The seventh round of hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry came to a close on Friday (30 November) and brought to the stand representatives from all four major banks, AMP, Macquarie Group, Bendigo and Adelaide Bank, and both APRA and ASIC.
The round focused on “policy questions arising from the first six rounds”, which focused on consumer lending practices, financial advice, SME loans, issues affecting Australians who live in remote and regional communities, and insurance, respectively).
Over the past two weeks, the commission has been looking specifically at “causes of misconduct and conduct falling below community standards and expectations by financial services entities (including culture, governance, remuneration and risk management practices)".
In total, however, the royal commission hearings were held over a total of 68 days, it heard evidence from 134 witnesses, it tendered almost 400 witness statements and more than 6,500 exhibits, including the exhibits to those witness statements.
The witnesses who gave evidence during the public hearings included representatives of:
- financial services entities
- mortgage brokers
- financial advice licensees
- superannuation trustees
- insurance companies
- external dispute resolution bodies, like FOS
- consumer groups
- financial counselling services and industry bodies; and
Counsel assisting Rowena Orr thanked all the parties involved, including the work of Commissioner Hayne, the counsels assisting, the team of solicitors from the Australian Government Solicitor, the 20 solicitors that had assisted and four administrative support staff.
She particularly thanked the consumers who agreed to give evidence. "Many of them travelled long distances and gave evidence about their private financial affairs in a very public forum. I know that they did not always find that easy, but their willingness to give evidence about their experiences has greatly assisted the work of the Commission, and I am grateful to them.”
Commissioner Hayne likewise thanked all involved for their assistance and also recognised the role that the media has played in reporting on the commission.
What happened in the seventh round
The commission has had a keen focus on commissions in this last round – both in the broker and wealth advice space.
While the royal commission did not outwardly suggest that trail commissions should be banned for brokers in its interim report, nor was trail commission the subject of any of the questions the public was asked to specifically respond to, the inference in some of the questions asked suggest that the commission is considering recommending a ban on trail commissions and is concerned with conflicts of interest.
Counsel assisting Michael Hodge asked Westpac CEO Brian Hartzer that “it appears that Westpac opposes many of the potential reforms that are raised in the interim report”, adding “it opposes a ban on trail commissions for intermediaries.”
Mr Hartzer agreed that the bank does oppose such a ban (and the bank has previously said that “the existing model for mortgage broker remuneration is not inherently problematic”.)
He also denied suggestions that remuneration arrangements contributed to a decision to approve an unsuitable car loan.
Meanwhile, counsel assisting Rowena Orr asked CBA CEO Matt Comyn, “Would you like to move to the Netherlands model, to go the whole hog, and have a flat fee paid by the consumer?”, to which the CEO said he agreed that this would be “the most attractive model”.
Commissioner Kenneth Hayne then asked whether there were any ongoing services supplied by a mortgage broker.
The broking industry has widely lampooned Mr Comyn’s suggestions, with Momentum Media director of mortgages Alex Whitlock penning an open letter to the CEO asking him to consider the ramifications of his comments.
The CEO of ANZ, Shayne Elliott, outlined that a flat fee paid by lenders was “worth looking at” and “not an unreasonable proposition”.
Mr Elliott also said that there was “merit” in looking at a consumer-pays model but that it could make it “uneconomic” for low-income borrowers. He added that “no system’s perfect”.
During the hearings, he conceded that the bank’s complex mortgage application process has contributed to much of its “processing and administrative errors”.
Acknowledging that the bank’s home loan application process consists of 408 steps, he said that this has contributed to processing and administrative errors and was not “fit for purpose”.
Nicholas Moore, the outgoing CEO of Macquarie Group (who has been replaced by Shemara Wikramanayake), told the financial services royal commission that brokers provide “genuine competition” and that a fee-for-service model “doesn’t sound as attractive as the current structure”.
Mr Moore reiterated that competition in the finance industry has helped drive down interest rates by 2.5 per cent and that this competition could not have occurred without the broker distribution channel, on whom Macquarie depends. Just 10 per cent of its total mortgage volume is originated through its branch network.
Mr Moore added that he believed that changing to a fee for service “does not sound as attractive as the current structure”.
Meanwhile, NAB was grilled about its introducer program in the seventh round.
Following revelations of misconduct involving NAB employees, who fraudulently submitted home loan applications in collusion with home loan introducers, NAB overhauled its program and reduced its introducer network from 8,000 to just over 1,000.
Mr Thorburn acknowledged that the bank’s remediation processes had also been “too slow”, acknowledging that the lender had treated remediation as “one of many tasks” undertaken by the bank and not as a priority.
The major bank’s chairman, Ken Henry, was fairly cantankerous in the stand and wryly suggested that funding law suits against the bank on behalf of NAB’s own customers would have produced better outcomes than “dysfunctional” ASIC-negotiated remedial action.
The corporate regulator’s response to misconduct involving the major banks was also brought into question by the financial services royal commission.
The prudential regulator was about enforcement and prudential aspects of risk culture, as well as the Financial Stability Board's work on remuneration practices.
APRA's Wayne Byres noted that APRA and ASIC's work often crossed over, but warned "it's not as simple as saying we can put prudential matters in this box and conduct issues in this box and say one box belongs to APRA and one box belongs to ASIC".
"There will inevitably issues that have both prudential and conduct dimensions to them. And in the superannuation space, it has been said, well, APRA should take carriage of those."
Should no more hearings be called for by Commissioner Hayne, it is expected that the royal commission will hand down its final report to the Governor-General by 1 February 2019.
Ms Orr concluded: "[W]e anticipate that the matters raised over the past two weeks will play a role in informing the recommendations that [Commissoiner Hayne] make[s] in [his] final report.”
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.