Can royal commission report fix our broken banking system?
The final report into the finance royal commission is set to be made public today, but will it change anything? Here’s everything you need to know about what’s happening and what might be revealed.
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Since March last year a humble Federal Court room in Melbourne has been a parade of much of the misery and outright law breaking that has characterised the Australian banking system for the last decade.
It has included tales of some of our biggest financial institutions taking money from dead people and even lying to the corporate cop about it.
THE MOST SHAMEFUL ACTS OF BANKING GREED
GREED, WEAK REGULATORS BEHIND SCANDALS
Revelations of banks doing the wrong thing has become all to common.
With the final report of the finance royal commission handed in today, the question on many people’s lips is how will it change anything?
WHAT IS HAPPENING?
Today Commissioner Kenneth Hayne — a Melbourne based former high court judge who oversaw the year long inquiry — will head out to Yarralumla in Canberra to hands down his findings of the arduous year long inquiry to Governor-general Sir Peter Cosgrove.
WHY TODAY?
When the commission — the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry — was established on December 14, 2017, the
final report date for it to be submitted was February 1, 2019.
After the governor-general gets it the report then goes to Prime Minister Scott Morrison.
No one knows what is in the report — even the government.
Hayne has been tough on the banks and has been aided by star counsels including Rowena Orr QC and Michael Hodge QC who developed cult status for holding banking big wigs to account during cross examination.
We won’t know until Monday what is in the report.
It is set to be released at 4.10pm.
WHY THE WAIT?
Hayne’s findings are expected to be explosive.
Some fear they could be so scathing they rock the sharemarket value of the lenders.
We have already seen the banks stripped of tens of billions of dollars off their market valuations during the last 12 months.
The theory is that releasing it after the market closes on Monday gives everyone a night to digest it and not simply panic sell their bank shares.
Also importantly the government wants to release their own measures to combat the problems outlined by Hayne and Co.
With an election due in the first half of the year both parties want to be on the front foot being toughest on the banks while not being seen to wreck the financial system.
With Labor’s shadow treasurer Chris Bowen saying Labor will adopt in full what Hayne suggests, it puts the spotlight on the government’s response on Monday afternoon.
It sets the scene for a ferocious federal election battle in which the treatment of Aussies by their banks — and how to fix the problem — is a central focus.
WHY IT MATTERS?
What did the nation learn from the 68 days of hearings, which began in March and finished in November last year, apart from confirming what many suspected?
Commissioner Kenneth Hayne said it himself in his September interim report — out-of-control greed among bankers, and corporate watchdogs that had no bite, underpinned the scandals.
But Hayne is the first person with no ties to the big banks to investigate the system and make suggestions, so he is being viewed as the cleanest of brooms.
While individual cases of misconduct were shocking, it was the sheer volume and scale of the misconduct that floored many.
Not only were the big four banks and AMP shown to have taken hundreds of millions of dollars from customers without giving them any service in return, it emerged some companies even took from the dead.
In many cases it wasn’t just doing wrong by customers that got financial institutions into trouble.
It was the confused and disingenuous attempts to fix problems — such as AMP making 20 false statements to the Australian Securities and Investments Commission about charging customers for services never provided.
While we don’t know what is in today’s report we do know the themes and topics Hayne looked at during the commission.
The rounds of hearings heard about everything from consumer lending, financial advice, small business lending, remote and indigenous communities, superannuation, insurance and public policy.
These are the cornerstones of how we all interact with financial institutions — so any changes to these will impact Australians daily purchasing and consumer decisions for years to come.
WHAT MIGHT BE REVEALED?
Central to any reforms — many suspect — is that banks be forced to shake up the way they pay their people, from the front line to the very top.
So expect a shake up to those huge executive pay checks.
Future pay could be based less on profit and more on meeting risk responsibilities.
By cracking down on how people are paid, Hayne could tackle the conflicts of interests that exist in the financial planning and mortgage broking world.
This could mean better protections when you buy a house through a broker or insurance or superannuation from a planner.
Some experts say banks would be forced to speed up the repayments they were making for past scandals.
There is a real possibility banks will be forced to sell off their wealth-management divisions to avoid conflicts of interest which can arise when they both make and sell financial products.
Commonwealth Bank, National Australia Bank and ANZ have already begun this process.
And expect to see a greater willingness by regulators to take financial institutions to court and seek maximum penalties.
Some are going so far to suggest Hayne could recommend a new layer of regulation to make sure the corporate cop and prudential watchdog do their jobs properly.
UBS banking analyst Jonathan Mott said the commission could also move to strengthen responsible-lending rules.
To save on costs, Australia’s banks have widely used a controversial benchmark known as the household expenditure measure to approve loans.
Under that system, banks assess mortgage applications based on broad demographic information — such as typical incomes in the suburb of the property being purchased — rather than assessing each borrower’s specific financial circumstances.
Mr Mott said the commissioner was likely to recommend the use of the benchmark be limited or banned.
At the same time there were several mentions during the commission of possible criminal breaches of the law by institutions.
For example, it was suggested that AMP could face criminal charges for misleading the corporate cop over a decade-long scandal in which it charged customers for services they never received.
The Commonwealth Bank’s insurance offshoot, CommInsure, may have committed a crime by claiming its policies covered all kinds of heart attacks, the financial services royal commission also heard.
These charges are the “entities” rather than specific bank chiefs. It is not known whether individuals will be singled out as well but the top end of town will certainly be looking to see what types of charges are recommended.
HOW THIS WILL AFFECT YOU?
Any criminal charges against banks or bankers is sure to have a ripple affect in improving the behaviour of those who handle your money.
Already regulators have shown more teeth in recent months.
This follows criticisms aired at the commission that n the past they have not gone to court enough.
As already mentioned, any efforts to fix the way many who offer financial services are paid — eliminating conflicts of interest and better professionalising the sector — could see Aussies hopefully better able to engage those giving them advice.
But perhaps one of the bigger issues facing Aussies is how Hayne hopes to tackle expenditure tests that borrowers face,
UBS’s Mr Mott, who has built a reputation for not going easy on the banks, cautioned that if any crackdown was too muscular it would produce a full-blown credit crunch.
“The risk of the current credit squeeze turning into a credit crunch is real and rising, with the housing market now falling sharply,” he said.
So of all the horrors to emerge at the commission, perhaps the safety of our housing market now stands as one of the nastier legacies of years of easy lending.
Even without a credit crunch many Aussies could be finding it harder to borrow for a house after today.
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