When the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released its interim report last month, Australia’s banking sector was slammed for a “culture of greed” after countless examples emerged of customers – including the deceased – being charged for services they never received.
Now the Australian Banking Association (ABA) has overhauled its code of practice, addressing two of the major concerns that emerged throughout the public inquiry, including changing the way that institutions manage customer’s estates after they have passed away.
“It has always been unacceptable for any organisation to charge fees without providing a service,” ABA’s Chief Executive Anna Bligh told The Australian. “This announcement will put beyond a shadow of a doubt that this practice [charging fees for no service] has no place in Australia’s banking industry.”
The revamped code of practice will require ABA members to change the way they manage customers’ accounts, meaning they would proactively contact customers to confirm the services they required and charge only for what has been provided.
In another huge industry-wide shake up, the ABA also confirmed that it will be seeking legislation to get rid of “grandfathered” payments and trialling commissions, which have been previously exploited by some financial advisors who have benefitted from being able to claim large commissions on products, despite changes to the rules, often putting their own financial needs before those of their customers.
Some banks have already put an end to these decades-old commissions, however the ABA is seeking new legislation to ensure it is enforced across the entire industry.
“The new Code is part of a significant reform agenda to improve banking services to better meet community standards and expectations,” Bligh said. “Australians entrust their financial security and wellbeing to one or more of the banks who are signatory to this Code.”
Speaking after the release of Commissioner Hayne’s interim report at the end of last month, Treasurer Josh Frydenberg demanded better for the Australian public following the publication of the “frank and scathing assessment” of the Australian financial sector.
Frydenberg also hinted at the possibility of introducing new legislations to regulate the banks to prevent these malpractices from happening again, saying: “This interim report is a frank and scathing assessment of the culture, conduct and compliance of our financial system. Australians expect and deserve better.
“Australians expect their superannuation services, their are insurance services, their banking services, their financial advice to be delivered in a way that puts their interest first. That the consumer comes first, second and third. In fact, these financial entities have an obligation under their licence to act honestly, fairly.”
Writing in the report’s executive summary, Hayne credited greed within the sector for the poor conduct of some of the country’s biggest banks. Offering an answer to the question ‘why did it happen?’, he said: “Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty.”