February 23rd 2019


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Articles from this issue:

COVER STORY Something rotten led to fish-kill: perhaps fishy environmentalism

EDITORIAL Resistance grows to Beijing's soft-power push

CANBERRA OBSERVED Climate change: deadly ... to political leaders

TECHNOLOGY Electric cars: UK taxpayers subsidise rich greenies

BANKING ROYAL COMMISSION A step too small?

CYBER SECURITY Chinese smartphone threat extends way beyond Huawei

SOCIETY Such grandeur of spirit

POLITICS John Hewson should have as sturdy a Constitution

FINANCE Hayne royal commission sets agenda for bank reform

FAMILY RELATIONS Dad: a girl's first and most influential love

COMMENTARY Words gone feral: rights and equality

MEDICINE AND CULTURE Book captures tragedy of falling foul of a fanatic

SOCIETY AND CULTURE A dog's life: reflections of a grey nomad

HUMOUR

MUSIC Serialism a killer: Ideas tend to get in the way

CINEMA Cold Pursuit: Revenge served up manic

BOOK REVIEW Why the West and nowhere else

BOOK REVIEW The escalation of horror and atrocity

LETTERS

FAMILY AND SOCIETY The end of Liberalism

SPECIAL EDITORIAL Has Cardinal George Pell been wrongly convicted?

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FINANCE
Hayne royal commission sets agenda for bank reform


by Peter Westmore

News Weekly, February 23, 2019

The final report into the banking system by Royal Commissioner Kenneth Hayne, a former High Court judge, has documented systematic abuses of power by the “Big Four” banks, as well as finance brokers and some non-bank financial institutions.

Royal Commissioner Kenneth Hayne

The Federal Government established the commission to investigate and make recommendations to deal with misconduct in the banking, superannuation and financial services industry.

Mr Hayne’s report shows that the banks have had a culture of putting profits ahead of the interests of their clients, particularly small businesses, retirees and primary producers, and of rewarding personal greed.

Despite an initial reluctance to establish the royal commission, the Federal Government has embraced its findings, and will implement its key recommendations.

It is significant that the royal commission contrasted the actions of the “Big Four” – CBA, ANZ, Westpac and NAB – with those of smaller banks such as the Bendigo and Adelaide Bank, whose practices in regard to remuneration and commissions were commended by the commission.

Recommendations

Among the recommendations put forward by the commission are:

  • That “cold call” selling of financial services (such as life and health insurance) be banned.
  • To take steps to avert revaluation of farm properties by banks seeking to foreclose, and establish a national scheme for the mediation of farm debt.
  • That mortgage brokers charge borrowers, rather than lenders, and that brokers be required to act in the interest of borrowers.
  • That salaries of staff of financial insti­tutions be reviewed to reduce or remove sales incentives.
  • To put a cap on insurance sales commissions paid to car dealers.
  • To reduce the cap on life insurance commissions.
  • That banks no longer charge dishonour fees on basic accounts.
  • That banks no longer charge overdraft fees on basic accounts, unless specifically agreed by an account holder.
  • That Australians be defaulted into one superannuation fund only, once.
  • To establish an external body to oversee the corporate regulators, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC), which have failed to deal with illegal conduct in the banking and finance industry.

The royal commission’s final report says: “Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards.

“Incentives have been offered, and rewards have been paid, regardless of whether the sale was made, or profit derived, in accordance with law. Rewards have been paid regardless of whether the person rewarded should have done what they did.”

The commission commended the report commissioned by the Australian Bankers Association in 2016 (the Sedgwick Report), which identified the problem with existing salary incentives.

It said that some current remuneration practices “carry an unacceptable risk of promoting behaviour that is inconsistent with the interests of customers and should be changed”.

The royal commission commended Bendigo Bank for having removed all sales-based incentives and commissions for front-line staff more than 10 years ago. It also commended the efforts of ANZ to reduce sales commissions paid to employees in favour of group incentives, based on a broad range of performance characteristics, including customer satisfaction.

While three of the major banks – CBA, ANZ and Westpac – agreed to the need to change bank culture, NAB refused to accept that there was a problem in the bank’s internal culture.

Both its chairman, Ken Henry (former secretary of the Treasury), and chief executive Andrew Thorburn appeared before the commission, but Mr Hayne concluded: “I am not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do.”

This is alarming, as the report pointed to problems with NAB’s action in charging of adviser service fees to members of superannuation funds it controlled, a policy it began in 2008 or 2009.

The report summarises how NAB’s own subsidiaries had found an issue with those fees in 2014, and had notified both ASIC and APRA of a breach of the law. The matter was not reported to the NAB board until late the following year and, since then, years of discussion between NAB and the regulators did not result in any compensation to affected members until late last year.

Mr Hayne summarised the issue in these words: “As I said in the interim report, many of the case studies considered in the commission showed that the financial services entity involved had chosen to give priority to the pursuit of profit over the interests of customers and above compliance with the law.”

His recommendations are designed to bring the financial system back to where its operations are both ethical and in conformity with the law.

It will depend on the Government’s response, and those of regulators APRA and ASIC whether this is achieved.




























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