Australian banks to be probed for misconduct

SYDNEY: Australia’s biggest banks and the government caved in to pressure for a public inquiry into alleged misconduct in the finance industry, seeking to take control of the process after months of political fighting.

The year-long Royal Commission will examine the conduct of the nation’s banks, insurers, financial services providers and pension funds, and consider whether regulators have enough power to tackle misconduct, Prime Minister Malcolm Turnbull said yesterday in an abrupt U-turn of government policy.

The announcement came minutes after the big four banks staged a similar backflip, dropping their opposition to an inquiry and calling on the government to end political uncertainty and restore confidence.

By taking control of the process, rather than risking defeat to opposition lawmakers and rebel members of his own government, Turnbull has been able to set tight limits on the scope of the probe.

The draft terms of reference task the commission to investigate “any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations.”

It excludes a grab-bag of other issues pursued by opposition lawmakers – such as pay, excess profitability or the government’s implicit guarantee of banks – that could potentially have had far-reaching implications for the industry.

By asking for the commission to be established now, the banks have potentially headed off a far more wide-reaching inquiry if Labour party was to win government.

“This is relatively benign compared to what could have happened,” said David Walker, portfolio manager at Clime Asset Management.