Banking royal commissioner: The damage to consumers is large and sorry isn’t good enough

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Honourable Kenneth Madison Hayne (left) delivered the report, before Josh Frydenberg (right) responded. Source: Twitter/David Marler and ABC TV.

A 500-plus-page royal commission report has torn strips off Australia’s biggest financial sector names over actions that the report charged weren’t just below community standards, but were in fact illegal.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, led by Kenneth Hayne QC, held four rounds of hearings, considered more than 10,000 complaints from the public and examined thousands of documents before delivering its findings to the Treasury on Friday. Those findings, in a 530-page report, were publicly released today.

The report slammed a large swathe of the financial sector for designing remuneration systems that rewarded bad behaviour by employees, played on customers’ lack of knowledge about financial products or their inability to negotiate better terms, forced consumers to rely on intermediaries such as brokers who did not have their best interest at heart, and failed to hold badly behaved individuals and companies to account.

“Rewarding misconduct is wrong,” the royal commission report reads.

“Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards. Incentives have been offered, and rewards have been paid, regardless of whether the sale was made, or profit derived, in accordance with law. Rewards have been paid regardless of whether the person rewarded should have done what they did.”

“Entities and individuals acted in the ways they did because they could,” it went on. “Entities set the terms on which they would deal, consumers often had little detailed knowledge or understanding of the transaction and consumers had next to no power to negotiate the terms.”

As for intermediaries such as mortgage brokers and financial advisers, “a ‘good enough’ outcome was pursued instead of the best interests of the relevant clients or members”.

And wrongdoers had little to fear from regulators or the law, the report said, with a scathing swipe at Australia’s financial watchdogs.

“Misconduct, especially misconduct that yields profit, is not deterred by requiring those who are found to have done wrong to do no more than pay compensation,” the royal commission noted. “And wrongdoing is not denounced by issuing a media release.”

In his report, Hayne made 76 recommendations designed to overhaul the country’s banking, superannuation and financial advice sectors. The government has since confirmed they will adopt all 76 of the recommendations.

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“The damage done by that conduct to individuals and to the overall health and reputation of the financial services industry has been large,” he said of the financial sector’s misconduct. “Saying sorry and promising not to do it again has not prevented recurrence. The time has come to decide what is to be done in response to what has happened.”

And he referred a list of 24 companies to the Australian Securities and Investments Commission and the Australian Prudential Regulatory Authority for possible investigation.

Among the list are household names including ANZ, AMP and the National Australia Bank.

Addressing the 76 recommendations that the government have agreed to adopt, Treasurer Josh Frydenberg told reporters in a press conference shortly after: “There have been broken businesses and the emotional stress and personal pain has broken lives. In disbelief, the nation has heard evidence of hundreds of millions of dollars in fees for no service, the charging of dead people and the sale knowingly of worthless insurance policies.

“From today, the banking sector must change and change forever. In Commissioner Hayne’s own words, ‘There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and their boards and their senior management’.”

Consumer group CHOICE has since hailed the final report as a “once in a generation opportunity” to clean up the banking and financial services sector.

“Commissioner Hayne makes it clear: the laws that govern the banking system have not been up to the job,” CEO Alan Kirkland said. “Simple community expectations – that financial institutions should act honestly and in their customers best interests – have been undermined by decades of industry lobbying, resulting in laws that are riddled with carveouts and exceptions. This has to end.”

He added: “The report is also a damning indictment of industry self-regulation. For too long, we have allowed banks to write and enforce their own rules. This means that the rules are weak and the consequences for breaking them are non-existent.”

What do you think of the final report?

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