Royal commission: Banks brace for Ken Hayne’s first shot

An election, rates and royal commission findings means there’s more bank bashing to come.

Commissioner Kenneth Hayne. Picture: David Geraghty

The first person to see the financial services royal commission’s interim report outside of its author Kenneth Hayne will be the Governor-General, who set the process in motion last December by signing the letters of patent.

The all but leak-proof report, which according to the bush telegraph extends to seven volumes, is expected to be hand-delivered this morning to Sir Peter Cosgrove at Government House in Canberra. Next stop is Attorney-General Christian Porter and the formal process of tabling the report in the federal parliament, enabling the Morrison government to leaf through the policy recommendations for a few hours before the public can download it from the royal commission’s website.

The report covers four rounds of hearings — consumer lending, financial advice, loans to small and mediums-sized businesses, and financial services in regional and remote communities.

Treasurer Josh Frydenberg said yesterday that more than 9300 submissions and six round of hearings, including superannuation and insurance, had made it clear that some financial institutions had “fallen far short” of treating Australians honestly and fairly.

“Fees charged to dead people, fees for no service and allegations of 300,000 breaches of providing unsolicited insurance advice, is simply not good enough,” he said.

“Commissioner Hayne and the commission have done an outstanding job to date and the government looks forward to receiving the interim report.”

The main policy issues expected to feature in the report include responsible lending, as well as governance failures and remuneration structures in the advice industry, including grandfathered commissions.

There’s an overwhelming belief in the market that the report will recommend a crackdown on responsible lending, with poor bank systems and processes one of the main contributors to excessive debt held by vulnerable borrowers.

Kenneth Hayne has been advised to find ...

In expense verification, there has been an over-reliance on benchmarks such as the household expenditure measure (HEM) instead of genuine due diligence.

Mr Hayne could clarify what constitutes responsible lending, and recommend a ban on use of the HEM.

The commissioner will inevitably take a dim view of the repeated governance failures in the advice industry.

Both regulators and financial services institutions are expected to be held accountable, with commission payments in remuneration structures likely to come under scrutiny.

CLSA analyst Brian Johnson said the royal commission had not gone well for the banks, with “harrowing” stories of poorly treated customers who had suffered significant financial consequences.

“Over and above the damage to bank brands, with which retail customers seem to have a ‘hate them but trust them’ relationship, the royal commission has revealed behaviour falling below community expectations and even legal requirements,” Mr Johnson said in a note.

Mr Hayne, he said, had been advised by senior counsel assisting that it would be open for him to find recurring breaches of the Corporations Act, the Credit Act, the Banking Code of Practice, and the Competition and Consumer Act for misleading and deceptive conduct.

The likely result of the royal commission was a further deterioration in sentiment towards the banks.

This would be fanned by a tightening in housing credit, which had already contributed to a softening in dwelling prices in Sydney and Melbourne, and more bank bashing ahead of the federal poll due before May next year.

Interest rate hikes by the banks to rebuild eroding interest margins would further disenchant customers.