Bankers come clean on reform progress

The banking sector has agreed to publicly air how individual lenders are tracking on a raft on industry reforms.

Australian Banking Association CEO Anna Bligh. Picture: AAP

The banking sector has agreed to publicly air how individual lenders are tracking on a raft on industry reforms designed to rebuild trust and confidence.

Former auditor-general Ian McPhee, who is overseeing a wide-ranging governance review on behalf of the Australian ­Banking Association, released his eighth and final quarterly report on the industry’s own package of reforms.

In a bid to overhaul their tainted image, banks two years ago agreed to target six areas of industry-led reform, including aligning banker pay with customer outcomes, better remediation, proper treatment for whistleblowers, higher standards for conduct, a new beefed-up industry code of practice, and repairing relations with the corporate regulator.

“The implementation period for individual banks is expected to take a further two to three years,” Mr McPhee said. “Positively too, there has been recognition by some banks that further investment is required to reinforce bank values and culture.”

“The importance of trust and confidence is now on the radar of each of the participating banks.”

Mr McPhee said the report had one recommendation — which was accepted by the Australian Banking Association — to develop and introduce a policy allowing individual banks to publish performance indicators and information on how they have implemented reforms.

As part of the sector-wide overhaul, the banks have already made a start at eliminating problematic payments from the industry following the Sedgwick Review, which was completed last year. These changes include removing direct sales incentives, abolishing mortgage broker commissions directly linked to loan size and introducing balanced scorecards in each bank, which replaced sales-based targets and salaries.

Bank Australia, the small Melbourne-based mutual lender, was the only bank to have fully complied with the Sedgwick recommendations by the time of publication.

Mr McPhee said the area that was least progressed related to third-party remuneration, which was complex to implement.

Third-party remuneration, such as referral payments and incentives that have been paid to gym owners, hairdressers and lawyers, has been targeted by the royal commission for encouraging dubious mortgage writing and steering borrowers into unsuitable loans.

“Some banks have reported ceasing particular arrangements, including volume bonus and campaign-based bonus commissions with third party channels, reflecting concerns over potentially conflicted remuneration structures,” Mr McPhee said. “Some banks have also advised that they are making changes to the non-monetary benefits provided to mortgage brokers. This points to some of the challenges in this area and the extent of work required to achieve full alignment with the Sedgwick Review recommendations.”

ABA chief Anna Bligh said Mr McPhee had done a “rigorous” job over the last two years. “The industry has set a cracking pace on some of the toughest reforms in over a decade, as detailed in Mr McPhee’s final report. However, there is still further work to be done to bed these down,” Ms Bligh said.

Banks would be making further regular public reports on the success of the program and their ongoing implementation of the Sedgwick recommendations and the new banking code, she said.