Banking royal commission: report reveals an industry rotten to the core

Kenneth Hayne’s report on the finance industry depicts a culture of rampant greed and regulators too pathetic to do anything.

Kenneth Hayne will hand down his final report in February. Pic: David Geraghty

Kenneth Hayne’s interim report depicts a finance industry that is rotten at its very core, patrolled by regulators too pathetic to take action.

The royal commissioner paints a portrait of a culture of rampant greed, unchecked by any fear that the finance cops will ever catch on.

Although just an interim report that asks far more questions than it answers, the thousand-page tome is also a hammer that drives the final nail into the coffin of the Australian model of light-touch regulation that has existed since the Wallis inquiry in 1997.

The share prices of the Big Four banks enjoyed a rally this afternoon as dumb money reacted with relief to findings that are light on any suggestion of criminal sanctions.

But the idea the banks are off the hook is unrealistic. This interim report deals only with behaviour uncovered in the first four hearing rounds of the commission, and much of the rampant criminality was unearthed later on.

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Those rounds, and Mr Hayne’s final recommendations about what to do about this troublesome industry and its ineffective watchdogs, have been left for the final report in February.

In the meantime, the finance sector is already in convulsions, with banks busy shedding their scandal-ridden financial advice and insurance arms and turning back to their core business of borrowing and lending money.

Mr Hayne’s disgust for an industry that has been incapable of coming to terms with its own moral turpitude is palpable.

“From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales,” he writes.

One of his most telling observations about the poor culture of the industry relates to a case study in which NAB bankers falsely witnessed documents.

“A culture of noncompliance can develop even though what is required is obvious,” he says.

“What is revealed is that culture depends on showing that compliance always matters. There are no short cuts.”

At the Australian Securities and Investments Commission, they’re accustomed to (if not happy with) being criticised as a do-nothing regulator.

But the commission broke new territory by shining a torch into the darkness inhabited by its sister agency, the Australian Prudential Regulation Authority, which never goes to court to prosecute wrongdoing.

It is this habit of working behind closed doors that has in the past earned APRA plaudits as a “mature” regulator from some - but on Mr Hayne’s reckoning, it may be time for some immaturity.