Former bank chief David Murray hails royal commission power

Former CBA boss David Murray has backed the new banking royal commission and its greater powers.

Former CBA chief executive David Murray says the inquisitorial power of a royal commission and its rules of evidence would enable it to investigate complaints. Picture: Mike Batterham

The head of the most recent ­inquiry into the financial system, David Murray, has backed the new royal commission and its greater powers, urged an overhaul of the independence of super­annuation funds and warned that regulation alone will not fix banking culture.

Mr Murray, formerly Future Fund chairman and Commonwealth Bank chief executive, commended the inclusion of superannuation in the terms of reference of the Turnbull government’s $75 million banking royal commission, which he said could provide a fresh look at misconduct in the finance industry.

Mr Murray, whose inquiry recommendations have mainly been implemented by the Turnbull government, said the inquisitorial power of a royal commission and its rules of evidence would enable it to investigate complaints.

However, he doubted the commission would be able to make recommendations shifting bank culture, which he said was shaped by leadership, not regulation.

Cameron Clyne, chief executive of National Australia Bank from 2009 to 2014, said he was ­accountable for the bank’s conduct over that time. “If the royal commission wants to look into NAB’s conduct over that period, I’d be happy to co-operate,” he told The Weekend Australian .

Scott Morrison yesterday ­denied the reference to industry superannuation was an ideolog­ical pursuit and said the government had concerns about the sector. “The opportunity was there to ensure that we had a broad-ranging inquiry into the ­financial services sector and that includes, of course, superannuation,” the Treasurer said.

The Turnbull government, which was forced into calling a royal commission into the banks on Thursday after a group of renegade Nationals MPs announced they were working with the Greens and Labor on a bill for a commission of inquiry, yesterday unveiled the appointment of former High Court judge ­Kenneth Hayne to conduct the inquiry.

Malcolm Turnbull’s royal commission about-face has put more pressure on the Prime Minister, who is languishing in the polls on the back of the citizenship crisis and growing unrest in ­Coalition ranks. The Weekend Australian understands government MPs want Mr Turnbull to lead the ­national discussion on the royal commission, and prevent Labor claiming credit.

In a joint statement with Mr Morrison and Attorney-General George Brandis, Mr Turnbull said Mr Hayne, who retired from the bench in 2015, was “renowned for his brilliant mind, his forensic skill and his deep sense of justice”.

“All Australians have the right to be treated honestly and fairly in their dealings with the financial services industry,” they said.

Law firms expect the royal commission to grill past and present bank executives as it investigates historic wrongdoing.

Opposition Treasury spokesman Chris Bowen said Mr Hayne’s appointment was appropriate, but Labor would prefer there was more than one commissioner. Mr Bowen yesterday wrote to Mr Morrison detailing Labor’s concerns about the terms of reference for the inquiry, saying they should encompass executive remuneration and protection for whistleblowers, and should only be finalised following consultation with bank victims groups.

While Labor believed the royal commission should cover superannuation and insurance, Mr Bowen said: “We have serious concerns about the narrow focus on industry superannuation funds.” He said Labor believed prudential regulation of the banks should not have been excluded from the terms of reference.

Mr Morrison said Mr Murray’s inquiry had addressed all the broader financial system issues, particularly the strength of prudential regulation.

Mr Murray said agitation for a royal commission had been “ridiculous”, but he believed it would reveal issues that were beyond the scope of his inquiry. “It does allow a fresh look and there is no harm in that,” he said. “Our inquiry dealt with submissions that people made to us. A royal commission using rules of evidence and cross-examination can ­uncover a lot more.”

Mr Murray’s inquiry tackled superannuation fund governance, citing research that showed quality administration could add one percentage point to returns, and recommending all funds include a majority of independent directors with an independent chair. He said recent research by the Institute of Public Affairs showing unions received $18.4m in directors’ fees over the past three years illustrated the problem. “It shows people are sitting at boards for another purpose than the members’ interest,” he said. The royal commission has been asked to look at the use of superannuation fund member retirement savings for purposes that are not in their interests.

Mr Murray cited advertising by industry super funds criticising bank-­operated super funds. “Why would the member of one fund pay for that fund to ­advertise against the interests of members of another fund by attacking them publicly?” he asked.

In September, the Turnbull government put legislation into the Senate aimed at granting broad powers to force the $2.3 trillion superannuation industry to disclose millions of dollars in hidden annual payments made to ­unions and employer groups.

The legislation targeted funds failing to act in the interests of its members and granted the Australian Prudential Regulation Authority powers to crack down on hidden payments.

Industry Super chief executive David Whiteley said all industry super funds would agree that trustees should be ­independent of the fund’s management. He said many of the bank retail funds included one or more executives of the fund on the board of trustees. He also defended the Industry Super ­advertising, which he said was ­intended to inform members about the risks of vesting ­retirement savings with banks. “There have been a range of scandals in the wealth management divisions of the major banks,” he said.

Mr Murray said the royal commission’s core task was to investigate misconduct. This had been covered by his inquiry, which recommended increased power for the Australian Securities & Investments Commission. He said a royal commission would bring a different focus on misconduct, starting with complaints and exploring whether there were problems with contracts or the law.

“We made life a lot easier for ASIC by taking them out of the public service, and having them industry-funded.”

Mr Murray does not believe the royal commission will be able to generate useful findings on banking culture, which is one of the terms of reference. “One of our clear conclusions is that you can’t regulate culture,” he said. “You can have all the internal control systems and a great internal auditor but a chief executive who appears not to care about it and that sets up a cultural problem.”

Additional reporting: Richard Gluyas