Bank bosses await Hayne’s call

The Weekend Australian - - BUSINESS REVIEW - RICHARD GLUYAS

Na­tional Aus­tralia Bank’s Ken Henry and Com­mon­wealth Bank’s Cather­ine Liv­ing­stone have emerged as the favourites of the ma­jor bank chair­men to ap­pear as wit­nesses in the fi­nan­cial ser­vices royal com­mis­sion’s fi­nal round of pub­lic hear­ings.

Prepa­ra­tions are well ad­vanced for the con­gested pol­icy round, to be ro­tated be­tween Syd­ney in the week be­gin­ning No­vem­ber 19 and Mel­bourne the fol­low­ing week.

CBA and NAB have yet to re­ceive for­mal no­ti­fi­ca­tion that Ms Liv­ing­stone and Dr Henry, a for­mer head of the fed­eral Trea­sury, are re­quired as wit­nesses, but in­ter­ac­tions with the com­mis­sion in­di­cate it is highly likely.

ANZ chair David Gon­ski and West­pac chair Lind­say Maxsted are be­lieved to be in the clear.

Con­firmed CEO ap­pear­ances in­clude CBA’s Matt Comyn, West­pac’s Brian Hartzer, ANZ’s Shayne El­liott, Na­tional Aus­tralia Bank’s An­drew Thor­burn, Mac­quarie Group’s Ni­cholas Moore and AMP’s Mike Wilkins.

Ms Liv­ing­stone is an ob­vi­ous tar­get be­cause of CBA’s long rap sheet of mis­con­duct, no­tably the $700 mil­lion penalty for mul­ti­ple breaches of money-laun­der­ing laws that trig­gered a sear­ing re­view of the bank’s cul­ture and gov­er­nance by a three-mem­ber panel ap­pointed by the Aus­tralian Pru­den­tial Reg­u­la­tion Au­thor­ity.

NAB, mean­while, has been the sur­prise vil­lain of the hear­ings so far, with Dr Henry’s pre­vi­ous role as the na­tion’s top fi­nan­cial ser­vices pol­i­cy­maker likely to be a fur­ther area of in­ter­est.

The po­ten­tial ap­pear­ance of the chairs of the two of the na­tion’s top-six listed com­pa­nies sets the com­mis­sion apart from sim­i­lar ex­er­cises in the past, high­light­ing its reach into the high­est lev­els of cor­po­rate Aus­tralia.

ASIC agreed it should be more ag­ile in ini­ti­at­ing and pros­e­cut­ing court ac­tion.

It also sets the scene for a block­buster fi­nal round that will de­ter­mine the fu­ture shape of a sec­tor that em­ploys 450,000 peo­ple and is the largest con­trib­u­tor to the Aus­tralian econ­omy.

The en­tire in­dus­try re­mains on ten­ter­hooks un­til com­mis­sioner Ken­neth Hayne hands over his fi­nal re­port to the Mor­ri­son gov­ern­ment be­fore Fe­bru­ary.

Last month, The Week­end Aus­tralian re­vealed that ASIC chair­man James Ship­ton and his APRA coun­ter­part, Wayne Byres, had been called to ap­pear af­ter both agen­cies were pil­lo­ried in Mr Hayne’s in­terim re­port for pur­su­ing soft reg­u­la­tory op­tions.

It was also re­vealed that the ma­jor bank chair­men were in Mr Hayne’s sights, but most likely not all of them.

Un­like the pre­vi­ous six rounds of hear­ings, the sev­enth and fi­nal round will have no con­sumer wit­nesses, al­though the com­mis­sion has named the tar­geted com­pa­nies and gov­ern­ment agen­cies.

The four ma­jor bank CEOs will ap­pear, pos­si­bly two chairs, the CEOs of AMP and Mac­quarie Group, and the chair­men of ASIC and APRA.

It is un­der­stood that the big four CEOs have re­ceived their “rubrics”, which set down the com­mis­sion’s areas of in­ter­est and form the ba­sis of wit­ness state­ments.

While Bendigo and Ade­laide Bank is the ninth in­sti­tu­tion listed on the royal com­mis­sion’s web­site as par­tic­i­pat­ing in the hear­ings, it is un­der­stood new man­ag­ing di­rec­tor Marnie Baker will not be ap­pear­ing.

It is likely that Bendigo will re­spond in writ­ing to a num­ber of is­sues, in­clud­ing re­mu­ner­a­tion.

“We haven’t re­ceived a for­mal re­quest to ap­pear in the round seven hear­ings but are ready to as­sist the royal com­mis­sion in what­ever way we can in the in­ter­est of im­prov­ing out­comes for cus­tomers and com­mu­ni­ties,” a spokesman said yes­ter­day.

Mr Hayne in­di­cated in his in­terim re­port that he wanted to fur­ther ex­plore is­sues that arose in the com­mis­sion’s case stud­ies, their un­der­ly­ing causes and how the en­ti­ties re­sponded.

The is­sues were split into four groups: ac­cess to bank­ing ser­vices, the role of in­ter­me­di­aries, re­spon­si­ble lend­ing, and reg­u­la­tion and the reg­u­la­tors.

As to the causes, the com­mis­sioner will look at con­flicts of in­ter­est, re­mu­ner­a­tion struc­tures, cul­ture and gov­er­nance, and reg­u­la­tory re­sponses.

Fi­nally, he will ex­am­ine the ap­pro­pri­ate re­sponses, in­clud­ing pos­si­ble changes to the law or sim­pli­fi­ca­tion, man­age­ment by the en­ti­ties of con­duct and com­pli­ance risks, pos­si­ble changes in the reg­u­la­tory ar­chi­tec­ture, the place for in­dus­try codes of con­duct, and struc­tural change such as the elim­i­na­tion of ver­ti­cal in­te­gra­tion in the wealth in­dus­try.

The chair­men of ASIC and APRA will be probed about how their agen­cies re­spond to con­duct and com­pli­ance risk, the pos­si­ble de­tach­ment of some func­tions and whether they should be sub­ject to ex­ter­nal re­view.

The com­mis­sion yes­ter­day re­leased the re­sponses of both reg­u­la­tors to Mr Hayne’s in­terim re­port, which took them to task for their light-touch ap­proaches.

ASIC agreed it should be more ag­ile in ini­ti­at­ing and pros­e­cut­ing court ac­tion, and in some cases should even start with it.

“ASIC ac­cepts that the proper start­ing point is for it to ask the ques­tion: why not lit­i­gate?” the watch­dog said.

The pru­den­tial reg­u­la­tor said it had been mis­led by en­ti­ties on their adop­tion of re­quired poli­cies, when the im­ple­men­ta­tion turned out to be de­fi­cient.

Re­quire­ments to man­age con­flicts of in­ter­est had also not been ef­fec­tively im­ple­mented.

APRA, which re­ceived $58m in ex­tra fund­ing this week, im­plied it re­mains un­der-re­sourced, with 200 front­line su­per­vi­sors to over­see 600 en­ti­ties. This led to reliance on as­sur­ances from reg­u­lated in­sti­tu­tions that con­trols were ef­fec­tive and in place.

The com­mis­sion could drill down for a board per­spec­tive from Dr Henry on NAB’s wealth is­sues, in­clud­ing the de­par­ture of exwealth boss An­drew Hag­ger.

Coun­sel as­sist­ing, Michael Hodge QC, said Mr Hag­ger had showed a “dis­re­spect for the role of the reg­u­la­tor (ASIC) and a dis­re­gard for the grav­ity of the events in ques­tion” — the likely losses from wrongly im­posed plan ser­vice fees. NAB con­tested the find­ing. While Mr Thor­burn was com­mu­ni­cat­ing with Mr Hag­ger be­cause of the prox­im­ity of the bank’s an­nual re­sult, the ev­i­dence so far is that he had no role in Mr Hag­ger’s di­a­logue with ASIC.

Clock­wise from above: CBA chair Cather­ine Liv­ing­stone, NAB chair Ken Henry, ANZ chief ex­ec­u­tive Shayne El­liott, and NAB chief ex­ec­u­tive An­drew Thor­burn

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