Tug of war breaks out over terms of inquiry as banks welcome ‘certainty’

While the banks have welcomed “certainty”, some are pushing for broader terms of inquiry for the royal commission.

The Big Four banks have called for an inquiry into the banking system. Picture: AAP

As the major banks welcome the “certainty” offered by a royal commission, the Greens and the Financial Sector Union are pushing for broader terms for the financial sector royal commission announced earlier today.

Greens leader Richard Di Natale and treasury spokesman Peter Whish-Wilson have written to Treasury Scott Morrison lobbying for broader terms for a royal commission, warning the minor party had “genuine concerns the current terms of reference miss some of the main systemic problems within the banking and financial sector”.

“We welcome the government’s announcement that there will finally be a royal commission into the banking sector,” the letter, obtained by The Australian, reads.

Mr Di Natale and Mr Whish-Wilson said to “create real change”, the royal commission terms of reference must be amended to ensure the inquiry is not prevented from investigating the role the implicit or explicit government guarantee of the major lenders plays in “encouraging excessive risk taking by the banks”.

The duo also called for the definition of financial service entities be broadened to include auditors and liquidators. “These entities were central to the unjust resultion of managed investment schemes, therefore it is crucial for the commission to be able to examine these industries if the evidence requires it.”

The Greens have also asked that “corporate structures” be investigated. “Vertical integration and corporate structures lie at the heart of conflicted incentives that encourage financial misconduct.”

Financial Sector Union national secretary Julia Angrisano also questioned why the government would backflip on its opposition to the royal commission and said the Prime Minister should guarantee that banks will have zero involvement in drafting terms of reference.

“Doggedly, they have stuck to this line for many months, yet today, after receiving a green light from the banks, the PM has announced a Royal Commission,” Ms Angrisano said. “Who is pulling the strings here ?”

“Australians don’t want ordinary bank workers thrown to the wolves by bank executives,” she said.

The comments follow earlier remarks from Australian Bankers Association chief executive Anna Bligh stating the government-controlled royal commission was necessary to avoid an inquiry with terms of reference set up by “fringe elements” and minor parties in the parliament.

“This is an extraordinary and unprecedented step,” Ms Bligh told reporters on the sidelines of a superannuation conference in Sydney this morning.

Ms Bligh was aware of the letter sent to the government by the chairmen and chief executives of the major banks, but the pace with which the Prime Minister announced the royal commission surprised the former Queensland Premier.

“The chairs and the chief executives of our major banks have called on the government to end the turmoil and political uncertainty because they now believe there is now a real risk to the strength and stability of Australia’s banking system,” she said.

“The risk posed by a parliamentary inquiry where the terms of reference and the appointment of a commissioner were left in the hands of minor parties and fringe elements of the parliament was a risk that was simply too big to take. The decision by the government is the only way that uncertainty could be put to bed.”

“The banking and finance sector of Australia is one of our most important global industries. It is one of the most significant contributors to the global economy. It is too important to put in the hands of minor parties and fringe elements of the parliament.”

Ms Bligh said a royal commission would take the inquiry out of the hands of the parliament. “Of course the senate can debate a (separate) bill, but this does not require parliamentary numbers or horsetrading on terms of reference,” she said.

“If there is to be an inquiry it is to be imperative that the inquiry is sensible and properly constituted. There should be the appointment of an eminent, highly respected jurist to oversee it. Its terms of reference should be considered carefully and thoughtfully and not in the fever pitch of an increasingly febrile parliament. There should be a consideration of which parts of the finance and banking industry should be included and it should be required to report in a reasonable time frame.”

Commonwealth Bank issued a terse statement, acknowledging “the announcement by the Prime Minister and Treasurer that the Federal Government will establish a Royal Commission into the Australian financial services sector”. The bank said it also “notes” the draft terms of reference that have been released.

In announcing the inquiry, the PM said the commission would investigate how financial institutions had dealt with past cases of misconduct and whether they exposed issues of culture and governance as well as regulation and supervision. But he said the royal commission would not have powers to recommend compensation for individual cases but it will be able to make recommendations the government would consider.

“The Commonwealth Bank will co-operate fully with the Royal Commission,” CBA said.

CBA has provided politicians with a long list of bank bashing fodder. The allegations it broke anti-money laundering legislation more than 53,000 times, claimed by the regulator Austrac in a Federal Court filing in August, came on top of a life insurance scandal where the company was found to have used outdated definitions of heart attacks to deny claims. It also followed a wideranging debacle in wealth management, where planners were found to be selling poor financial advice. The collapse of Storm Financial had also tarred the image of the lender in the eyes of many Nationals MP

Westpac chief executive Brian Hartzer called on the government to include the “entire financial services industry”, including insurance, superannuation and the financial advice sectors as well as banks, into the royal commission

Mr Hartzer said the bank had “consistently argued” a royal commission was unnecessary, but said it was now more important the financial sector could operate with certainty.

“We have concluded that it is in the sector’s and Australia’s interests that a properly constituted Royal Commission is established to finally end the political distractions,” he said.

“However, the financial services sector is too important to leave to being a political football. As a result we will fully co-operate with the Royal Commission that has been announced today.”

The government’s Small business Ombudsman Kate Carnell, who recently held an inquiry into aggressive business lending practices by the major banks, said a royal commission would finally allow an investigation of historical poor banking behaviour.

“The asymmetry in power between the banks and small businesses, together with the conduct of banks particularly since the global financial crisis in 2008, has left many small businesses in a devastating financial position,” Ms Carnell said.

“Many have lost their businesses as well as their family homes, with no prospect until now of obtaining access to justice.”

“I’ve been concerned that in some cases there may have been unconscionable behaviour by the banks and this should be examined in the Royal Commission.”

Ms Carnell said although there had been “significant progress” towards changing the behaviour of banks with the introduction of unfair contract terms laws and the establishment of the Australian Financial Complaints Authority, past instances of poor banking behaviour had gone unscrutinised.

“What’s been missing is the capacity to review past disputes and award compensation,” she said.

“It’s not acceptable that banks called in loans where repayments were up to date. Businesses were forced to close, people lost their jobs and entire communities suffered adverse impacts.”

Insurance Council of Australia chief executive Rob Whelan said the industry was “ready to contribute” to the royal commission.

“Though the calls for a formal inquiry have focused on the banks, the Insurance Council of Australia hopes the royal commission will end political uncertainty and improve public confidence in the insurance sector,” Mr Whelan said.

In August, The Australian revealed a letter sent by the corporate watchdog to the ICA which slammed Australia’s largest insurance companies for offering “disappointing” proposals to overhaul predatory car insurance products.

The Australian Securities & Investments Commission had castigated the sector for its inadequate proposals to overhaul the selling of insurance through car dealerships, which was of “little or no benefit” to consumers.

“Over the past six years the general insurance industry has contributed to numerous government-initiated inquiries and reports including the comprehensive Financial System Inquiry, the Senate inquiry into general insurance, the Northern Australia Insurance Premiums Taskforce, Henry Tax Review, Queensland Floods Inquiry, and three Australian Government Actuary reports,” Mr Whelan said.

“The inquiries have concluded that the general insurance industry, which pays more than 97 per cent of claims, does not have systemic issues that need addressing,” he said.

The PM’s announcement of a royal commission earlier today followed a letter from the leaders of the big banks to the Turnbull government urging them to set up a formal inquiry into the banking system.

In a letter signed by the four major bank chief executives and chairs, a formal inquiry is now said to be in the national interest.

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The CEOs of the Commonwealth, Westpac, National Australia and ANZ banks made the request in an email sent on Thursday to Treasurer Scott Morrison.

They have called on the federal government to set up a “properly constituted inquiry” into the financial services sector.

The bank chiefs said an inquiry is needed to restore public trust and confidence.

“It is now in the national interest for the political uncertainty to end,” they wrote in the email dated November 30.

“It is hurting confidence in our financial services system, including in offshore markets, and has diminished trust and respect for our sector and people.”

Mobile users can download the letter here

Additional reporting Andrew White