Banking royal commission: Round 7 — policy and CEOs - Brian Hartzer, Nicholas Moore, James Shipton

Under-fire ASIC chairman taken to task for regulator’s limp response to NAB’s loan fraud scandal.

22/11/2018: ASIC chairman James Shipton arriving at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Sydney on Thursday. Hollie Adams/The Australian

Thanks for joining our live coverage of the seventh round of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry today.

Earlier today, Westpac CEO Brian Hartzer was questioned by senior counsel assisting Michael Hodge QC on topics including financial advice, remuneration, and Westpac’s relationship with ASIC.

The commission then called outgoing Macquarie Group CEO Nicholas Moore to appear, marking the first time the investment group has appeared before Commissioner Hayne. For that reason, Mr Moore’s apearance had been much anticipated. In the end though, it proved rather brief and anti-climactic.

This afternoon ASIC chairman James Shipton has been been taken to task about ASIC’s relationship with the companies it regulates, with suggestions that maintaining that relationship has been prioritised over enforcement being made during an extensive grilling by Ms Orr.

The hearing will resume at 9.30am tomorrow, with Mr Shipton to face more questions from Ms Orr.

Some of today’s key events included:

• Mr Shipton being being taken to task for ASIC’s reluctance to take action against NAB over the “introducer” loan fraud scandal.
• ASIC beign criticised for not “naming names” in its reports on misconduct, and its agreement that it needs to take more issues to court.
• Mr Shipton being challenged on whether ASIC is too close to the companies that it regulates, and whether proper records of the meetings it has with them are kept.
• ASIC chariman James Shipton saying that the regulator’s resourcing has not kept pace with its growing responsibility.
• A discussion of Macquarie’s unique remuneration model, which uses a high proportion of variable payment and payments deferred for long periods, pending various outcomes.
• The surprisingly brief appearance of outgoing Macquarie Group CEO Nicholas Moore, who mainly discussed changes made at the company in the wake of ASIC’s 2012 report into it and the enforceable undertaking that came from it.
• An examination of Westpac’s reputaiton for being more “resistant” to regulation than its peers.
• Westpac’s CEO Brian Hartzer saying that for many people, quality financial advice would be provided by artificial intelligence in the future.

4.36pm: More heat over NAB

Mr Shipton remains under fire, now for an email discussing the consequences of NAB’s introducer loan fraud scandal in which there is a suggestion ASIC seek an enforceable undertaking for a community benefit payment.

“So it was an intitial and premature discussion, more than two years after the breach report was recieved, the first breach report?” Ms Orr suggests to Mr Shipton, somewhat disbeleivingly.

“I am more than happy to say once again this discussion happened far too late,” he says.

He says the sentiment expressed in the email was not in line with that of the regulator.

“Its the antithesis of that, isn’t it Mr Shipton? The view that’s expressed here [is] ‘let’s not investigate further, let’s just ask NAB for an enforceable undertaking with a community benefit payment,’” Ms Orr says.

The hearing adjourns, to return tomorrow at 9.30am.

4.26pm: Why no action on NAB?

Ms Orr pushed Mr Shipton as to why ASIC had not investigated NAB over its “introducer scheme” loan fraud scandal earlier, asking whether he saw it as a failing.

“It was reasonable in the circumstances at the time but it is not something that I would have decided myself ,because I believe that we should be acting quicker when it comes to financial institutions. And that’s looking not just at the bad apple but looking at whether the barrel is faulted itself,” he answers.

Ms Orr points out that there were multiple breach notices lodged to ASIC and asks why the commencement of an investigation came only after evidence was tendered to the royal commission in March.

“I will grant and I will concede that that decision was made too late,” he says.

4.21pm: Failure to take formal action

Ms Orr asks whether evidence from the royal commission has highlighted a failure of ASIC to commence formal investigations against large financial institutions.

“What I would make is the observation is that we get approximately 2000 breach reports a year. We get approximately 12,000 complaints a year. And we have approximately 240 staff in enforcement,” he says.

“So we have to make real time decisions as to which matters we can investigate. I would not consider the very difficult real-time choices and very hard choices as a failure.”

He makes a comparison to the police force of ACT, that “there are almost three times as many sworn police officers in the ACT than we have staff members in enforcement and that that lack of resources impinges on the regulators ability to enforce all complaints.

Commissioner Hayne says his reasoning is “very odd”.

Further, Mr Shipton says breach reports have increased by nearly 40 to 50 per cent in the last couple of months.

4.06pm: Wealth management issues

Ms Orr notes that some of the wealth issues brought up in the royal comission had not been investigated by the regulator.

She asks about the wealth management “extender”, which has been suggested be named the “royal comission response team”. The project will take a government package of $26.2 million to increase the intensity of ASIC’s enforcement activities and enhance its capabilities.

Ms Orr asks how this project will be done differently.

“We should be thinking creatively in relation to utilisation of other provisions of the Act. But above all, what we are doing is also asking ourselves in each and every occasion should we be pursuing court-based enformcement for these matters,” he says.

He adds that the regulator is stepping up its breach reporting provisions, with 40 staff to be recruited to help on the project.

3.53pm: ASIC enforcement review

Ms Orr looks to Mr Shipton’s proposal for an internal enforcement review - highlighting the timing of the announcement just a week before the sixth round of public hearings and a week prior to the publication of the interim report.

Mr Shipton “honestly and sincerely” denies the impending report was a factor in his proposal.

Going through the points of reference for that review, Ms Orr compares an early cut to a final approved version - cutting out a higher order question to question about what enforcement goals were being pursued in practice.

“All I can say is that the spirit of the terms of reference is very much aligned with that sentiment” he says.

Ms Orr suggests that the goals set out in the points “sound more like priorities that might shift at different points in time”.

To that Mr Shipton says deterrence will always be a priority, as will enforcing the law but the tools with which to approach that will vary.

He says the review is likely to be made available in mid-December, with little detail of what we can expect from the report.

3.36pm: More, quicker and more robust

Mr Shipton says there needs to be more enforcement, and quicker action taken in relation to the misconduct unearthed at the royal commission.

“More of it, and quicker and more robust,” he says.

That would include “utilising court-based tools, because that would be at the apex of the enforcement pyramid, as it were, and realising that in the case of a number of financial institutions or segments in the financial institution, that the previous tactics have not been as successful as we hoped them to be and therefore we need to up our ante and be more agile in the deployment in that enforcement tool.”

He says resource constraints are the only thing holding it back.

3.32pm: Giving advance notice

Ms Orr pushes Mr Shipton on why ASIC gives entities advanced notice before it releases its findings.

“In the interests of fairness,” he replies.

“I do not believe that giving them advance notice of our intent to publish their names in any way distracts from the importance and the impact of this particular report.”

Ms Orr asks whether this comes back to the point that the regulator is “trying to cultivate and maintain” relationships with entities.

“Absolutely not.”

Ms Orr tenders briefing notes for a meeting betwen ASIC and BT Financial, using it as evidence of what she says is ASIC discussing the recommendations or findings in reports with the entitites prior to publication.

She suggests it may contradict his earlier evidence.

Mr Shipton defends the notes, saying he is not aware that there was actually a two-way discussion or a response from ASIC in relation to them.

3.13pm: Not naming names

Ms Orr calls out ASIC for not naming names in its reporting - listing the firms involved but not identifying those firms in comparative diagrams.

“All I can say is that I’ve told the team in recent time that our strong preference - my strong preference - is moving forward these types of reports should identify the institution by name,” he says.

Ms Orr brings up a breach reporting report, which also failed to name two financial services entities that had referred to remediation historically as a “distraction”.

“We believe that in that report we were reporting about themes and processes and failings. We refrained from speaking about individual cases in relation to that report because this is a thematic industry-wide report,” he says.

Ms Orr’s not having it.

“What is the point of having case studies then in a report of this nature?” Ms Orr asks.

Mr Shipton says that the report deals with a number of triggers or catalysts. To name names for each of those would mean that the report would probably end up being “far too long”.

“It wouldn’t increase the length of the report at all to use the name of the entity in each of the case studies, would it, Ms Orr fires back.

“What I know we did was exercise judgement as to what we thought was meaningful disclosures...That is a degree of professional judgement.”

Commissioner Hayne now makes a “good point”. He wants to know what the downside of naming names is.

Mr Shipton says to name the AFS licencees would have “taken more time to actually go through the process of agreeing [he correct himself] - not agreeing, confirming - the facts and situations, almost a right to be heard”.

After some more discussion on these points, “I put to you you are not naming enough names,” Ms Orr says.

“Well I think you made a good point, Ms Orr.”

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2.54pm: Where are the minutes?

Ms Orr asks if formal minutes are recorded for ASIC’s meetings with boards and CEOs, for the sake of transparency. It’s a line of questioning with which Commonwealth Bank chair Catherine Livingstone will be familiar.

“These meetings were designed originally and have been pursuing along these lines where they are meant to be a free flowing dialogue between board members and the Commissioners of ASIC,” he says.

That said, Mr Shipton says he ends up doing most of the talking.

“To be frank, I’ve been passing on the messages, my expectations, and it has been a bit of a one-way dialogue.”

He says the executives in his meetings have spoken little.

“When I first attended these meetings, I was surprised that such senior people spoke so little. So the degree of candidness was, to some degree, muted.”

Commissioner Hayne stresses the importance of record keeping. He evidently wants Mr Shipton to begin taking minutes as well.

Mr Shipton tells the commissioner that he had been bringing extra ASIC people to these meetings to provide a degree of independent verification of the discussions.

“But the preservation of corporate memory of contacts of this kind is itself, surely, a matter of very considerable importance to the proper governance of ASIC?” he puts it to Mr Shipton.

Mr Shipton again mentions his observers, but agrees with the commissioner’s suggestion and indicates that it’s now very much on his to-do list.

2.43pm: Is ASIC too friendly?

Mr Shipton says conversations with CEOs have been “extremely successful”.

“They have been receptive to my approach, and it has had an operational impact to speed up the response,” he says.

Referencing Commonwealth Bank CEO Matt Comyn’s earlier testimony, Ms Orr asks whether Mr Shipton agrees that the two leaders get together.

“I would not clarify them as get-togethers, I would clarify them as meetings,” he says.

“I took get-together as a more familiar or more social gathering and I just wanted to clarify, at least in my own mind, that I have very structured and formal meetings with people like Mr Comyn.”

He clarifies that meetings with executives are not for breach reporting or subsitute for breach reporting and they never have been, “nor should they ever be so into the future”.

Ms Orr pushes Mr Shipton on the frequent personal contact between regulators and executives.

“There is a risk that somehow this would be seen by the other side as too familial, too friendly, too social and ensuring that these remain, as they are in my mind, professional and very much anchored in the purpose,” Mr Shipton says.

“It’s part of human nature, isn’t it, that when we have a relationship with someone, it’s usually harder for us to do something that might harm that person’s interests,” Ms Orr puts it.

Mr Shipton says that’s why he emphasises a professional relationship.

2.32pm: Other people’s money

ASIC chairman James Shipton appearing at the financial services royal commission in Sydney. Picture: Supplied.

Ms Orr tenders ASIC’s latest Commission Stakeholder Engagement Strategy.

She highlights a point that the commission meet with boards and senior executives of the entities that ASIC regulates.

Mr Shipton clarifies that it is a “practice that we have established” and that “if we don’t meet these objectives, there wouldn’t be consequences”.

He says meetings with large financial institutions are reasonably frequent and can be outside formal meetings but through calling or leaving voice messages with CEOs.

Ms Orr asks what Mr Shipton has called CEOs about.

“I have called CEOs to express dissatisfaction on a number of occasions as regards to the handling of particular matters that are being handled by our enforcement teams,” he begins.

“I have called CEOs and spoken at meetings about my dissatisfaction about what I call legal trench warfare. I have also expressed my dissatisfaction to these leaders with the lack of professionalism in the Australian financial sector.

Further, he says he has spoken to a man and woman “about the fact that I believe that they have forgotten that they are dealing with other people’s money”.

2.18pm: ASIC cries poor

ASIC chair James Shipton has taken the stand for the afternoon session. He is to be questioned by senior counsel assisting Rowena Orr QC.

Mrs Orr goes through details showing that ASIC remit has expanded considerably over the past 20 years. In contrast, she describes its budget increases as “modest” – a contention to which Mr Shipton enthusiastically agrees.

He says the level of resourcing “weighs very heavily on the regulatory choices that we have to make”.

Pressed further on how that affects the work of the regulator he says:

“It would be across the whole spectrum of our regulatory activity... It’s certainly in investigations, certainly in other matters relating to enforcement, but I would also make the case that we are constrained in our surveillance, our supervision, our important work on financial capability and other work that we undertake.”

12.52pm: Mortgage broker commissions

Outgoing Macquarie Group CEO Nicholas Moore appearing at the financial services royal commission in Sydney. Picture: Supplied.

Macquarie is Australia’s eighth largest player in relation to mortgages. It’s dependent on a network of brokers for the distribution of its loans, we hear.

The network allows it to compete with bigger players, but is reliant on the payment of commissions.

“What I then want to understand is what is the concern that Macquarie has about how changing commissions might affect the ability of mortgage brokers to provide that service to the non-major lenders,” Mr Hodge says

“Good question,” says Mr Moore.

“We are dealing a little bit about potential regulation we don’t know the shape of. And our general point is one of caution to say there can be unintended consequences of regulation,” he says.

The direct-to-market channel would be only 10 per cent of Macquarie’s total mortgage volume, the larger proportion of business booked through its broker network, we hear.

Mr Hodge asks what the consequence would be if Macquarie were prohibited from being able to pay mortgage brokers any commission and was instead given payment by charging a fee to the customer.

“That doesn’t as attractive as the current structure,” he says.

“Attractive to whom?” Commissioner Hayne wants to know.

The “sticker shock” of a big upfront fee may put borrowers off, Mr Moore indicates, suggesting that any charge should be levied when the value was delivered, which is to say over the life of the loan.

And that’s it. After a very brief appearance, Mr Moore is excused and the commission breaks for lunch.

ASIC’s James Shipton will be answering questions when the hearing resumes at 2pm.

12.42pm: Remuneration deferred

Mr Hodge comes to Mr Moore’s own remuneration, highlighting that 80 per cent of his variable remuneration is deferred.

“A deferral, I think, is very important, as we know decisions being made today have consequences over many years. And so making sure there is that alignment, over a period of time, I think is very important,” Mr Moore says.

“We are perhaps unique in having it go all the way through the organisation.... no matter what role, [staff] have to actually feel they’re accountable for the outcome that they deliver.

“And that consciousness, we think, is the greatest safeguard we have in terms of the long-term health of the organisation and the client outcomes.”

During this early part of the hearing it appears Mr Hodge may be questioning Mr Moore on a “lessons learned” basis, tapping into the groups experience in the wake of the 2012 ASIC report.

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21 HOURS AGO | 12.31PMNo maximum rem

Discussing the changes made since that ASIC report, Mr Moore says there had been a number of remuneration consequences, as well as management changes.

“What do you think would have happened if ASIC hadn’t tapped Macquarie on the shoulder,” Mr Hodge asks.

“That’s a good question,” says Mr Moore, pausing a little.

“It was, as you suggested, with the benefit of hindsight it was fortunate that it was brought to our attention so we could take the steps we did.”

Mr Hodge highlights Macquarie’s remuneration structure, what he says is noticeably different from the rest of the major banks.

“I believe our system is unique,” Mr Moore says.

Mr Hodge further highlighting that there is no maximum amount of variable remuneration or maximum percentage compared to the fixed base salary.

“We asked all entities some relatively standard questions, like what is the maximum amount of variable remuneration that you can be paid,” Mr Hodge says.

“And Macquarie’s response is there is no maximum amount of variable remuneration.”

Mr Moore agrees that is correct.

Mr Hodge details the four factors used to determine variable remuneration at Macquarie: financial performance, risk management and compliance, business leadership, including client outcomes, people leadership and professional conduct.

Rather than a fixed formula, Macquarie uses what Mr Hodge terms “a process of intuitive synthesis” of factors. Mr Moore agrees that it is.

For Mr Moore’s benefit, Commissioner Hayne somewhat wryly points out that Mr Hodge has borrowed the unusual phrase from the field of criminal law, where it is used to describe how sentences for crimes are fixed.

“Thank you, Commissioner. I was impressed with the phrase. I didn’t know where it came from,” a smiling Mr Moore responds.

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21 HOURS AGO | 12.15PMMacquarie’s Nicholas Moore appears

Outgoing Macquarie CEO Nicholas Moore has taken the stand.

Mr Hodge starts by pointing out Mr Moore’s 32 year tenure with the bank, asking whether the longevity of senior executives affects the culture of the organisation.

“Certainly from our viewpoint, we very much see the relationship between the employees and the shareholders as a long-term partnership. And we are very much focussed on the long term,” he says.

Mr Hodge points out that rather than being a retail bank that has got into wealth management, Macquarie is largely an investment bank that has acquired a stockbroking arm. He goes on to detail misconduct and cultural failings that were the subject of an ASIC report in 2012.

Asked if there was an initial reluctance to accept ASIC’s conclusions, Mr Moore says “there was questioning”.

“I think the view from the business was there is an evolution taking place across the market, where firms were moving from a traditional stockbroking world into a modern world of providing independent financial advice.”

He says one of the issues was a lack of recognition of the issue. Macquarie didn’t realise the urgency and the importance of actually delivering on that as well as a lack of compliance reporting into the business itself.

Mr Hodge tenders a licensee risk framework assessment conducted in 2013, in which risk from advisers providing advice that wasn’t compliant or that wasn’t appropriate and providing financial services to clients without express instructions of the client was identified.

Mr Moore says the report showed “a pretty clear story of a lack of control, a lack of challenge”.

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A DAY AGO | 11.41AMResistant to ASIC

Mr Hodge points out a view from ASIC that of the big four banks, Westpac appeared to be the most resistant to the regulator and the laws it administered.

Mr Hartzer says he sought to repair that relationship as soon as he became CEO, citing several process reasons for the breakdown in its relationship.

Mr Hodge shares a number of feedback points from ASIC given to Westpac as it related to its breach reporting from June this year, including that ASIC was concerned about Westpac’s ability to readily identify breaches and had a higher threshold when interpreting the meaning of ‘significance’.

Again Mr Hartzer says the process and clarity of protocol is to blame for the breakdown in its relationship.

“My perspective being in the organisation is its not a lack of intent. But that collective decision making and not strong enough process around breach reporting could have contributed. It’s something, as I said before, we’re trying to fix.”

But that’s about all Mr Hodge wants to ask, and Mr Hartzer is excused.

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A DAY AGO | 11.31AMASIC relationship

Financial services royal commissioner Kenneth Hayne at hearings in Sydney. Picture: Supplied

Commissioner Hayne asks Mr Hartzer how formal the role of APRA should be - whether it should a formalised elaborate structure, or a mechanism of questioning, nudging, inquiring, suggesting and challenging.

“I think its important that it not devolve into a box ticking exercise, which I’m sure we would all agree,” Mr Hartzer answers.

“I think you start with the premise that we all set out to do the right thing... then an interactive relationship with the regulator where they do poke and prod and it is back and forth, is very helpful.”

The commissioner asks whether APRAs relationship should be with the management or the board.

“I think day-to-day the interactions should be with the management because there would be a danger of asking board to become management,” Mr Hartzer says.

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A DAY AGO | 11.25AMComparisons to CBA review

Mr Hodge runs through each of eight points of opposition from Westpac to issues raised in the commission’s interim report.

“The way you described that sounds like we’re completely opposed to change which we’re not, but each of those points has subtleties around them,” Mr Hartzer says in response, adding that there is no culture of change resistance within the bank.

A document from a meeting with APRA and Westpac is tendered to the court, and Mr Hodge pulls out a point from that document:

“Brian thinks unfair everyone has to go through CBA exercise when nothing has gone wrong to CBA’s scale,” says a note; a reference to the major review of Commonwealth Bank that APRA commissioned.

Justifying that point, Mr Hartzer says he was concerned whether such a large and comprehensive review was necessary, given Westpac’s issues were not on the scale of those being experienced by CBA.

“It didn’t seem obvious to me why we should have to do the same exercise,” he tells Mr Hodge.

Further, he says the bank was happy to undertake the self-assessment proposed by APRA, saying the debate was only to the scale and scope of any review.

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A DAY AGO | 11.17AMRemuneration structures

After a brief break Mr Hodge turns to remuneration structures.

Mr Hartzer accepts that remuneration and incentive structures are capable of encouraging poor conduct.

A report is tendered in which Westpac says it is of the view that it is appropriate and consistent with relevant stakeholder’ interests for some component of variable reward to be based to on the employee’s measurable contribution to the financial performance of the company.

The two drill down on the value of a “deep relationship” with customers – it’s something Mr Hodge says must mean something in financial terms to Westpac.

If it’s all about the quality of the customer relationship, are IT people that develop important systems customers use given remuneration incentives, Mr Hodge asks.

Mr Hartzer seems to struggle with understanding this suggestion, and they go through it twice more.

“I’m trying,” he tells Mr Hodge lightheartedly.

“It’s my fault,” Mr Hodge replies, but then he suggests they’re better off sticking to frontline staff.

Mr Hartzer says remuneration is “an important tool in the tool kit” to motivate staff.

And in terms of developing the right ethical culture, “ I would say it starts with the clarity of the purpose of the company, and the way that the senior leaders talk about what they’re trying to do, and then the way you embed that in what we think of as the hard wiring and soft wiring of the company”.

If remuneration can encourage bad behaviour, it can encourage good behaviour too if well designed, Mr Hartzer says.

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A DAY AGO | 10.59AMThe cost of advice

Mr Hartzer says the financial proposition of the bank is “more challenged” if Westpac is not manufacturing wealth management products but continues to have an advice function.

“The reason that no longer manufacturing products makes it more challenging to continue with a financial advice business is because the advice business wasn’t about providing advice, it is about distributing products.” Mr Hodge puts it.

“It has been the rising cost of advice that has created the challenge of that,” Mr Hartzer answers.

Mr Hodge draws parallels between doctors and their relationships with pharmaceutical companies, saying the same thing should apply to financial advisers.

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A DAY AGO | 10.49AMRise of roboadvice

Mr Hartzer confirms Westpac’s goal is to increase the number of its products that are held by each of its customers.

He explains the rationale of going beyond the traditional bank role of accepting deposits and offering finance: it’s that banking is ultimately an annuity business and that value comes from having long-term relationships with customers.

Asked if Australian banks going into wealth management is a success he says “at a high level, clearly not”.

“I don’t think banks fully thought through how the model needed to evolve to be consistent with being part of a service business that focuses on long-term relationships,” he says.

“I think banks underestimated how different the models were and how the model needed to evolve to be consistent with the way banks should run themselves.”

Mr Hodge asks whether high quality financial advice is ever going to be affordable for ordinary Australians.

“I think potentially if its done through technology”, Mr Hartzer says, specifically referencing sso-called “robo advice”.

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A DAY AGO | 10.32AM:Planner professionalisation

Questioning turns to the professionalisation of financial planners and how that relates to fees for no service.

Mr Hodge asks whether any review has been undertaken by the bank to identify whether it’s a deliberate choice or not, suggesting the distinction was likely down to a cultural issue within the organisation.

“I think that’s largely true, and I would observe that financial advice evolved over the last 20 years, starting very much in the way you characterise it as a distribution channel, and gradually transitioning into more of a profession,” Mr Hartzer says.

He agrees that the introduction of legislation no longer permitted advisers to be a distribution mechanism and says they’re being forcibly transformed into a profession.

Mr Hodge asks what place the professionalised financial advisers have within a bank like Westpac. .

“Isn’t it one possibility that it’s recognised that for most Australians, they don’t need an ongoing advice relationship with a financial adviser,” he asks.

“Possibly… but there’s a reasonable portion of Australians that would see value in that. “

10:18:Annual opt-in

Mr Hartzer clarifies the timeline on implementation of a two-year opt-in, as opposed to an opt-in every year, and the timing of fee disclosure statements.

Asked why Westpac thinks clients shouldn’t be required to opt in every year, Mr Hartzer says it’s “just administrative burden, in short”.

“I don’t profoundly object to it, I just think that it would be an extra administrative exercise that clients wouldn’t necessarily welcome,” he says.

“That would add cost, that would ultimately be borne by customers and would distract time that clients could be spending with their clients giving them advice.”

Mr Hodge suggests that a way to control the fees for no service problem is by the opt-in.

“Surely getting client consent every year to continuing to pay for services and agree to what those services are is a way of making sure the client gets what they pay for?” Mr Hodge asks.

“It’s a contributor yes, but it doesn’t meet ASICs standard alone.”

Mr Hodge asks Mr Hartzer if he can think of any professional service “where it is regarded as too burdensome to ask clients each year if they still agree to pay for and receive an ongoing service”.

“I don’t know”

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10.00am: Westpac lacked documentation

Westpac CEO Brian Hartzer appearing at the financial services royal commission in Sydney. Picture: Supplied

The fourth day of the final round of questioning has begun, with Westpac CEO Brian Hartzer on the stand again.

Mr Hodge confirms with Mr Hartzer that there were 1046 practices operating under Westpac’s licence.

He cites a Westpac risk report from earlier this year that highlights the bank’s lack of reporting.

The review found that 50 per cent of the samples tested had no appropriate supporting documentation on file to match the review status recorded in the fee disclosure statement and ongoing advice delivery report.

Further, the report found that there was a lack of consequence management policy application by the business where advisers admitted to or were found to be non-compliant or breached the Westpac code of conduct.

Mr Hartzer says that is likely to be because of an overreliance on an “opt in” model for advice, under which customers notified the company every two years of their wish to continue to receive advice, something which he concedes “clearly was insufficient”.