Banking royal commission: Kenneth Hayne recommends criminal charges, probe

Two Australian financial institutions will face criminal charges, while 10 companies will be referred for further investigation.

Financial services royal commissioner Kenneth Hayne has recommended criminal charges that carry a maximum fine of $9.45m against two institutions — but has not named them in his final report today.

The potential dishonesty charges are among findings contained in Mr Hayne’s final report, released this afternoon, that also include referring 19 further breaches of the law by companies including Commonwealth Bank, NAB, ANZ, AMP and IOOF to authorities for further investigation.

Mr Hayne also:

• Delivered a stinging rebuke to National Australia Bank, its chairman Ken Henry and chief executive Andrew Thorburn over the bank’s poor conduct;
• Recommended an end to the rivers of gold flowing to mortgage brokers and financial planners;
• Proposed making mortgage brokers act in the best interests of clients, in the same way as financial advisers are supposed to;
• Called for an overhaul of the regulatory system, with the Banking Executive Accountability Regime, which covers executive pay, to be extended to cover the entire financial services sector;
• Said loans might be harder to get as banks step up scrutiny of customers;
• Stopped short of demanding a ban on big banks both making and selling financial products — vertical integration — saying such a move would be “both costly and disruptive”
• Made 76 recommendations covering legal and other changes to strength the banking system

LIVE BLOG: Follow the reaction to Hayne’s final report here

Mr Hayne said NAB “stands apart from the other three major banks”.

“I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly,” he said.

Mr Hayne said commissions to mortgage brokers, who sell more than half of Australia’s home loans, should be abolished, and called for an end to the payment of commissions to financial planners that were supposed to be abolished under industry reforms five years ago.

Mobile users: download the government’s response here

Treasurer Josh Frydenberg fully accepted all but one of Mr Hayne’s 76 recommendations, a proposal that borrowers pay the fees of mortgage brokers — a move that opens the door to Labor to begin a political bidding war over who can be tougher on the banks.

Mr Hayne said his proposed criminal charges related to the widespread practice within the banking industry of charging fees but providing nothing in return — a scandal that is likely to cost the sector about $2bn in compensation.

Mr Hayne said this could be a breach of section 1041G of the Corporations Act, which makes it a crime to “engage in dishonest conduct in relation to a financial product or financial service”.

“On its face, taking money for nothing is dishonest conduct,” Mr Hayne said in his report.

“If the conduct in issue was a contravention of section 1041G, it is that section that best captures and conveys the criminality.”

Mr Hayne also referred the Commonwealth Bank, NAB, Suncorp, ANZ, AMP, IOOF, Allianz, TAL and Youi to regulators for further investigation.

And he called for tougher laws covering misconduct and an overhaul of the sector’s twin regulators, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, which were exposed during royal commission hearings for too often failing to take action against wrongdoers.

Mr Hayne said the two institutions he thought should face criminal charges were in addition to one that ASIC was already considering prosecuting, bringing the total of potential criminal charges coming out of the royal commission to three.

He said there was “no doubt that money was taken from clients”.

“Nor is there any basis for doubting that, when taken, the taker did not intend to return it to the client.”

This included both cases where the client lacked a financial adviser who could give them services and when a client had died, as the commission heard happened at AMP, CBA and NAB.

“I consider that it is open to a jury to conclude, beyond reasonable doubt, that, in either of the cases described, the taker, in the course of its carrying on a financial services business in this jurisdiction engaged in conduct in relation to a financial service that was dishonest according to the standards of ordinary people and that the conduct was known by the taker to be dishonest according to the standards of ordinary people,” Mr Hayne said.

He had referred the cases to ASIC, he said.

Mr Hayne referred the other cases to regulators for further investigation of a dizzying array of potential breaches of the law ranging from misleading and deceptive conduct through breaking rules against conflicted remuneration to breaking the requirement that insurers act in utmost good faith.

In other cases, he found breaches had occurred but did not refer the cases to an authority because they had either already been investigated or were currently under investigation.