs) lending
regional and remote banking
Of the six hearings held so far, these four showed, quite starkly, just what the commission was going to be dealing with.
The next round of hearings, due to start in November, will focus more on policy, where the government says it has already made some headway.
Treasurer Josh Frydenberg is due to hold a press conference at 2.15pm.
As we’ve mentioned, the report will cover the first four rounds of hearings.As we’ve mentioned, the report will cover the first four rounds of hearings.
The topics covered include: consumer lending practices, financial advice, lending to small and medium enterprises, lending to agricultural enterprises, and interactions between Aboriginal and Torres Strait Islander people and financial services entities.The topics covered include: consumer lending practices, financial advice, lending to small and medium enterprises, lending to agricultural enterprises, and interactions between Aboriginal and Torres Strait Islander people and financial services entities.
The report will not cover superannuation (Round 5) or the insurance industry (Round 6). The report will not cover superannuation (round 5) or the insurance industry (round 6).
It has a lot of ground to cover.It has a lot of ground to cover.
The first round of hearings was in March, and it began with a bang.The first round of hearings was in March, and it began with a bang.
On the first day, the commission heard extraordinary evidence of National Australia Bank staff being involved in an alleged bribery ring between 2013 and 2015 covering multiple branches, forged documents, fake payslips and Medicare cards, with bribes being paid in cash to secure loans as staff responded to an incentive program to sign up new customers.On the first day, the commission heard extraordinary evidence of National Australia Bank staff being involved in an alleged bribery ring between 2013 and 2015 covering multiple branches, forged documents, fake payslips and Medicare cards, with bribes being paid in cash to secure loans as staff responded to an incentive program to sign up new customers.
The next day, NAB was chastised for withholding a document from the commission that showed its bosses knew about widespread fraud in its controversial “introducer program” months before telling the regulator.The next day, NAB was chastised for withholding a document from the commission that showed its bosses knew about widespread fraud in its controversial “introducer program” months before telling the regulator.
On the third day, the Commonwealth Bank admitted that commissions it paid to mortgage brokers could incentivise them to sell risky mortgages to CBA customers, but it did not want to stop the practice until other banks stopped too. The Commissioner, Kenneth Hayne, also accused CBA of being “economical with the truth.” On the third day, the Commonwealth Bank admitted that commissions it paid to mortgage brokers could incentivise them to sell risky mortgages to CBA customers, but it did not want to stop the practice until other banks stopped too. The commissioner, Kenneth Hayne, also accused CBA of being “economical with the truth.”
Commissioner Hayne also accused CBA of being “economical with the truth.”
The next week, CBA admitted to offering repeated credit card limit increases to a customer who was begging them to stop because he had a gambling addiction and a $30,000 debt.The next week, CBA admitted to offering repeated credit card limit increases to a customer who was begging them to stop because he had a gambling addiction and a $30,000 debt.
ANZ admitted it did nothing to verify the general living expenses of customers who had been sent to the bank from a mortgage broker, complaining it would be too complex, time consuming, and costly to comb over every individual’s bank statements. ANZ admitted it did nothing to verify the general living expenses of customers who had been sent to the bank from a mortgage broker, complaining it would be too complex, time-consuming, and costly to comb over every individual’s bank statements.
And Westpac Bank was criticised for being the “most resistant” to Australia’s banking laws, and the least willing to cooperate with the regulator’s attempts to enforce responsible lending practices.And Westpac Bank was criticised for being the “most resistant” to Australia’s banking laws, and the least willing to cooperate with the regulator’s attempts to enforce responsible lending practices.
You get the picture. That was only in the first two weeks.You get the picture. That was only in the first two weeks.
Commissioner Kenneth Hayne said he would prepare his interim findings based on the first four rounds of hearings of the banking royal commission.Commissioner Kenneth Hayne said he would prepare his interim findings based on the first four rounds of hearings of the banking royal commission.
The interim report will provide important guidance on where the commission will head with its final report in February.The interim report will provide important guidance on where the commission will head with its final report in February.
It won’t only be important for the thousands of people who came forward, alleging misconduct on behalf of Australia’s financial sector, but it may also influence what the Reserve Bank does next week with its interest rate decision.It won’t only be important for the thousands of people who came forward, alleging misconduct on behalf of Australia’s financial sector, but it may also influence what the Reserve Bank does next week with its interest rate decision.
Scott Morrison, who, when Treasurer, repeatedly argued against a banking royal commission, did so as he said the government was already taking action, and the risk to the financial industry’s reputation could be too great. Scott Morrison, who, when treasurer, repeatedly argued against a banking royal commission, did so as he said the government was already taking action, and the risk to the financial industry’s reputation could be too great.
The uncertainty around the interim report’s impact, and the royal commission’s findings as a whole, have market analysts speculating the RBA will hold interest rates at 1.5% for longer than expected.The uncertainty around the interim report’s impact, and the royal commission’s findings as a whole, have market analysts speculating the RBA will hold interest rates at 1.5% for longer than expected.
Eyes are also turning to the dollar, to see what it will do.Eyes are also turning to the dollar, to see what it will do.
There has been no shortage of ugly facts uncovered so far - cases of charges for no work, charging deceased clients, targeting the vulnerable - the list goes on. There has been no shortage of ugly facts uncovered so far – cases of charges for no work, charging deceased clients, targeting the vulnerable – the list goes on.
What more will Commissioner Hayne tell us?What more will Commissioner Hayne tell us?
Let’s find out.Let’s find out.