Banking royal commission: Ken Hayne’s interim report to land on Friday

Royal commissioner Ken Hayne’s eagerly awaited interim report on financial sector misconduct will be released on Friday.

Commissioner Kenneth Hayne at the opening of the fifth round of the royal commission into misconduct in the banking, superannuation and financial services Industry David Geraghty / The Australia

Royal commissioner Ken Hayne’s eagerly awaited interim report on misconduct and poor behaviour in the financial services industry will be released on Friday.

Sources have confirmed that the Governor-General will receive the report in person at Government House, after which it will be tabled in the federal parliament.

The entire financial services industry is on edge about the report’s contents after six gruelling rounds of public hearings which have exposed some of the industry’s worst practices.

The interim report, which could extend to as many as seven volumes, will only identify policy issues related to the first four rounds of hearings on consumer lending, financial advice, loans to small and medium-sized businesses, and issues related to remote and indigenous communities.

The final report, due by February next year, will examine issues arising from the superannuation and insurance hearings, as well as the final public hearing in November where the major-bank chief executives will be questioned.

The royal commission has said it will invite submissions on the policy issues identified in the interim report.

A note last week by Citi said the report was expected to deal with two fundamental issues from the first four rounds of hearings — responsible lending and governance failures in the provision of financial advice.

Analyst Richard Sproules said Mr Hayne was likely to tighten and clarify responsible lending obligations, after existing systems and approaches were found to result in too much lending to customers who were least able to afford it.

The use of benchmarks like the household expenditure measure as a proxy for expenses was likely to be banned.

The royal commissioner has also taken a dim view of the financial advice industry, with evidence showing it was poorly governed.

Institutions and regulators were likely to be held accountable for a series of failures.

Morgan Stanely analyst Richard Wiles said the royal commission would probably focus on four policy issues, including litigation and remediation, legislative change, policy and regulation and industry structure.

“In our view, a reduction in profitability may be required over the next few years in order to win back the support of key stakeholders and enhance long-term sustainability,” Mr Wiles said.

“We seen an increasing probability that practices in relation to home loan repricing and front book versus back book discounting may need to change, potentially reducing major bank valuations by a further 5 per cent.”