Australia’s treasurer (finance minister), Josh Frydenberg, says misconduct has gone unpunished as he releases banking inquiry’s interim report. Pictured: Josh Frydenberg (centre) campaigns at a train station in the Sydney area, 25 September 2018. Photo credit: Josh Frydenberg on Twitter
The banking royal commissioner, Kenneth Hayne, has blasted Australia’s financial services industry for putting greed and the pursuit of short term profits ahead of honesty, and rebuked regulators for allowing bad conduct to go unpunished.
In an interim report handed down on Friday spanning three volumes and 1,000 pages, Hayne unloaded on the banking sector after months of public hearings, saying the explanation for a litany of appalling conduct was “greed” and “the pursuit of short-term profit at the expense of basic standards of honesty”.
Hayne said selling became the focus for banks and financial services entities, and too often the “sole focus” as banks “searched for their share of the customer’s wallet”. The report says the incentives inside the companies were geared to the pursuit of profit, and from “the executive suite to the front line, staff were measured and rewarded by reference to profit and sales”.
The commissioner was scathing about the response of the corporate regulators, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, to poor conduct by the banks.
“When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done,” the interim report says, pointing out that Asic “rarely went to court to seek public denunciation of, and punishment for, misconduct, and Apra “never went to court”.
“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,” the report said.
Hayne said the infringement notices “imposed penalties that were immaterial for the large banks” and community benefit undertakings associated with enforceable undertakings were paltry compared with penalties courts would have imposed.
The report appears to signal that a strengthening of the legal framework is less necessary than more diligent enforcement of the existing regime. The report avoids recommendations, instead imposing questions.
“Is different enforcement what is needed to have entities apply basic standards of fairness and honesty: by obeying the law; not misleading or deceiving; acting fairly; providing services that are fit for purpose; delivering services with reasonable care and skill; and, when acting for another, acting in the best interests of that other?”
“The basic ideas are very simple. Should the law be simplified to reflect those ideas better?”
The treasurer, Josh Frydenberg, said the clear messages from the report were that greed had permeated the financial services culture, and misconduct had “gone to a large degree unpunished”.
“This interim report is a frank and scathing assessment of the culture, conduct and compliance of our financial system,” Frydenberg told reporters in Melbourne on Friday. “Australians expect and deserve better.”
He said what was required was twofold: a culture of enforcement and a culture of compliance.
The head of the lobby group for the banks, the Australian Banking Association, Anna Bligh, did not mince words. “Make no mistake, today is a day of shame for Australia’s banks.
“Having lost the trust of the Australian people, we must now do whatever it takes to earn that trust back,” Bligh said. “Banks accept full responsibility for their failures and right now, in every bank, people are working day and night to make things right for their customers.”
The major banks also issued statements. The National Australia Bank’s chief executive, Andrew Thorburn, said: “It is difficult to face the statement of profits before people, but this is exactly what we need to confront.
“Banking was built on putting people first and earning the trust of customers. We must return to these principles once again, rather than continuing to be short term managers.”
The Commonwealth Bank of Australia chief executive, Matt Comyn, said the interim report was “confronting and rightly critical of our industry and our bank”.
“I am committed to making sure that we learn from the failures detailed in this report to fix what went wrong and put things right for our customers.”
The chair of Asic, James Shipton, issued a brief statement saying the regulator noted “the report’s serious and important observations” about the performance of the organisation, and would respond in a new submission to the royal commission.
Friday’s interim report covered the first four rounds of hearings, including consumer lending practices, financial advice, lending to small and medium enterprises, lending to agricultural enterprises, and interactions between Aboriginal and Torres Strait Islander people and financial services entities.
“This is the report that Scott Morrison never wanted. If it had been left up to Scott Morrison, banks would still be behaving this way.”
The Greens leader, Richard Di Natale, said: “This interim report shows that problems in the banking sector aren’t limited to a few bad apples. There is serious rot through the industry, and it’s culture and structures must change.”