Commissioner Kenneth Hayne has issued a blistering take down of Australia’s banking industry, accusing banks and wealth management firms of putting profits ahead of all other considerations, and breaking the law to do so.
The banking royal commission’s hotly-anticipated 1000-page interim report, released on Friday afternoon, summed up the swathe of scandalous behaviour uncovered over the last six months of hearings with one word: greed.
“Why did this happen? Too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty,” Commissioner Hayne wrote.
“How else is charging continuing advice fees to the dead to be explained? But it is necessary then to go behind the particular events and ask how and why they came about.”
Since the first round of hearings in March, the commission heard about case after case of misconduct, predominantly among the nation’s biggest banks and wealth managers.
These have included charging of fees to dead people, deliberate charging of fees for no service, spruiking of expensive and unnecessary insurance products to vulnerable people, pressuring rural businesses to take on loans they could not afford simply so that the bankers could collect their own bonuses, and of banks and financial services companies lying to the regulator.
The shocking details meant Friday’s interim report was expected to be a scathing assessment, and Commissioner Hayne delivered on these expectations.
“Banks, and all financial services entities recognised that they sold services and products. Selling became their focus of attention. Too often it became the sole focus of attention,” he said.
Products and services multiplied. Banks searched for their ‘share of the customer’s wallet’. From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales.”
But Commissioner Hayne did not stop at the banks. His assessment of Australia’s corporate regulators was also damning.
“The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court,” the Commissioner said.
“Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct.
“Infringement notices imposed penalties that were immaterial for the large banks. Enforceable undertakings might require a ‘community benefit payment’, but the amount was far less than the penalty that ASIC could properly have asked a court to impose.”
The Commissioner did not provide recommendations to government to address the often unlawful conduct uncovered by the commission.
However, he hinted that his final recommendations, which are due in February next year, would propose a simplification of the law rather than passing new laws.
“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?” he said.
Treasurer Josh Frydnenberg was quick to comment on the report, joining the Commissioner in condemning the behaviour of the big banks.
“The interim report delivered today to the Governor-General shines a very bright light on the poor behaviour of our financial sector,” Mr Frydenberg said.
“Banks and other financial institutions have put profits before people. I repeat that. Banks and other financial institutions have put profits before people.
“Greed has been the motive, as short-term profits have been pursued at the expense of basic standards of honesty,”he said.
“Too often, entities have been treated in ways that would allow them to think that they, not ASIC, not the Parliament, not the courts, will decide when and how the law will be obeyed or the consequence of the breach remedied. This is clearly unacceptable and cannot continue.
“This interim report is a frank and scathing assessment of the culture, conduct and compliance of our financial system. Australians expect and deserve better.”
The banking industry made no attempt to put a positive spin on Friday’s report, with Australian Banking Association chief executive Anna Bligh calling it a “day of shame”.
“Australians have every right to expect the world’s best banks. It is clear today that as an industry we have failed to deliver that. Make no mistake, today is a day of shame for Australia’s banks,” she said.
“This report makes some shocking findings. Our banks have failed in many ways. Failed customer, failed to obey the law and failed to meet community standards. And all of these failures are totally unacceptable. Too many customers have been hurt and it has to stop.
“There is nothing in this report for banks to feel proud of.”