Covid stalls Hayne bank reform momentum

Kenneth Hayne. (AAP Image/Mick Tsikas)

Two years after the Hayne royal commission tabled its final report in parliament, the banking industry is fully aware that its behaviour is the key to restoring trust, not beating an arbitrary deadline to implement the report’s 76 recommendations.

“The lesson of the royal commission is that actions speak louder than words,” Commonwealth Bank chief executive Matt Comyn told The Australian. “The royal commission’s recommendations and the industry’s response have been critical, but it is our actions and daily interactions with customers which define our future standing in the community.

“Hopefully, the way our industry has responded to the coronavirus pandemic in providing support to individuals and businesses across Australia has gone some way to rebuilding our reputation.”

The broader lesson from the royal commission is that the pragmatists in Canberra, and elsewhere, have moved on.

Cameos like the fear-inducing sideways glance of royal commissioner Kenneth Hayne, or senior counsel assisting Rowena Orr’s regular demolition of witnesses — but only after courteously asking if she could “show a document” — were so frequent that they became memes.

But two years and a global pandemic later, the nation’s priorities have changed.

The banks are no longer the problem; they’re part of the solution. Yes, they really should lend responsibly. But credit must flow, and the casualties of COVID-19 lockdowns need jobs.

Hayne could see the future — that he would outlive his usefulness as soon as the final report was tabled in parliament on February 4. Since then, he has batted away every request for an interview, emailing a dissertation to The Australian on why he had to say “no”.

“I have said to those who asked that, as the commission was coming to its end, I decided that my ­report must speak for itself,” Hayne wrote.

“Once I delivered the report, it would be for the political branches of government to work out and decide what should be done in response without my seeking to add to what appears in it.

“That is why I have made no comments and given no interviews about the matters that were the subject of the commission.

“In these circumstances I must leave your questions unanswered. I am sorry not to be able to help. I hope I have explained why.”

Hayne’s reticence is understandable, but so are the regrets of the consumer movement, where there’s widespread concern that a once-in-a-generation opportunity to correct some of the imbalances in the financial services industry is going to be squandered.

Consumer Action Law Centre chief executive Gerard Brody says the royal commission was a “watershed moment”.

“Unfortunately, I worry that we’ll be seeing consumer harm and losses persist because of a failure of the government to implement the full suite of reforms,” Mr Brody said.

The Morrison government had made some changes to strengthen consumer protection in the two years since Hayne’s final report, but it was also proposing to “dismantle” responsible lending laws, leaving people vulnerable to the type of conduct that led to the royal commission in the first place.

The final report pointed to significant failures in culture, governance and holding institutions to account.

However, the proposed removal of responsible lending laws would enable lenders to have their own credit assessment and approval processes, lessening their accountability for ensuring loans were suitable and repayments were affordable.

The risk, according to Mr Brody, was a return to the “greed and sales cultures of the past”, with regulators having much less power to hold lenders to account after the removal of civil and criminal penalties.

“Individuals will lose their right to take legal action for compensation when there is a breach of lending standards,” he said.

“This will exacerbate the power imbalance between banks and their customers.

“The Hayne report said that too often financial entities that broke the law were not properly held to account — if the government’s proposal becomes law, then there is little likelihood that they can be kept to account at all.”

Mr Brody conceded there were some areas of improvement since the royal commission, such as insurance.

Unfair contract terms now apply to insurance; funeral insurance has been reformed; hawking of insurance and superannuation has been banned; and the sale of junk, add-on insurance has been reined in.

While these were important reforms that should mean the end of cold-calling or bundling junk products in a hard-sell, some of the details were still to be worked out.

Also, it wasn’t clear that the new rules apply to every sale, with travel insurance likely to be exempted, according to Mr Brody.

“There are also a whole range of recommendations that remain ‘in progress’ or haven’t been fully implemented,” he said.

CBA CEO Matt Comyn. Picture: Adam Yip

“In a political environment which prefers deregulation, it’s uncertain whether some of these recommendations will ever see the light of day.

“This lets the sellers of often higher-risk and costly credit off the hook — they get rewarded when the sale is made, whether or not it leaves the consumer in hardship.”

In some ways, it’s the regulatory agencies ASIC and APRA that highlight that COVID has shifted the nation’s priorities.

Both agencies were pilloried by Hayne, who said in his interim report that the Australian Securities & Investments Commission rarely “went to court to seek public denunciation of and punishment for misconduct”, and the Australian Prudential Regulation Authority “never went to court”.

In November, acting ASIC chair Karen Chester noted that the government had deferred some of its royal commission-­related legislative measures to ­enable businesses to focus on ­pandemic responses and plan for recovery.

“We moved immediately in lock-step to defer commencement of the mortgage broker best interests duty and the design and distribution obligations,” Ms Chester said.

Over at APRA, chair Wayne Byres did the same, suspending most of its policy and supervision agenda in March after the arrival of COVID-19. The agenda kicked off again late last year, when APRA and its regulated entities had sufficient capacity.

Despite the shifting national priorities, Mr Comyn, chair of the Australian Banking Association, firmly believed that the industry had implemented significant changes to improve customer outcomes and ensure that issues identified in the royal commission did not happen again.

The agency said on Monday that finalisation of a new remuneration standard this year would address some of the royal commission’s key recommen­dations.

Mr Comyn, for his part, hadn’t changed his view that the royal commission identified a number of failures across the industry that were “simply unacceptable”.

“Over the past two years, the banking industry has implemented significant changes to improve customer outcomes and ensure that issues identified in the royal commission do not re-occur,” he said.