Australian Commission: ‘Greed’ Main Culprit for Banks’ Misbehaviour

The Australian banking and financial services royal commission has released its interim report, covering consumer lending, financial planning, business lending, farm finance and indigenous finance.

In the executive summary of the report, commissioner Kenneth Hayne noted the commission had exposed conduct by Australian financial services firms that had attracted public condemnation. Mr Hayne said the key questions the commission had to answer were why such poor conduct had occurred and how to stop it happening again.

He said, in many cases, the answer to the first question was obvious. “Too often, the answer seems to be greed - the pursuit of short-term profit at the expense of basic standards of honesty,” he wrote. “How else is charging continuing advice fees to the dead to be explained?”

Mr Hayne observed that from the executive suite to the front line, staff performance was measured and rewarded based on profit and sales.

“Selling became their focus of attention. Too often it became the sole focus of attention,” he noted.

“Products and services multiplied. Banks searched for their ‘share of the customer’s wallet’.” However, the commissioner does not sheet home blame solely to the financial institutions, with the regulators also failing to check their greed.

“When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done,” Mr Hayne wrote.

Early indications from the interim report were that the answer to the second question - how to stop bad behaviour recurring - were unlikely to involve a large number of new laws and regulation.

“The law already requires entities to ‘do all things necessary to ensure’ that the services they are licensed to provide are provided ‘efficiently, honestly and fairly’,” Mr Hayne wrote.

“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?” Rather, the commissioner asked whether existing laws should actually be simplified to reflect the fundamental principles that consumers should not be misled, be provided with appropriate services that are delivered with care and skill, and have their best interests put first.

Treasurer fingers ASIC for light touch regulation

Federal Treasurer Josh Frydenberg echoed the commissioner’s focus on the enforcement of existing laws in his initial response to the interim report.

“ASIC [Australian Securities and Investments Commission] needs to be stronger in their approach,” he told reporters at a press conference in Melbourne.

“They do need to pursue litigation, to impose the penalties that are available to them, rather than some of these negotiated settlements, which have seen the perpetrators of these offences or misconduct get off too lightly.”

For its part, ASIC said it “welcomed” the report.

The regulator’s relatively new chair, James Shipton, released a short statement noting the report’s serious observations of ASIC’s role as a regulator.

“ASIC will continue to assist the royal commission and to work with the government, the Parliament and other regulators to build a stronger legislative, enforcement and regulatory framework with tougher penalties,” he said.

Treasurer defends timing of report’s release

Mr Hayne visited the Governor General this morning to hand over the report, which was tabled by the government this afternoon. “Was there a better day? If we had sat on the report, because it was handed to the Governor-General today, if we had sat on this report you would have asked what we were hiding,” he said.

The government set the original terms of reference for the commission, which included the 30 September due date for the interim report.