It’s the Royal Commission the Government said was unnecessary … but ultimately created.
It’s the Royal Commission the banks said was unnecessary … but ultimately called for.
It’s the Royal Commission the regulators said was unnecessary … but ultimately went along with.
So why are we having a Royal Commission into banks?
Politics, pure and simple.
The Government finally realised that voters wanted a formal inquiry into the banks.
The Labor Party – as well as many Nationals and government ministers – lead a vigorous campaign to have a Royal Commission after ongoing scandals in the banking sector, including: Bank Bill Swap Rates (BBSW); inappropriate financial planning; mis-selling of investment products; accusations of credit card gouging and insurance contracts with onerous terms.
Even though many of these scandals are being investigated already by the appropriate regulators, the whole sector took on the appearance of looking after itself to the detriment of the community.
The banks ultimately wrote to the Government calling for a Royal Commission as much to clear the air – and regain community trust – as anything else.
The sight of bank CEOs being dragged through a variety of government inquiries and investigations does nothing for community confidence, after all.
So as the first witnesses are called before Commissioner Kenneth Hayne, the focus will be on five key areas:
Already the Royal Commission has received 1,611 submissions, almost two-thirds of them concentrating on the banking industry.
Background papers have already been prepared on features of the banking industry, on mortgage broking and on car financing in Australia.
Regarding banks, the background paper notes the Commonwealth Bank has 17 million customers; Westpac 13 million; National Australia Bank 9 million and ANZ 8 million.
Questions that require answers include whether the bank remuneration schemes have corrupted the financial advice and information received by customers of banks and superannuation funds.
The suggestion is that commission or bonus structures that reward an employee who directed a customer to a bank-managed investment skewed the type of advice given.
You can already see that ANZ Bank, especially, is hiving off part of its investment business, indicating that these conflicts are being acknowledged by our biggest banks.
One area the banks may well be embarrassed by the Royal Commission inquiry surrounds aggrieved customers who have signed non-disclosure agreements with banks that have done wrong and settled with customers.
In order to understand the depths of misconduct inside the banks, Commission Hayne and his staff have the right to compel people to break their secrecy agreements – and to take action against any bank that seeks legal action as a result.
This could open up a range of scandals that have previously been covered up. One suspects the key areas this could affect are poor financial planning outcomes and rural customers who have had assets stripped away from them.
But ultimately, will the Royal Commission genuinely change the way we bank?
It might help the cultural change our big banks are already undertaking, and it might cause middle-management and even senior executives to pause before seeking new ways to profit from massive customer bases. They would be good outcomes.
I can remember attending the first press conference when the Commonwealth Bank created its financial planning division.
The opportunity was clearly to make more money from its deep customer base. But quickly the conversation turned to the conflict of interest if Commonwealth Bank planners were selling Commonwealth Bank investments.
“How can you guarantee that you are providing customers with the best possible investments, if you are only selling Commonwealth products?” was the form of question asked time and again.
“We are the Commonwealth Bank. Our products will always be the best,” is the abridged version of the answer, that proved to be as lamentably untrue in hindsight as it appeared to be when given around two decades ago.
How can I remember that? Because it’s the sort of exchange you never forget.
There is one thing this Royal Commission may never tell, but which remains equally true today.
Banks – for all their sins – rely on the public’s confidence. To stay in business, they need to maintain that trust.
They also have massive balance sheets, so they can correct mistakes and compensate customers when things go wrong.
Over the years, I have covered all form of financial scandals involving companies that did not have the financial strength to make good their mistakes.
It was the customer – the naive, the gullible or the duped who paid the price.
The sad truth is that where there is money, there is greed and temptation. The scandals may abate for a while, but they will always exist.