A culture of greed compounded by inaction from regulators is to blame for rampant misconduct in the financial services industry, according to the interim report from the banking royal commission.
At almost 1000 pages, the report from Commissioner Kenneth Hayne covers hearings into lending, financial planning, and finance in rural and regional areas including farming and indigenous communities.
“Why did it happen? Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty,” the commissioner wrote.
“How else is charging continuing advice fees to the dead to be explained?”
Selling financial products too often became “the sole focus of attention” as “banks searched for their ‘share of the customer’s wallet’”, he said.
Commissioner Hayne slammed the regulators for failing to deliver appropriate punishment.
“The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court,” the commissioner wrote.
“Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct.”
New financial laws and regulations are unlikely, as “much more often than not, the conduct now condemned was contrary to law”.
“Passing some new law to say, again, ‘Do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?”
Instead, the commissioner posed the question, should the law be simplified?
Treasurer Josh Frydenberg, in releasing the report on Friday, said “the behaviour that we have seen to date has been unacceptable”.
“Fees charged to dead people, fees for no service, 300,000 plus breaches for providing insurance and advice that was unsolicited and against the rules,” he said.
“But now that [the misconduct] has been revealed, now that we have the interim report into next year, the final report, it is incumbent upon those in the financial services sector and those regulators who are charged with enforcing the law lift their game because the public deserve it and the public expect it.”
Responding to the report, Deputy Labor leader Tanya Plibersek said the ALP would, if elected, establish a taskforce within Treasury to reform “the culture of profit-over-people in the financial services sector”.
“The taskforce, of course, will work closely with victims and their advocates in recognition that the lived experience of the systemic misconduct in the banking sector should inform the response.”
She also called for the royal commission to be extended in order to hear from more victims.
Anna Bligh, the chief executive officer of the Australian Banking Association, labelled it a day of shame for Australian banks.
“Our banks have failed in many ways: failed customers, failed to obey the law and failed to meet community standards.”
Bligh says Australian banks accepted “full responsibility for their failures” and that “there is much more work to be done in every bank”.
Gerard Brody, CEO of the Consumer Action Law Centre, said the lack of consequences for banks and lenders was driving poor lending and sales practices.
“Where loans are found to be irresponsibly lent, debts should be waived—this will provide the right incentive for banks to do the right thing.”
Public hearings will resume in November and will focus on banking and financial policies, including responsible lending standards, regulator powers and resources, and the limitations of industry self-regulation.
The final report is due to be released on February 1, 2019.