Last week, Commissioner Kenneth Hayne released his final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The report, which put forward 76 recommendations, outlined that several cases of misconduct have been referred to the financial regulators for consideration of civil or criminal action.
In all, around 24 cases have been referred to the regulators for further investigation.
Commissioner Hayne also outlined in his final report that he wrote to the regulators last year to invite them to “consider whether criminal or other legal proceedings” should be taken against unnamed banks involved in the fees-for-no-service scandal, in which customers were knowingly charged for financial advice they never received.
Following his address at the National Press Club on Monday (11 February), Prime Minister Scott Morrison was asked questions from the floor, including whether he would like to see anyone from the banking and financial services industry go to jail off the back of the commissioner’s findings.
In response, Mr Morrison outlined that he would like to see people face consequences for their actions, but outlined that it was up to judicial process to determine whether individuals should face imprisonment.
The Prime Minister said: “In this country, it is courts that determine that. That is how it works.
“Everyone should face responsibility for their actions and be accountable for what they have done. And matters have been referred off for those cases to ASIC and the other regulators to take forward and they will be pursued and they will end up in court, I have no doubt, and then courts will decide.
“But what I do believe is that all of them have to be accountable for their actions,” he said.
Mr Morrison continued: “So, what can I do about that? I don’t run the courts. But I can introduce a piece of legislation called the Banking Executive Accountability Regime, which, for the first time in this country makes senior bank executives accountable, directly and personally, for the decisions that they make whether they are criminal or not, whether they have a negative impact in a serious way against Australians, small and family businesses around the country.
“And that legislation enables APRA to run them out of town so they can’t go and work in another bank and do the same thing again.”
He added: “I can set up the Australian Financial Complaints Authority... and I can make sure that they can take cases going back now 10 years (over the same course that the royal commission was looking at) so they can get access to their justice too. And that is happening now as we speak.
“So, there are a lot of actions I can take to ensure that people face accountability and face justice and we are taking those actions,” he said.
The Prime Minister and former Treasurer added that the appointment of Daniel Crennan as ASIC’s deputy commissioner and “chief litigator” would also help ensure that ASIC “pony up” and “go to the line, take these things to court”.
“Dan Crennan is a very good litigator and I’m sure will be doing an excellent job. So, yes, I want to see people face consequences for their actions,” Mr Morrison said.
ASIC chair James Shipton said last week that it would “consider the report carefully, particularly its recommendations on regulatory and enforcement practices”.
“ASIC notes the serious matters referred by the royal commission of possible breaches of financial services laws. Consideration of these matters will be prioritised. ASIC does not, as a general policy, comment on actual or potential investigations,” Mr Shipton said.
The chair concluded: “The royal commission report identified ASIC’s enforcement culture as the focus of change needed at ASIC. This focus accords with ASIC’s change agenda that has included the adoption of our ‘why not litigate?’ enforcement stance, the initiation of our internal enforcement review and the enhancement of our governance structures.”
The Prime Minister went on to outline that there were at least 40 pieces of legislation being put forward in response to Commissioner Hayne’s recommendations, which required time and consideration to produce.
“You cannot go and put together what is at least 40 pieces of legislation, or thereabouts, scramble it together in a couple of weeks, throw it into a feverish sitting of the Australian parliament just before the election and then be surprised at the result that you think that you might get on the other side,” he said.
“I would call that type of financial legislation reckless,” the Prime Minister added.
Brokers are important to competition
During the National Press Club meeting, the Prime Minister was also asked about the royal commission’s recommendations on broker remuneration.
In the report, Commissioner Hayne recommended a “steady but deliberate movement towards changing the existing remuneration arrangements for brokers, so that the borrower, not the lender, should pay the mortgage broker a fee for acting in connection with home lending”.
The government has already committed to banning trail commissions on new loans from July 2020, with the Council of Financial Regulator and the Australian Competition and Consumer Commission (ACCC) expected to review the impact of these changes and implications for consumer outcomes and competition of moving to a borrower-pays remuneration structure for mortgage broking in three years’ time.
When asked about his thoughts on the changes, the former Treasurer said: “Mortgage brokers understand, with the cautious way we’ve responded to this report, that we understand the important role that they play in the community.
“Yes, the royal commission has recommended some changes that will need to be absorbed over time, and those businesses can absorb those over time if they are done in consultation and we work together. But I want to see as many mortgage brokers in this country five years from now, in fact, more than there are today.
“I don’t want to see this sector wither on the vine and be strangled by regulation that would throw them out of business, but more importantly, would deny choice and competition in the banking system.”
The Prime Minister continued: “If there is one thing that we have learned through this process, it is that we need more competition. We need more options. We need more choices. Not fewer. And that is what the Treasurer and I are concerned about in terms of how we would go forward on that one recommendation [on broker remuneration].
“So, they have my pledge that I get how important they are to Australia, Australian families, and Australians who want to buy a home and we will work closely with them [so] that we deal with the things that we need to deal with. And many of those mortgage brokers have told us there are things they need to deal with. And that is fine. But we will do it in a partnership way that makes the sector stronger, not weaker,” he said.
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.