Everyday money

John Howard says it’s not clear the bank royal commission will be worth it

Apr 21, 2018

John Howard, pictured at a Liberal Party function in 2016, has cautioned against knee-jerk reactions to the banking royal commission. Source: Getty

There’s been some staggering admissions made, fervent apologies given, at least one CEO scalped and some horror rip-off stories and accusations of ‘grave robbing’, but former prime minister John Howard isn’t convinced that the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will end up being worth it.

The former prime minister has given a lengthy interview to The Australian – more of which will be published next week – in which he reportedly said that what had been learned so far was pretty much already known to authorities. And he said the banks had the right to structure their remuneration as their boards saw fit.

Howard was careful to say that he didn’t condone deceptive behaviour toward customers or the regulators, but that it was too soon to pass judgment on the financial services industry based on the evidence of the past week. Instead, he cautioned against knee-jerk reactions to some of the more gob-smacking disclosures already heard by the commission.

“The great bulk of financial advisers and I’m sure bulk of employees at these institutions, AMP, the banks, have behaved in an ethical, honourable fashion,” Howard told The Australian. “A whole group of men and women who’ve worked very hard … some of them have got bonuses and earned every penny of those bonuses.”

Several of the biggest names in the financial services sector hit the headlines this week, including Commonwealth Bank of Australia, whose executives admitted that the bank was an “gold medallist” at charging for services not rendered and operated with such poor systems that it sometimes did not know what was occurring within its own business. CBA also admitted that it charged the estates of dead people for financial advice, in one case for up to 10 years after the customer had passed away.

Meanwhile, Australia’s biggest wealth manager, AMP, admitted that it misled the Australian Securities and Investments Commission as many as 20 times when the regulator attempted to investigate the wealth manager’s own habit of charging fees without providing any services. AMP boss Craig Mellor, who had said in March that he would step down at the end of 2018, resigned on Friday instead.

And Westpac, another one of the Big Four banks, was accused of having allowed a financial advisor in its BT Finance arm to mis-advise a pair of super-savers into running up thousands of dollars in unnecessary fees to set up a self-managed super fund ill-suited to their purposes.

Among the knee-jerk reactions Howard was likely referring to included calls by consumer advocacy group Choice for ASIC to be given new enforcement powers and the ability to levy bigger financial penalties. Choice said on Friday that the evidence so far before the royal commission showed that big financial companies felt no compulsion to comply with current laws regulating their behaviour.

“This demonstrates that the penalties for non-compliance are too low,” a Choice spokesman said. “Currently, fines for misleading the regulator are as low as $21,000, a small price to pay in the context of potentially millions of dollars of profits.”

Treasurer Scott Morrison has already warned that some of the behaviour uncovered by the commission could result in jail time for the execs involved.

Meanwhile, the Finance Sector Union of Australia (FSU) wants the commission – which is due to submit its interim report by September 20 and a final report by February 1, 2019, extended to give it time to dig more deeply. “If anyone thinks that the issues being uncovered through these case studies are limited only to the institutions that the commission has focused on, they are not paying attention,” FSU National Secretary Julia Angrisano said on Friday.

The Big Four long fought the establishment of the commission, but ANZ CEO Shayne Elliott admitted to The Australian in a story on Saturday that he was wrong to have done so, while CBA, National Australia Bank and Westpac’s bosses – Matt Comyn, Andrew Thorburn and Brian Hartzer respectively – told the newspaper that they now agreed the commission was necessary.

The commission was also long opposed by the governing coalition of the Liberal and National parties, which caved in in December to Labor’s long-running calls for an investigation into the financial services sector.

But former PM Howard said told The Australian that he wouldn’t speculate on whether his party had been wrong to resist holding a royal commission, saying he preferred to wait for the findings due in February.