February 04, 2019 16:57:34
The verdict is in and the sentence delivered.
But the fallout from the Hayne Royal Commission’s explosive report into the state of Australia’s financial services sector will reverberate through the community and the economy for years.
While its 76 recommendations have been accepted in principle by both sides of the political divide, if history is anything to go by, the lobbying campaign by the nation’s financial powerhouses to limit the fallout begins today.
Kenneth Hayne’s forensic dissection of the banking, insurance and wealth industries runs to just shy of 500 pages and, at times, makes for ugly reading.
Rather than a radical overhaul, however, or a massive restructure of the system, the royal commission has taken aim exactly where it will hurt our major financiers.
If the report’s recommendations are implemented in full, secret commissions, underhand payments and product pushing will be banned.
From this point on, bankers and wealth managers should act in the best interests of their clients. The very fact that this principle has had to be forced upon the industry tells you everything that is wrong with the world of banking.
When that idea was pushed six years ago for financial planners, the sector fought tooth and nail to thwart it, with some success.
There’s every reason to expect the same this time around from mortgage brokers and the insurance industry.
Adequate law, inadequate enforcement
Not surprisingly, the former High Court judge has not found the legal framework wanting. Instead, it is law enforcement, or the lack thereof, that he has homed in on.
Even as the Australian Securities and Investments Commission, belatedly spurred into action by explosive revelations before the royal commission relating to one organisation, late last year launched investigations into potential criminal matters, it still fell short of Commissioner Hayne’s expectations.
“I informed ASIC that I was of the opinion that the information and evidence provided to the commission showed that the conduct of at least two other entities may have contravened section 1014G,” he says.
While that tantalising titbit indicates criminal action may be pending, the commissioner stopped short of naming names, arguing that, with investigations still in their infancy, it would not be right to anticipate the outcome.
That may well disappoint victims and others baying for blood and, to an extent, they have a point. After all, he’s referred potential criminal matters on to a body in which he himself retains little confidence.
Commissioner Hayne wants a corporate law enforcement agency that enforces the law, one that starts with the premise of launching court action for breaches rather than the softly, softly approach that has encouraged the major banks to treat ASIC with contempt.
The free-for-all, or perhaps fee-for-all, approach to financial services was facilitated by lax oversight and an industry built upon bonuses and incentives.
At some stage, it developed into wholesale theft on a grand scale, as illustrated through the “fee for no service scandal” unearthed in its full horror by Mr Hayne.
“There is no doubt money was taken from clients,” he writes.
“Nor is there any basis for doubting that, when taken, the taker did not intend returning it to the client.”
On that basis, the commissioner reckons it would be open to a jury to conclude that, in several instances, criminal activity has occurred.
Who will pay?
Throughout the royal commission, the rumblings from within the industry have been consistent and growing louder.
Any tightening of lending standards will cause the housing market, already in serious decline, to crash. Banning sales commissions and bonuses will decrease competition. Greater regulatory oversight and making bank executives personally accountable will drive costs higher.
In other words, you, the customer, will pay.
It was the same card played by financial planners, who argued that without trailing commissions, ordinary Australians wouldn’t be able to afford a financial planner. The commissions, however, didn’t materialise out of thin air. And the banks certainly weren’t paying them.
What that argument carefully avoids is the extent to how much consumers already have paid to support the corrupt system that has been operating for years.
The compensation and remediation bill has been steadily climbing in recent months as the banks themselves uncover the extent of the fee gouging. Some analysts estimate a bill north of $6 billion.
That cash has funded not just the record earnings of Australian banks — not surprisingly among the world’s most profitable — but the bonuses and salaries of those running them.
And as the commissioner points out, referring to a Treasury analysis, adhering to the law, ensuring responsible lending and stamping out corruption will likely enhance, rather than detract, from macroeconomic performance.
Greed once was considered good. It is the driving force for capitalism. Unfettered, however, it leads to the kind of behaviour unearthed by the Hayne Royal Commission.
His report is a timely reminder that we all need boundaries.