On Friday (28 September), the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released its interim report.
The 375-page interim report and the two additional volumes (comprising case studies and appendices) covered the “policy-related issues” arising from the first four rounds of public hearings, which covered consumer lending, financial advice, SME loans and the experiences of regional and remote communities with financial services entities.
While few conclusions have been outlined in the report, Commissioner Kenneth Hayne was censorious in his treatment of the corporate regulator and had said that “much, if not all, of the conduct identified in the first round of hearings can be traced to entities preferring pursuit of profit to pursuit of any other purpose”.
The commission said that the misconduct often arose due to “the pursuit of short-term profit at the expense of basic standards of honesty”, adding that “pursuit of long-term advantage (as distinct from short-term gain) entails preserving and enhancing the reputation of the enterprise as engaging in the activities it pursues efficiently, honestly and fairly. And, lest there be any doubt, it also entails obeying the law.
“But to preserve and enhance a reputation for engaging in the enterprise’s activities efficiently, honestly and fairly, the enterprise must do more than not break the law. It must seek to do ‘the right thing’,” the report reads.
A “critical moment for the industry”
Following the release of the interim report, the heads of each of the big four banks, as well as several representatives from the banking industry, issued statements regarding the interim report.
While responses to the specific case studies highlighted in the report have not yet been released (submissions to the report will be accepted until 5pm on 26 October), the banks have expressed shock and shame at the overall findings, with some accepting blame and voicing shame at their previous conduct.
ANZ chief executive officer Shayne Elliott said that the report marked a “critical moment for the industry”, adding that the bank “accept[s] responsibility and we are determined to improve”.
“[We] continue the urgent work required to fix the significant failures highlighted by the commission,” Mr Elliott said.
Likewise, NAB CEO Andrew Thorburn said that where the bank had “made mistakes or done the wrong thing, [it] will own them and fix them”.
“It is difficult to face the statement of ‘profits before people’, but this is exactly what we need to confront,” Mr Thorburn said.
“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 NAB CEO added.
Meanwhile, CBA CEO Matt Comyn said that the report was “confronting and rightly critical of [the] industry and [the] bank”, adding that there were “too many examples of unacceptable behaviour and unacceptable customer outcomes”.
Mr Comyn said: “The commission has highlighted the need for significant changes, particularly to systems, processes and culture.
“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.”
He added that the bank had already made a number of changes and will make more to meet the community’s expectations and earn trust.
Westpac Group chief executive Brian Hartzer apologised to “any customers who have been impacted by mistakes that [Westpac has] made”.
“While we’ve introduced a number of reforms, including to our remuneration structures, our approaches to dealing with customer issues and removing grandfathered commissions attributable to BT products, we know we still have more work to do,” Mr Hartzer said.
Westpac Group will be responding fully to the interim report as part of the submission process.
“Westpac has engaged fully and constructively with the royal commission process and will continue to do so,” Mr Hartzer said.
“A day of shame”
The CEO of the Australian Banking Association CEO, Anna Bligh, stated that the report “marks a day of shame for Australia’s banks”.
Ms Bligh said: “There are no excuses for the behaviour that has been exposed by the royal commission.
“Banks accept responsibility for their failures and right now they are working day and night to make things right for their customers.”
Looking to the future, Ms Bligh said: “We will fix these problems and make them right without delay, to earn back the trust of the Australian public.
“We will build a banking industry which acts with integrity and is once again respected by our customers and the Australian community.
“The industry will respond to the specific findings in the interim report through a submission in the coming weeks.”
Meanwhile, the CEO of the Financial Services Council, Sally Loane, acknowledged that “the conduct of financial services providers over many years has been unacceptable”.
She said: “For consumers, interacting with banking and financial services is not voluntary. In a compulsory system everyone has a right to be treated with fairness, honesty and utmost professionalism. The industry takes responsibility for the culture that led to some deplorable outcomes for many consumers and a transformation is long overdue.”
Treasurer Josh Frydenberg was also critical of the banks and the financial services regulators, including ASIC, claiming that they “have a case to answer”.
He said: “Banks and other financial institutions have put profits before people. I’ll 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. Too often simply selling products and services have become the sole focus of attention. The culture and the conduct of the banks was, in the words of the commissioner, ‘driven by and reflected in their remuneration practices and policies’. This was coupled with deficiencies in governance and risk management.”
“As a result, almost every piece of conduct identified and criticised in this report can be connected directly to some monetary benefit from engaging in the conduct.
The Treasurer concluded: “In the end, rules, systems, processes and practices are necessary, but having the right culture and performance depends, in the commissioner’s words, ‘upon people applying the right standards and doing their job properly.”
[Related: RC report slams ASIC response to misconduct]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.