Top bankers could do jail time, Scott Morrison warns

Scott Morrison has warned that banking and financial services executives could serve time in jail.

Treasurer Scott Morrison. Picture: Danny Aarons

Scott Morrison has warned that banking and financial services exec­utives could serve time in jail, as the political and regulatory heat on the besieged sector escalated dramatically after a senior Commonwealth Bank executive admitted the institution was a “gold medallist” in ripping off its advice clients.

The royal commission heard more damaging admissions yesterday from the $4.6 billion-a-year financial-advice industry, with ­another executive at the nation’s biggest bank agreeing that the bank’s internal systems were so hopeless that CBA had no idea what was going on in its own ­business.

CBA leads the market in compensation payments to customers for agreed services that were not provided, shelling out $118 million between 2007 and 2015.

Under cross-examination, it was put to Linda Elkins, executive general manager of CBA division Colonial First State, that “you’d be the gold medallist if ASIC was handing out medals for fee for no service”.

“Yes,” Ms Elkins responded.

A director of Commonwealth Private, Marianne Perkovic, was asked whether CBA’s “systems were so hopeless CBA had no idea what was going on in its business”.

She replied: “Yes.”

CBA executive Linda Elkins. Picture: Stuart McEvoy

Former Australian Competition & Consumer Commission chairman Allan Fels yesterday called for the ­banking and financial advice industry “to structurally separate the making of these products from their sale”.

“Nothing less than a structural remedy is required,” he said.

National Australia Bank chairman and former Treasury secretary Ken Henry said major shareholders in financial institutions were forcing companies to put financial performance before other concerns.

Speaking on a business panel in Sydney yesterday, Dr Henry said the focus on financial returns above all else was “frustrating” for both companies and regulators.

However, it was an intervention by the federal Treasurer that sent a chill down the spines of senior bankers.

Mr Morrison said revelations in the royal commission this week that one of the nation’s five financial pillars, AMP, had not only slugged customers without providing the associated services but had then misled ASIC when it launched an investigation, were “deeply distressing”.

.@ScottMorrisonMP has warned AMP executives they could face jail time over revelations they were charging customers for services they did not receive.

'They're treating their customers like mugs, and treating the law with no respect.'

MORE: https://t.co/RIyuPxOWtw #Richo pic.twitter.com/qcfQQgFN8a

— Sky News Australia (@SkyNewsAust) April 18, 2018

“This type of behaviour can attract penalties which include jail time — that’s how serious these things are,” Mr Morrison said.

“I am very reassured by the fact that these matters were already being pursued by ASIC and will continue to be pursued by ASIC.”

Mr Morrison rejected any ­suggestion that the royal commission — initially opposed by the Turnbull government and the banks — was damaging the ­nation’s reputation as a safe place to do business, saying it was being ­conducted in a “very business-like and professional” way.

Former Nationals leader Barnaby Joyce last night tweeted that he had been wrong to argue against the royal commission.

“ What I have heard is so far is beyond disturbing,” Mr Joyce said.

In the past I argued against a Royal Commission into banking. I was wrong. What I have heard is so far is beyond disturbing.

— Barnaby Joyce (@Barnaby_Joyce) April 18, 2018

The Australian Securities & Investments Commission later released a statement saying it was investigating AMP’s conduct in relation to fees charged for no service, as well as the company’s false and misleading statements.

The regulator said it had received “many thousands” of documents, and undertaken 18 examinations of AMP staff. It was also co-operating with the royal commission on a range of matters, including current and previous ­investigations.

“More broadly, all financial institutions need to understand the importance of co-operating with the regulator and complying with the law when providing information to ASIC,” the regulator’s statement said. “Making false and misleading statements to ASIC can result in civil and criminal sanctions.”

ASIC declined to make any further comment.

The royal commission, which the financial-services industry had steadfastly opposed until a backflip late last year, has already been an unmitigated disaster for AMP, the major banks and their advice arms. The first round of hearings last month on consumer lending featured case studies involving home-loan fraud and breaches of responsible-lending obligations.

In financial advice, almost 306,000 customers have been paid, or have agreed to be paid, $216m in fees-for-no-service compensation, with a further $383m paid to clients who suffered losses because of inappropriate financial advice.

The revelations have hit AMP hard. Shares in the once-proud company shed a further 2.2 per cent yesterday. The stock has plunged 6.9 per cent, giving up almost $1 billion in value, since the latest round of hearings began on Monday.

Adding to AMP’s humiliation, the company was again forced to apologise, saying it was “deeply disappointed that its advice ­business has charged customers fees where service has not been provided and for misleading the regulator in this regard”.

The royal commission yesterday continued to scrutinise the way Australia’s big financial institutions make money, throwing the spotlight on the multiple ­layers of fees charged by AMP and CBA for investments made through their platforms.

In a stormy session late in the afternoon, senior counsel assisting Michael Hodge accused Ms Perkovic, who for many years ran the bank’s scandal-ridden ­financial-planning division, of “dissembling”.

She was doing this, he said, to avoid admitting that the bank took two years to report that it was charging financial-planning clients for work that was not ­performed.

Ms Perkovic conceded that the bank’s systems at the time, in 2013, were inadequate but would not admit she knew that clients were being ripped off.

Commissioner Kenneth Hayne warned the CBA executive over her waffling, jargon-laden ­answers, saying she was not answering Mr Hodge’s questions.

However, Ms Perkovic agreed with Mr Hodge’s assertion that “the one thing you did have was systems to make sure that you were getting revenue”.

Professor Fels last night told The Australian that on the evidence emerging at the royal commission, the financial advice sector had a conflict of interest and was unable to handle it ­properly.

“So a major agenda item for the commission should be whether to structurally separate the making of these products from their sale,” Professor Fels said.

“I wouldn’t say that about many industries but in this ­industry, the selling has got out of hand, (as has) the bias towards the products of the banks or other ­institutions.”