Hayne expected to push for culture change

The royal commision into the financial services sector is likely to propose sweeping cultural changes to the flawed industry.

Commissioner Kenneth Hayne’s royal commission findings into the banking and superannuation services will be released today. Picture: David Geraghty

The nation’s regulators and big bank chiefs are bracing for the Hayne royal commission’s curtain call, which threatens sweeping changes across law enforcement and lending markets after delving into the sector’s failings and culture.

Recommendations in the financial services blueprint will hit the banking, wealth and insurance industry with a thud this afternoon, as Commissioner Kenneth Hayne’s findings are made public.

Anxiety levels are high after Mr Hayne’s seven rounds of hearings uncovered thousands of breaches of legislation including the Corporations Act, Superannuation Industry (Supervision) Act and the Australian Securities and Investments Commission Act.

Regulators are bracing for another round of criticism and if Deutsche Bank analysts are correct, calls for the creation of an independent conduct regulator.

Mr Hayne’s interim report was scathing of ASIC and the Australian Prudential Regulation Authority’s lax approach to enforcement, and the seventh round of hearings uncovered even more evidence of it.

“When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done,” the interim report said.

It showed a range of issues including conduct, regulation and flaws in the industry’s culture.

“Two themes recurred: dishonesty and greed,” Mr Hayne said in the interim report.

“Charging for doing what you do not do is dishonest. Giving advice that does not serve the client’s interests but profits the adviser is equally dishonest.”

On the topic of culture, National Australia Bank chairman Ken Henry told the commission it may take the bank up to a decade to reform and change.

Mr Hayne, however, may have a few suggestions to expedite the process. Experts in the field tip Mr Hayne will highlight culture as a fundamental problem in financial services that needs to be fixed, particularly given he hasn’t advocated for new layers of rules and regulations.

“It’s not that it can’t be done, it is the will to do it (among the banks) is not there,” said Adam Salzer, a former PwC managing director and chairman of the Australian Transformation and Turnaround Association.

“These guys all understand evolution … that’s not good enough for this, you need proper (cultural) transformation.”

Mr Salzer — who has worked with large global banks and regulators across Hong Kong, Singapore and the UK — was a panellist on topics including conduct risk and culture alongside now ASIC chair James Shipton at the Pan-Asian Regulatory Summits in 2015 and 2014.

At the time Mr Shipton was an executive director at the Hong Kong Securities and Futures Commission.

The mining industry’s focus on safety as a top priority was a good example of how the banks should prioritise cultural change, Mr Salzer added. He doesn’t believe those at the helm of the big four banks can drive the change.

“None of those people have the capability to drive it, it is possible but they have to passionately believe it and drive it through the organisation.”

Australian Banking Association boss Anna Bligh is adamant, though, that the industry is using the inquiry as a catalyst for change.

“Banks know they have failed their customers and not lived up to the high standards Australians rightly expect of the industry,” Ms Bligh said.

“While we don’t know the recommendations in the report, we do know this an opportunity to reset the industry and to make things better for our customers.

“After talking to Australians on a recent tour of our regional towns I’ve been reminded that what customers want from their bank is a partner to build their business, purchase their home and reach their financial goals.”

The big four bank chief executives including NAB’s Andrew Thorburn, Commonwealth Bank’s Matt Comyn, Westpac’s Brian Hartzer and ANZ’s Shayne Elliott have throughout the royal commission admitted the banks’ misdeeds, including the need for change.

But Mr Salzer believes cultural change has to be embedded, rather than talked about, and can be measured in a similar way to staff engagement, which many of the banks already track.

Analysts at Deutsche Bank expect a long period of cultural change ahead at the banks.

“When the royal commission concludes on February 1, in our view, it will mark the end of the beginning of a long period of cultural adjustment,” they said.

“The regulatory response is typically slow, piecemeal and pendulum-like.

“Moreover if we look to the UK, just as one issue was concluded a new issue would arise as resource-restrained regulators dealt with them one by one. We see this as a risk for the majors.”

Deutsche also warned of higher operating costs and slower credit growth due to more “rigorous enforcement” of the rules by the banks.

Concerns about the availability of credit have plagued the central bank and the Council of Financial Regulators over the past 12 months, and they have encouraged banks to keep lending despite the ongoing scrutiny of their lending obligations.