As our country battles the most extensive fires of our lifetime, there are increasing calls for a royal commission into the states and territories’ preparedness and the federal government’s response to the disaster.
A royal commission has coercive powers beyond a government inquiry, and the need for one implies there are facts and evidence that would otherwise be “hidden” to an inquiry or review.
Research I’ve recently conducted with other fire experts has concluded there have been 57 formal public inquiries, reviews and royal commissions related to bushfires and fire management since 1939, most of which are listed here. I have given expert evidence to at least seven of them, including the 2009 Victorian Bushfires Royal Commission.
That is more than one inquiry every two years in the past 80 years. Do we need yet another?
Many of the recommendations of the subsequent 56 inquiries have not been fully implemented either, so it raises serious questions about whether another royal commission will offer anything new or compelling.
Royal commissions are also expensive and time-consuming. The 2009 Victorian Bushfires Royal Commission had a budget of A$40 million and ran for about 18 months.
This cost did not include the very considerable time and resources committed by various government agencies, companies and individuals who prepared and presented evidence to the commission. When these costs are taken into account, I estimate the total cost of the commission to Victoria would have been much more.
This begs the question as to how money spent on a federal royal commission could be better used to deal with bushfire management across the country.
In response to the 2009 Victorian Bushfires Royal Commission and various other inquiries, fire managers from government agencies in all states and territories prepared a National Bushfire Management Policy Statement for Forests and Rangelands.
This policy statement was signed off by all COAG (Council of Australian Governments) members by early 2012 and published in 2014. As yet, there has been little action on implementing this policy.
The policy had a stated vision that
fire regimes are effectively managed to maintain and enhance the protection of human life and property, and the health, biodiversity, tourism, recreation and production benefits derived from Australia’s forests and rangelands.
Central to this vision is
the role fire plays in maintaining and enhancing biodiversity. Sustainable long-term solutions are needed to address the causes of increased bushfire risk.
To achieve the intent of this policy, 14 national goals were identified.
The first was to maintain appropriate fire regimes with the right combination of size, intensity, frequency and seasonality to properly sustain the ecosystems in Australia’s forests and rangelands.
Another goal was to promote Indigenous Australians’ knowledge of fire management. This recognised the benefits of widespread, low-intensity, patchy fires across the landscape that are sustainable and create landscapes resilient to climate extremes.
And a third goal was to create employment, workforce education and training in bushfire management. This recognised the importance of fire management as an integrated part of our lives.
These goals – along with the 11 others in the statement – still need to be developed into measurable outputs and outcomes, but they set a comprehensive and sustainable fire management strategy for the country.
This policy statement goes much further than just considering how to respond to a bushfire emergency, which seems to be the focus of the call for a new royal commission by Prime Minister Scott Morrison.
Over the past 20 years or so, the tertiary education for land managers, such as professional foresters and rangers, has been reduced to the level of generic “environmental science”. This has largely been due to the politicisation of public land management.
Bushfire science is complex and fire management even more complex, so we need to have highly trained and qualified people managing our parks and forests. Instead, we typically have groups of individual specialists trying to collaborate without the strong leadership and direction such a task requires.
We do not expect a physicist or chemist to build a bridge, even though they could provide great detail about the forces acting on it and the metallurgy of the structure. Instead, we employ engineers. Likewise, we should not expect botanists, zoologists, ecologists or environmental scientists to manage the natural landscape. That, however, is what is happening now.
The responsibility for land and fire management rests with each state and territory government. However, with support from the federal government and coordination through COAG, we should be able to develop an efficient and effective fire and land management program across Australia.
In his 1939 royal commission report, Judge Stretton observed of the Victorian Forests Commission chairman of the time, A.V. Galbraith,
if his Commission were placed beyond the reach of the sort of political authority to which he and his Department has for some time past been subjected, he would be of greater value to the State.
His meaning is clear: good fire and land management needs to be done with long-term perspective, not a short-term political focus.
Stretton also observed the need to have public support, because
without their approval and goodwill, there can be no real plan.
Our changing climate has put more pressure on our natural ecosystems and the weaknesses in our land and fire management are being ruthlessly exposed.
Rather than using time and resources on inquiry No. 58, we should instead commit to fully implement the recommendations of all the previous inquiries, reviews and royal commissions we have already held. Another royal commission will only reiterate what we have known for decades.
Treasurer Josh Frydenberg has issued a timetable for the government’s dealing with the recommendations from the royal commission into banking, superannuation and financial services, which aims to have all measures needing legislation introduced by the end of next year.
The opposition has accused the government of dragging its feet on putting into effect the results of the inquiry, which delivered its final report early this year.
“The need for change is undeniable, and the community expects that the government response to the royal commission will be implemented swiftly,” Frydenberg said in a statement on the timetable.
Fydenberg said that in his final report Commissioner Kenneth Hayne made 76 recommendations – 54 directed to the federal government (more than 40 of them needing legislation), 12 to the regulators, and 10 to the industry. Beyond the 76 recommendations, the government had announced another 18 commitments to address issues in the report.
The government had implemented 15 of the commitments it outlined in responding to the report, Frydenberg said. This included eight out of the 54 recommendations, and seven of the 18 additional commitments the government made. “Significant progress” had been made on another five recommendations, with draft legislation in parliament or out for comment or consultation papers produced.
Frydenberg said that, excluding the reviews to be conducted in 2022, his timetable was:
by the end of 2019, more than 20 commitments (about a third of the government’s commitments) would have been implemented or have legislation in parliament
by mid 2020, more than 50 commitments would have been implemented or be before parliament
by the end of 2020, the rest of the commission’s recommendations needing legislation would have been introduced.
When the Hayne report was released early this year, the government agreed to act on all the recommendations.
But one recommendation it has notably not signed up to was on mortgage brokers.
Hayne found that mortgage brokers should be paid by borrowers, not lenders, and recommended commissions paid by lenders be phased out over two to three years.
The government at first accepted most of this recommendation, announcing the payment of ongoing so-called “trailing commissions” would be banned on new loans from July 2020. Upfront commissions would be the subject to a separate review. Four weeks later in March Frydenberg announced the government wouldn’t be banning trailing commissions after all. Instead, it would review their operation in three years.
Releasing the timetable, Frydenberg said the reform program was the “biggest shake up of the financial sector in three decades” and the speed of implementation “is unprecedented”.
“It will be done in a way that enhances consumer outcomes with more accountability, transparency and protections without compromising the flow of credit and competition,” he said.
He undertook to ensure the opposition was briefed on each piece of legislation before it came into parliament.
“This will begin with the offer of a briefing by Treasury on the implementation plan. Given both the government and opposition agreed to act on the commission’s recommendations, we expect to achieve passage of relevant legislation without undue delays,” he said.
He said the industry was “on notice. The public’s tolerance has been exhausted. They expect and we will ensure that the reforms are delivered and the behaviour of those in the sector reflects community expectations.”
The Morrison government is about to establish a royal commission into violence and abuse of people with a disability.
The aim is to have the terms of reference finalised before the
election. The disability area is a shared one, so the royal commission would be set up jointly with the states and territories.
As of late Wednesday, Queensland, Victoria, NSW, South Australia and Tasmania had agreed to the inquiry; Western Australia and the two territories are expected to do so soon.
Scott Morrison, campaigning in Tasmania, flagged a very extensive
scope for the commission.
“I think it will be a royal commission of a similar size and standing as what we saw with institutional child sexual abuse. Let’s remember that went for four years. It had five commissioners,” he said.
There is no cost for the royal commission as yet and the federal
government wants the other governments to contribute. The child sexual abuse commission cost about A$500 million; the banking inquiry was around $75 million; the aged care one is set to cost about $100 million.
The disability sector has been pressing for the inquiry. Greens
senator Jordon Steele-John, who has a disability, has been one of the loudest voices. The opposition has promised a royal commission, and earlier this month parliament passed a motion calling for one. The Coalition opposed that motion in the Senate but voted for it in the lower house.
In a letter to state and territory leaders Morrison said the scope of the inquiry being proposed by disabled people and advocates “is broad, including mainstream services that are regulated by state and territory governments such as health, mental health and education services provided prior to the establishment of the NDIS.
“The cooperation and support of state and territory governments is therefore essential”.
Morrison said he was seeking views from the states and territories on the “most appropriate consultation pathways to progress” the commission, including through the Council of Australian Governments. This process should also consider cost sharing. “I am also seeking views on options to undertake meaningful consultation with the disability sector, to ensure that the perspectives of people with disability are incorporated and they are provided with appropriate support”.
The opposition accused Morrison of haggling with the states over the funding of the royal commission, saying that “Labor committed to a separate, dedicated and fully federally funded royal commission in May 2017”.
The banking royal commission report has claimed its first high-profile victims, with National Australia Bank’s chief executive officer Andrew Thorburn and chairman Ken Henry quitting their positions.
The two were subject to scathing assessments in the report from
commissioner Kenneth Hayne.
Hayne said that after having heard from both men he was “not as confident as I would wish to be that the lessons of the past have been learned.
More particularly, I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly. I thought it telling that Dr Henry seemed unwilling to accept any criticism of how the board had dealt with some issues.
I thought it telling that Mr Thorburn treated all issues of fees for no service as nothing more than carelessness combined with system deficiencies … Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains.
In a statement late Thursday, NAB said Thorburn would finish at the end of this month while Henry would leave the board once a new CEO had been appointed.
The board will search internationally for a CEO while also considering internal candidates, the statement said.
Philip Chronican, a NAB director with extensive banking experience
will act as CEO from March 1 until a replacement is found.
It has been speculated that Mike Baird, former NSW premier, a senior executive at NAB could get the CEO post.
Thorburn, who has been CEO since 2005, said he had had a number of
conversations with Henry this week.
“I acknowledge that the bank has sustained damage as a result of its past practices and comments in the royal commission’s final report about them.
“As CEO, I understand accountability. I have always sought to act in the best interests of the bank and customers and I know that I have always acted with integrity. However, I recognise there is a desire for change.”
Sydney Morning Herald journalist Bevan Shields tweeted: “NAB boss Andrew Thorburn effectively says in a call just now that he was sacked by the board and didn’t voluntarily resign”.
Thornburn appeared to be fighting for his job early this week, cancelling leave, but he admitted on Tuesday that he could not guarantee he would still have his position on Friday.
Henry, a former secretary of the federal treasury, said he and the
board had recognised change was needed.
“The timing of my departure will minimise disruption for customers,
employees and shareholders,” he said.
He said the board should have the opportunity to appoint a new chair as NAB “seeks to reset its culture and ensure all decisions are made on behalf of customers.
“I am enormously proud of what the bank has achieved and equally
disappointed about what the royal commission has brought to light in areas where we have not met customer expectations.
“Andrew and I are deeply sorry for this. My decision is not made in
reaction to any specific event, but more broadly looking at the bank’s needs in coming months and years.”
The Board is to recruit new non-executive directors “to increase
diversity of thinking and experience”. It will also establish a board committee for customer outcomes.
Chronican, who joined the NAB board in 2016, said he was “confident in our existing strategy to
transform the bank to be better for customers”.
“Our strategy and the self-assessment we completed into our culture, governance and accountability set out clearly the steps we need to take to change and we are committed to them,” he said.
In a mea culpa interview on Thursday night, Henry told the ABC that what had changed since the indications on Tuesday that he and
Thorburn would stay on was that “we’ve had further time for
“And we came to the view jointly really that it was in the best
interests of NAB that we take the decision together to step down from our respective roles.”
He said the enduring legacy of the commission’s report “will be that intense scrutiny that it has shone on financial institutions and the way it’s forced senior people in those organisations to confront some really challenging things”.
Asked whether there was as wide a gap as Hayne said between the public face the NAB sought to present and what was does in practice, Henry said: “There is a big gap.
“The gap as I see it is NAB does aspire to do the right thing by every customer every time and everywhere. And we’re a long way from that. We’ve got an absolute mountain to climb in NAB in order to achieve our aspiration for the bank”, although it was on the right path.
“We’ve not been able to satisfy customer expectations, nor community expectations … For that, we’re deeply sorry”.
He and Thorburn hoped their departures would “contribute to the
development of a better industry that’s capable of delivering better outcomes for customers”.
Quizzed about his performance at the commission, which was widely
criticised as looking defensive and contemptuous, Henry said he was initially surprised by that commentary.
“And I was upset by it. The more I thought about it – and I can’t
tell you how many times I’ve relived that appearance – I understand
the criticism. I did not perform well. I really should have performed quite differently. I should have been much more open”.
He said he believed he was leaving NAB in better shape than he found it. “And yet… I also believe that we are not much closer yet to delivering on community expectations. So the gap that was there, that gap still remains. We’ve closed it a bit. We have an intention to close it completely with the investments we’re making and the changes that are under way in the bank.
“That remains the aspiration. I’m confident within a few years,
hopefully much sooner than that, NAB will be a much stronger
institution than when I joined it”.
Every 10 to 15 years it’s the same.
Ever since financial deregulation in the 1980s we’ve had a finance industry scandal followed by an inquiry, a quick fix, and a declaration that it shouldn’t happen again.
In the early 1990s there were royal commissions into the A$1.7 billion Tri-continental/ State Bank Victoria collapse, the A$3.1 billion State Bank of South Australia collapse and the WA Inc collapse which explored the interrelated activities at Rothwells bank, the A$1.8 billion collapse of Bond Corporation and the A$1.2 billion siphoned from Bell Resources.
A decade later in 2003 Justice Owen reported on the A$5.3 billion collapse of Australia’s largest insurer HIH.
And now, bang on schedule, we have Kenneth Hayne delivering the final report of a royal commission into systemic misconduct in banking, superannuation and financial services industry to a government that voted 26 times against holding it.
There are two particularly striking things about the 10-15 year cycle.
One is the rhythm of public inquiries followed by reports, then (sometimes) trials, then books, then almost everyone forgetting (except for those personally scarred) only for problems to resurface later.
The other is that the times between have been punctuated by government-commissioned banking and financial system reviews: the 1991 Campbell Inauiry, the 1996 Wallis Inquiry, the 2010 Cooper superannuation review and the 2012 Murray Review . Each either missed or downplayed the links between poor governance, industry structure, systemic misconduct and prudential risk.
Commissioner Kenneth Hayne’s 1000-page final report hasn’t gone far enough to end this cycle.
While his referral of 24 misdeeds for possible criminal and civil prosecution will help in righting past wrongs and perhaps focus the minds of directors and executives, the impact will be generational rather than permanent.
The flurry of prosecutions and actions will again reveal problems with the law – gaps in coverage, inadequate penalties and cases the law won’t allow to stand up.
Taken together the recommendations are a patchwork of measures that if implemented will over time be eaten away – and at some point will be dismantled – because the rationale for their adoption will be forgotten.
Even before they are implemented they will have to run the gauntlet of a massive subterranean lobbying effort from industry to water them down, something Hayne indicated he expected.
Even though Hayne emphasises the link between systemic misconduct, governance, structure and prudential (system-wide) risk, something that Treasury, the RBA and Australia’s three business regulator amigos, APRA, ASIC and the ACCC, have long rejected, he makes no concrete suggestions to tackle it.
As we have written previously, research tells us big systemically important shareholder-focused universal for-profit banks that cross-sell products are more profitable than smaller banks in the good times but are more prone to misconduct and to failure in the worse times.
Australia’s big four fit the bill – they’re big, they have been vertically integrated one-stop shops, they are very, very profitable and they are very focused on shareholder returns.
While the banks, apart from Westpac, have divested themselves of wealth management and insurance arms for now there is nothing stopping them reacquiring them in the future.
This means we are once again 10 or 15 years away from systemic misconduct resurfacing as big banks seek to become more profitable.
While heads might roll in yet another round of internal investigations to fix bank culture, it is wise to remember that as Adele Ferguson observed ANZ’s internal investigation of the Opes Prime collapse left the bigger governance lessons “unlearned”.
Directors and senior executives of failed companies continue to live charmed lives.
The directors of Babcock and Brown were cheered as they left the building, while friends and family of the disgraced One.Tel director Jodee Rich have resurfaced at Hayne and other public inquiries.
As Adam Schwab bluntly put it, “corporate Australia is nothing if not forgiving”.
Hayne is persisting with a chasing bolting horses approach to misconduct that relies on detection and enforcement.
We have argued this approach is just not as a effective as other alternatives such as two-tier boards and employee directors which have a better track record of keeping stable doors closed and horses tethered.
Without them we could very easily have another crisis and another royal commission in 15 to 15 years time.
Ireland has taken a been prepared to change corporate structures. After the meltdown of its financial system triggered by the end of a “classic vanilla property boom” its parliament legislated to appoint public interest directors to the boards of its failed banks.
These changes were designed to ensure banks directors put the public interest first, ahead of shareholders interests and even customers interests.
It’s beyond time we did it here.
It’s been an enormous year for the financial services industry.
First there was a Productivity Commission report calling for major changes to superannuation, then a Senate inquiry into financial services targeted at Australians at risk of hardship, and now the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
And it’s only February.
Yet all three investigations either missed something big or failed to take it sufficiently seriously.
It’s the plight of Australians in remote Indigenous communities.
As if to inoculate himself against such criticism, Commissioner Kenneth Hayne made it clear in his preface that it would have been impossible to hear every case and that inevitably there would be disappointment.
As a consequence, the (relatively privileged) voices that were heard didn’t properly reflect the hardships, vulnerabilities and lives of those far away from the centres of finance, yet increasingly dependent on them as their lives become ever more financialised.
Take the simplest example: ATM fees.
There is not always an understanding within remote Indigenous communities – whether because of language or financial literacy skills – that ATMs attract a A$2.50 fee every time they are used, including to check balances. This often isn’t the case in cities where ATMS are operated by banks.
But in remote locations with only one or two ATMs, they are usually third-party operations, run for profit. It is not uncommon for people waiting for funds to appear in their accounts to check multiple times, draining the account until they find something there.
While the main report makes generic reference to ATM fees, it is only in the appendices where the question is touched upon.
The Bankers Association is well aware of it.
It conducted a limited two-year trial of free ATMs that concluded at the end of 2017, and was then extended.
It raises a telling question: if there was a recognisable problem and a recognisable solution, why extend the limited trial instead of making it universal?
It is a question about which the Royal Commission was silent.
And then there is super. The Productivity Commission’s earlier 722-page report on super (widely cited in the royal commission report) only twice makes explicit reference to issues faced by Aboriginal people.
This for a product where preservation age for a male is 60 years, yet the average life expectancy for an Indigenous male in the Northern Territory is 63.6.
While it raised the idea of a lower preservation age or releasing superannuation early for medical and associated expenses, the idea was relegated to the appendices.
Yet superannuation is a vital lifeline in remote communities. One Elder in the Northern Territory community of Wadeye made it clear to me that she uses access to super to get their children out of “town”, onto their country and away from social problems.
While the Productivity Commission does note the need to universalise access to hardship payments, it does not acknowledge that the capped amount of A$10,000 is taxed at up to 22%.
To Commissioner Hayne’s credit, he urges consultation with Aboriginal and Torres Strait Islanders about making death benefit nominations reflect kinship ties.
It’s an excellent idea – one that would have carried more weight had he made it a formal recommendation.
His recommendations 4.1 and 4.2 are are as bold as they come, calling for a ban on the hawking of insurance policies and for funeral expense policies to be subject to the same rules as insurance policies.
There’s nothing wrong with these recommendations, but they only deal with a small portion of the range of financial abuses that take place in remote communities or when community members visit larger towns and cities.
They include payday lenders offering multiple loans, telephone companies who sell phones they know have no coverage in remote communities, high-interest credit and motor vehicle insurance contracts, charity collectors who sign up community members for monthly donations (taking advantage of cultural notions of reciprocity), expensive furniture and appliance rentals, rent-to-buy schemes and, now, pay later schemes.
Indeed, while I was conducting an interview with an Elder in Wurrumiyanga in the Tiwi Islands, the Elder asked about the text message he received while we were speaking. It was from a payday lender offering immediate access to funds.
The Senate inquiry is examining some of these exploitative and predatory practices, but the royal commission’s terms of reference appeared to exclude consideration of them.
In the Northern Territory, where 25% of the population identifies as Aboriginal or Torres Strait Islander, they are not so easily excluded.
Any effort to improve financial well-being in remote communities has to take into account the ways in which an imposed economic system has torn at the heart of the one it replaced.
Working through this isn’t simple. It requires spending time with and listening to remote Indigenous communities. Yet as one Elder out past Timber Creek put it:
Government don’t ask, they just tell us. They don’t like to talk to Aboriginal people about what needs to happen, what needs to be done.
This brings us to recommendation 1.8:
The need to “identify a suitable way for those customers to access and undertake their banking” is vague, but important.
It ought to mean having financial counsellors – who are Indigenous – trained in and able spending time on communities.
It will need commitment and ongoing funding from both industry and government.
But it’s more of a thought bubble than a worked-through proposal. At best, it’s a start.
As Labor seeks to get maximum political mileage from the banking royal commission report, Bill Shorten on Tuesday asked Scott Morrison for extra parliamentary sitting days to pass legislation to implement some of its recommendations.
In a letter to Morrison, Shorten said both houses should be recalled on March 5-7 and March 12-14. The sitting calendar has only 10 sitting days before the election.
“While there are many significant priorities facing the parliament,
there is no more pressing priority than addressing the recommendations of the royal commission,” he said in his letter.
Shorten said it was “deeply regrettable” that the government had not given in-principle agreement to all the commission’s recommendations.
Both government and opposition have left themselves some wriggle room on the question of implementation, particularly on timing, while seeking to convey the message they are embracing everything
commissioner Kenneth Hayne has recommended.
The government has said it will be “taking action” on all 76
recommendations. But it is not, for example, implementing for the time being the recommendation that the borrower, not the lender, should pay the mortgage broker fee for acting on home lending. It says this could reduce competition.
The opposition says it accepts all recommendations “in principle”.
In his letter Shorten said he noted that “the government has agreed to
some important legislative changes” arising from the commission.
“After taking so long to recognise a royal commission was necessary, Australians will not accept any further delaying tactic from your government,” he said.
“Over the past 24 hours, Treasurer Josh Frydenberg has appeared to use the small number of remaining sitting days as an excuse to delay legislative changes. This should not be the case.”
Measures Labor nominates that should be legislated at once include
ending grandfathering commissions for financial advice; prohibiting
hawking of superannuation and insurance; application of unfair
contract terms provisions in the Australian Consumer Law to insurance; and the closing of loopholes to protect consumers, such as removing the exemptions for funeral expenses policies.
But the government, which is now in a minority in the House of
Representatives, is anxious to minimise its exposure in parliament.
Shorten received short shrift, with a government spokesman saying
there was already “legislation in the parliament that deals with a
number of the royal commission’s recommendations and even goes
further, but Bill Shorten and Labor have been fighting it tooth and
The legislation the government is referring to includes increased
penalties for white collar crime, and the Protecting Your Super
legislation and increased powers for APRA.
“We won’t be lectured by Bill Shorten who still hasn’t outlined which recommendations Labor would implement,” the spokesman said.
Former prime minister Malcolm Turnbull, whose government finally
called the royal commission after continually rejecting pressure for one, said he regretted it had left it so long. “I think we should have got on with it earlier, ” he said on Tuesday.
He said “the reason I didn’t support a royal commission and the government didn’t – and that was a collective view of the government, not just mine – was because I could see what the problem was, a failure of responsibility and trust, and I wanted to get on and deal with it immediately.
“I didn’t want to have the delay of the royal commission”.
Frydenberg said he would be speaking to the banks directly “and my
message will be the same privately as it is publicly, that they must do better, that they need to reform, that they need to change the culture within their own organisations and that consumers must come first, second and third.”
The Morrison government has promised to establish a compensation scheme of last resort – paid for by the financial services industry – as it seeks to avoid the outcome of the banking royal commission becoming a damaging election issue for it.
Treasurer Josh Frydenberg, releasing Commissioner Kenneth Hayne’s three-volume report which excoriates the financial sector, said the government would be “taking action” on all 76 recommendations.
The commissioner has made 24 referrals to the regulatory authorities over entities’ conduct in specific instances. All the major banks have been referred except Westpac. AMP, Suncorp, Allianz and Youi are among entities that have been referred.
Commissioner Hayne has made civil and criminal conduct referrals – he was dealing with entities rather than individuals.
In an indictment of years of bad behaviour which has left many customers devastated, Hayne says “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”.
“Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards,” the commissioner says.
“Entities and individuals acted in the ways they did because they could.
“Entities set the terms on which they would deal, consumers often had little detailed knowledge or understanding of the transaction and consumers had next to no power to negotiate the terms.”
Hayne says that “too often, financial services entities that broke the law were not properly held to account.
“The Australian community expects, and is entitled to expect, that if an entity breaks the law and causes damage to customers, it will compensate those affected customers. But the community also expects that financial services entities that break the law will be held to account.”
The commissioner stresses that “where possible, conflicts of interest and conflicts between duty and interest should be removed” in financial services.
Hayne says that because it was the financial entities, their boards and senior executives, who bore primary responsibility for what had happened, attention must be given to their culture, governance and remuneration practices.
Changes to the law were “necessary protections for consumers against misconduct, to provide adequate redress and to redress asymmetries of power and information between entities and consumers”.
The commission’s multiple recommendations propose:
simplifying the law so that its intent is met
removing where possible conflicts of interest
improving the effectiveness of the regulators, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC)
driving cultural change in institutions and increasing their accountability
increasing protection for consumers from “misconduct or conduct that falls below community standards and expectations”, and providing for remediation.
The government has provided point-by-point responses to the recommendations.
The commission had seven rounds of public hearings with about 130 witnesses, and reviewed more than 10,000 public submissions. It dealt with banking, financial advice, superannuation and insurance.
While there have been claims the fallout from the commission could risk a further tightening of credit for small business in particular, Hayne has been careful in his report to minimise that danger.
But he makes it clear there should be no excuse for avoiding needed action. “Some entities used the undoubted need for care in recommending change as a basis for saying that there should be no change. The ‘Caution’ sign was read as if it said ‘Do Not Enter’.”
The commissioner has some sharp words for the NAB in his report, saying that “having heard from both the CEO Mr Thorburn, and the Chair, Dr Henry, I am not as confident as I would wish to be that the lessons of the past have been learned.
“More particularly, I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly. I thought it telling that Dr Henry seemed unwilling to accept any criticism of how the board had dealt with some issues.
“I thought it telling that Mr Thorburn treated all issues of fees for no service as nothing more than carelessness combined with system deficiencies […] Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains.”
Among his specific recommendations Hayne says that grandfathering provisions for conflicted remuneration “should be repealed as soon as is reasonably practicable”. The government has said it will do this from January 2021.
Hayne proposes a new oversight authority that would monitor APRA and ASIC.
He lashes ASIC for not cracking down on fees for no service.
“Until this commission was established, ASIC and the relevant entities approached the fees for no service conduct as if it called, at most, for the entity to repay what it had taken, together with some compensation for the client not having had the use of the money.
“That is, the conduct was treated as if it was no more than a series of inadvertent slips brought about by some want of care in record keeping.”
In a number of recommendations about mortgage brokers, Commissioner Hayne says the borrower, not the lender, should pay the mortgage broker fee for acting on home lending. But the government is not accepting the proposal at this time.
In relation to the sale of products the commission recommends the removal of the exclusion of funeral expenses policies from the definition of “financial product”. It should be put “beyond doubt that the consumer protection provisions of the ASIC act apply to funeral expenses policies.”
On superannuation the commission says that “hawking” of superannuation products should be prohibited, and that a person should have only one default account.
In a statement Scott Morrison and Frydenberg said that in outlining its response to the commission “the government’s principal focus is on restoring trust in our financial system and delivering better consumer outcomes, while maintaining the flow of credit and continuing to promote competition.”
They said the government would expand the remit of the Australian Financial Complaints Authority (AFCA) so it could award compensation for successful claims going back a decade.
Shadow treasurer Chris Bowen said that Labor accepted all the recommendations “in principle”.
“The government simply cannot say that they’ve accepted the recommendations … they’ve got weasel words in there about various recommendations,” he said.
Treasurer Josh Frydenberg was glossing over history when he said the final report of the banking royal commission “endorsed many of the themes and individual reforms the government is currently pursuing”.
In fact, on coming to office in late 2013, his government – through Finance Minister Mathias Cormann – did the opposite.
Instead of extending provisions in the law that financial service providers act in the “best interests” of their clients, it tried to remove them, pressing Senate independents to have them excised from the at-the-time unimplemented Future of Financial Advice Act.
It argued there would be greater certainty if advisers were merely required to fulfill a number of specific requirements rather than to act in the overall best interests of their clients.
It’s a checklist approach Justice Kenneth Hayne dismisses, saying it has encouraged advisers to pursue a “good enough” outcome “instead of the best interests of the relevant clients or members”.
“The more complicated the law, the harder it is to see unifying and informing principles and purposes,” the report says. “Exceptions and limitations encourage literal application and focusing on boundary‑marking and categorisation.”
What’s important is that the intent of the law is met, “rather
than merely its terms complied with”.
Hayne wants laws rewritten to draw explicit connections between their requirements and what they are trying to achieve.
Such rewriting will make it clear that “exceptions and carve outs like grandfathered commissions constitute a departure from applying the relevant fundamental norm”.
The Coalition fought hard to allow financial advisers to continue to receive some grandfathered commissions – commissions their customers were signed up to before laws outlawing commissions came into place.
Hayne wants all grandfathering to go “as soon as is reasonably practicable”.
Read the response: Government Response to Royal Commission final report
Frydenberg has agreed. From January 1, 2021 all grandfathering will go, and any previously grandfathered payments to advisers from clients accounts will be handed back to clients where they can reasonably be identified.
Ongoing fees taken from clients accounts will need to be specifically reauthorised each year, a proposal neither the Coalition nor Labor put forward in negotiations over the Future of Financial Advice Act, settling on reauthorisation every two years in order to avoid paperwork.
Frydenberg has accepted the recommendation, without a start date.
Hayne wants all commissions to mortgage brokers banned so that the borrower, not the lender, pays the broker a fee.
He wants the changes made over a period of two or three years, first by banning so-called annual trailing commissions that last the length of the loans, and then by banning upfront commissions.
Frydenberg will ban trailing commissions from July 1, 2020 and will ask the Council of Financial Regulators and the Australian Competition and Consumer Commission to review in three years’ time the implications of moving to full consumer-pays.
Hayne’s point is that buyers of financial products of all types often assume the person standing between them and the provider is acting in their interests. They need not be when they are being paid by the provider.
The interests of client, intermediary and provider of a product or service are not only different, they are opposed.
An intermediary who seeks to stand in “more than one canoe” cannot. Duty (to client) and (self) interest
pull in opposite directions.
Hayne’s three key themes are now government policy:
no conflicted remuneration
no exemptions, including grandfathered arrangements
explicit consent for payments.
Financial industry laws and regulations will apply more broadly than they have. Funeral insurance will no longer be exempted. Car dealers will face a limit on the fee they can get for selling add-on insurance.
And retailers won’t be able to sell add-on insurance at the same time as the products themselves. Frydenberg said that people buying mobile phones were being sold screen insurance that cost more than the replacement of the screens.
“Hawking”, unsolicited phone calls and pitches for superannuation and insurance and other products, will be prohibited. Lenders to farmers won’t be able to charge high default interest rates during droughts or when there is no realistic prospect of recovering the money.
Banks won’t be able to offer overdrafts on basic accounts without the formal approval of the accounts’ owners, they won’t be able to charge dishonour fees on basic accounts, they will have to value agricultural land used as security for loans independently of the people who decide whether to grant the loans.
Superannuation fund trustees won’t be able to work for other parts of the conglomerate that owns the fund giving them a conflict of interest, and trustees and directors will be subject to civil penalties if they fail to act in the fund members’ best interests.
Each Australian will be defaulted into (“stapled” onto) only one superannuation account once at the beginning of their working life instead of into several as they change jobs as is required by awards and industrial agreements. The Productivity Commission estimated these multiple accounts cost super fund members A$10 billion per year in unnecessary fees.
Australia’s much-criticised “twin peaks” model of regulation shared between the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, will stay, although they will be subject to a new independent oversight body that will report on their performance every two years. They will also need to prepare and maintain a joint co-operation memorandum.
In any investigation ASIC will have to have as a starting point the question of whether a case should be taken to court. Infringement notices should mainly be reserved for administrative rather than deliberate failings.
Hayne says too often, banks and other financial services entities that broke the law were not properly held to account.
Misconduct will be deterred only if entities believe that misconduct will be detected, denounced and justly punished.
Misconduct, especially misconduct that yields profit, is not deterred by requiring those who are found to have done wrong to do no more than pay compensation. And wrongdoing is not denounced by issuing a media release.
He says in almost every case, bad conduct was driven not only by the firm’s pursuit of profit but also by individuals’ pursuit of gain.
Providing a service to customers was relegated to second place. Sales became all important. Those who dealt with customers became sellers. And the confusion of roles extended well beyond front line service staff. Advisers became sellers and sellers became advisers.
Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards. Rewards have been paid regardless of whether the person rewarded should have done what they did.
Frydenberg says he is taking action on all 76 recommendations.
He’ll set up an industry-funded compensation scheme able to payout over misconduct over the past ten years.
And 24 specific acts of misconduct have been referred to authorities, covering every big financial firm other than Westpac.