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Hayne takes aim at banking sector 'greed'

Morningstar with AAP  |  04 Feb 2019Text size  Decrease  Increase  |  
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The coalition government has vowed to implement all but one of the 76 recommendations in a scathing royal commission inquiry into bank misconduct and is bent on compensating victims, restoring trust in the sector and maintaining competition.

Treasurer Josh Frydenberg accepted Kenneth Hayne QC’s final report late Monday afternoon, with assurances the Coalition was:

  • Taking action or supporting action on all 76 recommendations
  • Focusing on restoring trust in financial system and delivering better consumer outcomes, while maintaining the flow of credit and continuing to promote competition
  • Strengthening and expanding consumer protections, including for small business and rural clients
  • Raising accountability and governance standards
  • Enhancing effectiveness of regulators
  • Remediation for those harmed by misconduct
  • Vowing government set up compensation scheme of last resort to ensure that consumers can have their case heard and be confident that where compensation is owed it will be paid.

Frydenberg acknowledged there will be delays in implementing many of the recommendations due to the required legislative changes, along with the limited number of parliamentary sitting days before the Federal Budget is handed down in April.

"But immediately, we will be updating legislation that is already before the parliament [regarding the increased obligations of superannuation trustees].

"And we will give jurisdiction for AFCA [the Australian Financial Complaints Authority] to look back six to 10 years so it can implement the compensation scheme of last resort," Frydenberg said.

The government's appointment of former consumer watchdog Graeme Samuel to review the Australian Prudential Regulation Authority was also imminent, he said.

 

Scheme to be paid for by industry

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Financial stocks largely shrugged off the report. But volatility is expected tomorrow as the report sinks in, the RBA meets, and retail trade data is published.

Hayne's 1000-page report offered a damning assessment of what he deems is widespread greed among banks and other financial institutions.

"The amounts of money that just 'fell into the pocket' of so many large and sophisticated financial entities, the number of times it happened, and the many years over which it happened, show that it cannot be swept aside as no more than bumbling incompetence or the product of poor computer systems,’’ Hayne writes.

Hayne's final report proposes a raft of measures designed to better protect consumers. It includes 24 referrals, including all the major banks except for Westpac, to the Australian Securities and Investments Commission and Australian Prudential Regulation Authority for further investigation.

Hayne royal commission banking finance

Hayne's final report makes it clear the buck stops with the banks and other lenders

A number of matters heard by the commission are already before the regulators.

Hayne has left it up to the regulators he criticised for letting much of the misconduct go unpunished to decide on any action, meaning anyone expecting criminal charges will have to wait.

Scathing criticism of industry players

While some have tried to blame misconduct on a few bad apples, Hayne's final report makes it clear that the buck stops with the banks and other financial services companies, their boards and senior executives.

"There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management."

Hayne was highly critical of some bank bosses, particularly the National Australia Bank, for being unwilling to accept responsibility.

"It seemed to me that there remain elements of unwillingness to recognise, and to accept responsibility for, poor conduct of the kinds examined in this inquiry," he said.

Hayne said he was not confident NAB had learned the lessons from the past as he criticised its CEO Andrew Thorburn and chair Dr Ken Henry, a former Treasury secretary.

He said Thorburn treated the charging of fees for no service as nothing more than carelessness combined with system deficiencies.

"The amounts of money that just 'fell into the pocket' of so many large and sophisticated financial entities, the number of times it happened, and the many years over which it happened, show that it cannot be swept aside as no more than bumbling incompetence or the product of poor computer systems," Mr Hayne said.

Overall compensation over the fees-for-no-service scandal across the financial services industry, which has included charging dead customers' estates, is expected to top $1 billion.

Among his recommendations, Hayne is calling for the law to be changed to require annual renewals of ongoing advice fee arrangements.

He also wants unsolicited cold calls or "hawking" of insurance and superannuation banned and says there is no justification for keeping grandfathered commissions for financial advisers.

A compensation scheme of last resort for consumers, a proposal put on hold during the one-year inquiry, will go ahead with Hayne and the government's backing.

"Personal responsiblitly for financial decisions rests with those who make them. However, consumers and small businesses who suffer harm as a result of misconduct will now have access to redress," Federal Treasurer Josh Frydenberg said, in responding to the report's publication.

This compensation scheme will also operate retrospectively in examining the cases of around 300 prior cases where victims received no reimbursement. They could be eligible for around $30 million in compensation, collectively.

Hayne dismissed fears that moves to ensure banks are lending money responsibly could lead to a credit squeeze and hurt the economy.

He said the steps taken by banks to strengthen their home lending practices and reduce their reliance on a conservative expenses measure were to improve their compliance with consumer laws.

"If this results in a 'tightening' of credit, it is as a consequence of complying with the law as it has stood since the NCCP Act came into effect," the report said.

Hayne backed Treasury's observation that if appropriately managed, ensuring the industry consistently meets the requirements of existing laws will likely enhance the economy rather than detract from it.

"The financial services industry is too important to the economy of the nation to allow what has happened in the past to continue or to happen again."

On Monday, ANZ climbed highest of the big four, adding 1.16 per cent to $25.22, followed by Westpac, up 1.18 per cent to $24.87 and NAB, 1.01 per cent higher at $24.03.

Commonwealth Bank shares were still up 0.77 per cent despite being ordered by ASIC to provide its financial planning services for free, for now, after not doing enough to fix its fees-for-no-service issues.

Morningstar with AAP.

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