September 28, 2018
The Banking Royal Commission has blamed greed by financial services providers and inaction by regulators for the range of issues it has uncovered during the first four rounds of hearings.
The Commission released its interim report today, which covers the hearings related to financial advice but not life insurance, and in an executive summary accompanying the report stated the key questions were: why did the misconduct happen, and what can be done to avoid it happening again?
“Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty”
In answering the first question, the summary explained, “Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty”, adding that it was necessary to go behind the events documented during the hearings to see how this behaviour developed.
The summary noted that banks, and financial services providers recognised they sold services and products but “…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,” the summary stated.
It also criticised the regulators – ASIC and APRA – claiming they took little or no effectual action against banks and financial services provider, and what action was taken “…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,” the report asserted, criticising the approach taken by the regulators in the past.
The summary noted that past misconduct has resulted in little more than in an apology from the financial services entity, a lengthy remediation program and negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking (EU) that recognised ASIC had ‘concerns’ about conduct of the company involved.
“The conduct regulator, ASIC, rarely went to court …The prudential regulator, APRA, never went to court”
It also claimed that penalties applied under infringement notices “…were immaterial for the large banks” and community benefit payments made under an EU were “…far less than the penalty that ASIC could properly have asked a court to impose”.
In addressing the issue of what could be done to prevent the further misconduct the report rejected the imposition of more legislation to create better consumer outcomes stating, “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’”.
The summary noted that “…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”.
It concluded by questioning whether existing laws should be enforced differently to have financial services entities apply ‘basic standards of fairness and honesty’, to obey the law and to action in the best interests of consumers, adding, “The basic ideas are very simple. Should the law be simplified to reflect those ideas better?”
Click here to access the Banking Royal Commission’s Interim Report, Volume 1.
Update – 4:21pm
The Federal Treasurer, Josh Frydenberg has welcomed the release of the interim report, commenting that the report and the hearings to date “… make clear that some financial institutions have fallen far short of treating Australians honestly and fairly”.
In a media conference given after the release of the report, Frydenberg said, “Banks and 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”.
“This interim report is a frank and scathing assessment of the culture, conduct and compliance of our financial system,” he said.
ASIC Chair, James Shipton said the regulator welcomed the report and noted its “…serious and important observations of ASIC’s role as a regulator”.
“ASIC will carefully consider these observations, as well as the broader findings in the report, and will respond fully in its submission by 26 October 2018,” Shipton said.