Hayne royal commission: Some serious reforms are coming down the line, just not for banks

Some serious reforms are coming down the line, just not for banks.

The nation’s top bankers will be breathing a sigh of relief following the Hayne report, writes Richard Gluyas. Picture: AAP

The nation’s top bankers will be breathing a sigh of relief — their worst fears about the Hayne royal commission have turned out to be misconceived.

Ken Hayne reviewed a brace of policy options over the course of 2018, and was repeatedly urged by consumer groups and victims of industry misconduct to take extreme action against corrosive bank cultures, but the commissioner’s recommendations are moderate and commercially rational.

Clearly, he has heeded the warning that banks have already tightened the availability of credit, and to wrap the industry in never-ending spirals of red tape would do much more harm than good.

That means the test for responsible lending will be not be tightened, business lending will remain the outside the loop, and the business models of AMP and Westpac will remain intact because structural separation of vertically integrated wealth businesses is off the table.

If you’d told the banking industry at the beginning of last year that this would be the outcome, it would have leapt for joy; more so after they were lashed in the seven rounds of public hearings that followed.

That’s not to say that the industry has emerged unscathed, with some serious reforms coming down the pipe.

The mortgage broking industry, which originates about half the nation’s home loans, will cease to exist as we know it.

The law will be changed to require brokers to act in the best interests of customers, and conflicts of interest will be removed by banning trail and grandfathered commissions.

Ultimately, brokers will be regulated as strictly as financial advisers.

The bush, meanwhile, will celebrate the introduction of a national farm debt mediation scheme, and the punishing Banking Executive Accountability Regime will be extended to insurers and the $2.7 trillion superannuation industry.

Other important structural changes will be made, including an oversight body for the main regulators ASIC and APRA, and the long-awaited introduction of a compensation scheme of last resort.

The reforms make sense, and will contribute a lot to reining in the excesses of an industry that for too long has prioritised sales over service, failed to properly remediate customers who have suffered loss, and is some cases deliberately misled regulators.

While the industry has fared well, some of its members — National Australia Bank, in particular — have a lot to think about.

NAB had a disastrous royal commission, so it’s no surprise that chairman Ken Henry and chief executive Andrew Thorburn have felt the sharp edge of Hayne’s scythe.

In a withering critique, the commissioner said NAB stood apart from the other three major banks, and having heard from the chairman and the chief executive, he was not confident that the lessons of the past had been learned.

He excoriated Henry for his unwillingness to accept any criticism of how the board had dealt with some issues, and said it was “telling” that Thorburn treated all issues of fees for no service as “nothing more than carelessness combined with system deficiencies”.

Hayne said his fear was that NAB maintains a “wide gap” between its public face and what it does in practice.

It’s a damning assessment, and the NAB board must investigate and take appropriate action.