The royal commission should result not only in new regulation, but new education


Dirk Baur, University of Western Australia; Elizabeth Ooi, University of Western Australia, and Paul Gerrans, University of Western Australia

The Financial Services Royal Commission has not only shown that banks and their representatives have behaved appallingly, but that we need better-educated consumers.

It is naive not to expect new schemes will pop up to replace the now (or soon to be) banned practices. There is a clear pattern of repeating unconscionable behaviour in the financial services industry.

Consumers need to be trained to ask the right questions. “How much do I have to pay each week over the life of the loan including (hidden) fees?”, “How much do I have to pay in fees each year?”, and “Why is this right for me rather than right for the bank?”

Being able to answer such questions can help reduce the invariably expensive and imperfect regulation that generally follows inquiries such as the royal commission.




Read more:
Royal commission scandals are the result of poor financial regulation, not literacy


A 20-year-old, let’s call him Mark, just started his first job paying A$45,000 a year. Confidently, he walks into a bank branch, applies and is approved for a A$30,000 car loan within 20 minutes. He wants a new car and isn’t too concerned about the 12.5% annual interest.

Mark states afterwards he didn’t know he could hardly afford the loan. It cost more than A$40,000 over five years. And with other commitments he was in over his head, leaving no room for changes in work, illness, etc.

Should Mark be expected to know? Was he taught any of this? Could he know if he had made some effort, or should the bank have informed him better and been more explicit?

And where does the responsibility sit?

We assumed in the story (loosely related to one heard by the royal commission) that the bank had informed Mark about rates and fees, but had not effectively communicated what this meant in terms of weekly payments or total cost.

For the moment, let’s put aside the primary role of the banks and their representatives – it is their practices on the line and we are not blaming or judging the victims. Neither do we know the client’s individual circumstances.

But, caveats established, how much information must be presented and what can be reasonably expected in terms of the financial literacy level of customers? If the response from the royal commission is increased disclosure, these are the relevant questions.

But this still leaves whether we can be confident that education is being provided so customers can make informed decisions.




Read more:
There are serious problems with the concept of ‘financial literacy’


Financial literacy is in the National Curriculum and being taught to primary and secondary students. But, given Mark’s age, there is no guarantee he would have received financial literacy education at school.

For the future Marks, financial literacy is now embedded, but coverage remains uneven as what is taught varies by state and school level.

Elsewhere policy is continuing the trend of transferring financial responsibilities from government to individuals, which requires greater financial literacy. For example, the NDIS aims to build a new disability marketplace, requiring important financial decisions from individuals or their representatives.

But the royal commission has clearly shown people suffered by following bad advice or by not questioning numbers sufficiently.

How were 24% p.a. car loans supported by banks and accepted by customers? Were the numbers too abstract and customers didn’t know what 24% a year meant in dollar terms?

Not just new regulation but new education

Better-educated people are better equipped to ask the right questions and make more informed decisions.

We can’t just rely on regulated disclosure – we need to continue to ensure the “simple” questions about the total costs over the life of the loan and whether it’s right for the customer, rather than just the bank, are taught. Teaching consumers to ask these questions, to question the information provided, is important and can enhance the regulation.

Who should provide this education? Not those with a conflict of interest such as financial institutions. If the royal commission tells us one thing it is that incentives matter.

If you are incentivised, or part of an incentivised brand, it may be better you don’t have a role in education. The Dollarmites scandal may not be the biggest scandal this year but it’s emblematic and part of a problem.

Schools, VET and universities can do better and more.

A new round of regulation will create new incentives to avoid it. Regulation tries to catch up and focuses on institutions – here the banks. But new financial technologies mean financial providers don’t look like they used to – for example, new app-based peer-to-peer lenders at your favourite store.

We can’t rely on education alone but we also can’t rely on regulation alone.

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The Conversation

Let’s recognise the limitations of regulation as we try to improve outcomes and consider whether some of the money spent on designing and enforcing new regulations may be better spent further educating our future customers.

Dirk Baur, Professor of Finance, University of Western Australia; Elizabeth Ooi, Lecturer, Finance, University of Western Australia, and Paul Gerrans, Professor of Finance, University of Western Australia

This article was originally published on The Conversation. Read the original article.

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Turnbull government to give national apology to victims of child sexual abuse


Michelle Grattan, University of Canberra

Malcolm Turnbull will give a formal national apology on October 22 to victims of child sexual abuse, as part of the federal response to the royal commission.

Outlining the government’s detailed response on Wednesday, the Prime Minister said that Western Australia had now agreed to sign on to the redress scheme so there will be a fully national scheme from July 1.

Victims will be entitled to up to A$150,000, with average payments of $76,000. The maximum is lower than the $200,000 recommended by the commission, but the average will be higher. There will be a low evidentiary standard.

The government will set up a new National Office for Child Safety within the Social Services department, which it says will “work across government and sectors to develop and implement policies and strategies to enhance children’s safety and prevent future harm”.

But Turnbull was unspecific when questioned at a news conference about how to deal with one current big issue of child safety – protecting at risk children in some Indigenous communities. There has been recent controversy about whether too many or too few children are being removed from families. The issue has been highlighted by some high profile alleged rapes.

Turnbull said he had discussed the problem with the Northern Territory chief minister.

Asked about the level of removal of children he said: “the safety of children has to be paramount. It’s difficult to generalise about this because every case is different.” He pointed to the duty of parents and neighbours to ensure children’s safety. “If you … believe a child is being abused, don’t turn a blind eye.”

The government has opened consultations on the content of the national apology and the form of the ceremony.

The commission made 409 recommendations. Of these 84 relate to redress matters. Of the remaining 325, 122 are directed wholly or partly to the federal government, which has accepted 104 of them. It has noted the other 18, which mostly overlap other jurisdictions and will need more consideration. It has not rejected any recommendation.

The government said in a statement it expected non-government institutions would indicate what action they would take on recommendations of the commission and report annually in December, along with all governments. The government will report its progress annually for five years with a comprehensive review after a decade.

“Where institutions decide not to accept the royal commission’s recommendations they should state so and why”.

Speaking at his news conference Turnbull said: “The survivors that I’ve met and the personal stories that have been told to me have given me but a small insight into the betrayal you experienced at the hands of the people and institutions who were supposed to protect and care for you.”

“Now that we’ve uncovered the shocking truth, we must do everything in our power to honour the bravery of the thousands of people who came forward.”

The Conversation“The royal commission has made very clear that we all have a role to play to keep our children safe – governments, schools, sporting clubs, churches, charitable institutions and, of course, all of us.”

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Government response to child abuse royal commission is positive, but will need to go beyond an apology



File 20180613 153641 10xvkzd.jpg?ixlib=rb 1.1
Attorney-General Christian Porter, Prime Minister Malcolm Turnbull and Australian Minister for Social Services Dan Tehan announce the government’s response to the child abuse royal commission.
AAP/Lukas Coch

Timothy W. Jones, La Trobe University

The federal government has announced it will establish a National Office for Child Safety and issue a formal apology as part of its response to the Royal Commission into Institutional Responses to Child Sexual Abuse.

In addition, every state and territory has committed to join the National Redress Scheme. Australia’s major churches and youth organisations have also joined the scheme.

The timing of the announcement meets a commitment of the Council of Australian Governments to respond to the recommendations of the Royal Commission’s final report by June 2018. However, the apology, the lead item of this announcement, will not be issued until October 22, 2018, to coincide with national children’s week.

The Royal Commission made 409 recommendations in total. Of these, 84 deal with redress, which the government is addressing in the National Redress Scheme, due to commence next month. Of the remaining 122 recommendations directed at the Australian government, 104 have been accepted and 18 remain under review. None has so far been rejected.




Read more:
Royal commission recommends sweeping reforms for Catholic Church to end child abuse


Survivors of abuse consistently state that they want recognition and redress for the past harms and injustices that were done to them.

Recognition

One of the most disturbing elements in the history of child sexual abuse is our capacity, as a society, to be in denial. As I have written elsewhere, we have myriad techniques of keeping disturbing knowledge at bay: there are many ways of not knowing.

We can deny that something happened, we can deny that we understood what happened, and we can deny the legal and moral implications that follow an event. All of these forms of denial are seen in the history of child sexual abuse.

Thankfully, all of these forms of denial were combated by the Royal Commission. You could say it was a momentous exercise in recognition: it brought horrific abuses into public consciousness; it treated survivors of abuse with great dignity and respect; and, it made a comprehensive series of recommendations to deal with the legal and moral implications of the public recognition of this history of abuse.

Through its 57 public case studies, 8,013 private sessions, and over 68,000 calls, letters and emails received, the commission established beyond any doubt the reality and the gravity of Australia’s history of institutional abuse.

Redress

Recognising this history brings legal and moral implications for its redress. So far, the government has responded with uncharacteristic alacrity in accepting and implementing the key recommendations of the Royal Commission.

But justice for historic offences is not simple, and I await with interest the responses of child sex abuse survivor groups to the government’s announcement.

For most people, justice looks like punishment for the guilty. The Royal Commission has referred over 2,500 matters to police for investigation. In recent times, we have seen some prominent cases go to trial, including the most senior Roman Catholic yet to face charges of child sex crimes, Cardinal George Pell.

The National Redress Scheme is the flagship instrument of redress emerging in the wake of the Royal Commission. Legislation has passed the lower house and is now before the Senate. It proposes average payments to victims of $76,000, with maximum payments of $150,000.

These amounts are lower than amounts typically awarded in civil courts in Australia, and significantly lower than settlements awarded in some international jurisdictions.




Read more:
The royal commission’s final report has landed – now to make sure there is an adequate redress scheme


However, the lower standards of evidence required to be awarded a settlement through the redress scheme, relative to standards in criminal or civil law, and being able to avoid cross-examination in court, may make this option more attractive for many survivors. The redress scheme provides access to counselling and psychological services, and provides an option for survivors to receive a direct personal response from the responsible institution.

Australian jurisdictions are also reforming laws to make it easier to sue churches and other institutions.

The establishment of a National Office for Child Safety, along with a raft of national standards and safety frameworks, is heartening.

Apology

The fact is, though, that most of the institutions in which the majority of the historic abuse unearthed by the Royal Commission occurred no longer exist. The institutions of “care” run by churches and the states – orphanages, missions, boarding schools – have largely been disbanded.

Ironically, most current child removal and child trauma can be found at a site for which we have already had an apology, but for which redress has been woefully inadequate. The 1997 Bringing Them Home report into the Stolen Generations opened up public inquiry into child abuse in Australia.

The comprehensiveness of the Child Abuse Royal Commission, and the government’s promised response, is heartening. But as the Stolen Generations apology painfully illustrates, apologies without action become empty, bitter words.

The ConversationLet’s hope that the apology to victims of institutional abuse, to be delivered in October, is well crafted, and sincerely delivered. And that substantial redress is delivered.

Timothy W. Jones, Senior Lecturer in History, La Trobe University

This article was originally published on The Conversation. Read the original article.

Vital Signs: fallout from banking crackdown could be worse than interest rate rises


Richard Holden, UNSW

Vital Signs is a regular economic wrap from UNSW economics professor and Harvard PhD Richard Holden (@profholden). Vital Signs aims to contextualise weekly economic events and cut through the noise of the data affecting global economies.

This week: both the RBA and US Fed leave interest rates on hold as all eyes turn to potential new banking regulations and their likely impact on the economy.


This week was all about interest rates – even though the RBA and the US Fed kept both of their official rates unchanged at their most recent meetings.

But as usual, what’s likely to happen in the future is the interesting question.

In Australia, all eyes will be on how ASIC and APRA respond to the findings of the banking royal commission. Will they be defensive about past mistakes, or move forward with tighter regulations on banks and financial planning? What will the RBA do in this context?

On interest rates the answer is probably “nothing soon”.

The official statement by RBA Governor Philip Lowe makes one almost physically feel the contortions.

“The Bank’s central forecast for the Australian economy remains for growth to pick up, to average a bit above 3 per cent in 2018 and 2019. This should see some reduction in spare capacity in the economy.”

OK, growth is about to move up strongly.

“Household income has been growing slowly and debt levels are high.”

Well, that sounds concerning, since household consumption accounts for nearly 60% of GDP.

Unemployment was getting better, but that’s stopped happening.

“Inflation remains low…with both CPI and underlying inflation running marginally below 2 per cent. Inflation is likely to remain low for some time…A gradual pick-up in inflation is, however, expected as the economy strengthens.”

So inflation has been outside the target band of 2-3% for a very long time, but if that courageous GDP growth forecast pans out then we might end up back in the band.

And on, and on. No wonder US President Harry Truman once lamented “Give me a one-handed economist. All my economists say ‘on one hand…’, then ‘but on the other…’”

In any case, for the foreseeable future it is not what the RBA does, but what the big four banks do that will have the biggest impact on the interest rates Australian borrowers face.




Read more:
Four ways an Australian housing bubble could burst


Wholesale funding costs have been ticking up, cutting net interest spreads for the banks. And the wash-up of the Royal Commission is likely to lead to a further tightening of underwriting standards. As ANZ CEO Shayne Elliot put it:

“People are still going to buy a home, so it doesn’t change fundamental demand, but it will change the process and will probably make it harder for people to be successful in their applications.”

Those two factors taken together could easily see a 15-20 basis point increase in rates for home loan borrowers. That might be tempered by potential outrage from the public – banks behave badly and then put their prices up – but the banks have a lot of market power, as history has shown in these matters.

Across the pond, the US Federal Reserve left official rates unchanged from March at 1.5% to 1.75%. That ended, for now, a string of six rate hikes since December 2015.

In a relatively brief statement the Fed noted;

“the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Recent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent.”

The leading interpretation of this is that the Fed thinks inflation is ticking up and will likely raise rates another 25 basis points at the next meeting if nothing material changes in the economy.

All this is a reminder that monetary policy is as much art as it is science.

It is also worth remembering that the other key function of central banks is prudential regulation. That is where the real changes could be interesting. Fed Chair Jay Powell is known to be much more amenable to deregulation of the financial sector than his predecessor Janet Yellen. It may not be too long before we see those instincts put into action.




Read more:
Debunking the myth of our ‘well-regulated’ banks


The ConversationPerhaps the regulatory front will be more interesting than interest rates for the remainder of 2018.

Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

This article was originally published on The Conversation. Read the original article.

Abbott suggests sacking bank regulators as ASIC feels the heat


Michelle Grattan, University of Canberra

Former prime minister Tony Abbott has strongly condemned the performance of financial sector regulators, suggesting they should be sacked and replaced by “less complacent” people.

With increasing attention on the apparently inadequate performance of the Australian Securities and Investments Commission (ASIC), Abbott raised the question of what the regulators had been doing as the scandals had gone on.

“We all know there are greedy people everywhere, including in the banks,” he told 2GB on Monday. “But banking is probably the most regulated sector of our economy. What were the regulators doing to allow all this to be happening?”

Abbott said his fear was “that at the end of this royal commission we will have yet another level of regulation imposed upon the banks when frankly what should happen is, I suspect, all the existing regulators should be sacked and people who are much more vigilant and much less complacent go in in their place.”

He said the analogy was, “yes, punish the criminals but if the police are turning a blind eye to the criminals, you’ve got to get rid of the police and get decent people in there”.

Meanwhile Malcolm Turnbull, speaking to reporters in Berlin, defended refusing for so long to set up a royal commission, although he said commentators were correct in saying that “politically we would have been better off setting one up earlier”.

Turnbull said that by taking the course it had the government “put consumers first”.

“The reason I didn’t proceed with a royal commission is this – I wanted to make sure that we took the steps to reform immediately and got on with the job.

“My concern was that a royal commission would go on for several years – that’s generally been the experience – and people would then say, ‘Oh you can’t reform, you can’t legislate, you’ve got to wait for the royal commissioner’s report.’

“So if we’d started a royal commission two years ago, maybe it would be finishing now and then we’d be considering the recommendations … With the benefit of hindsight and recognising you can’t live your life backwards, isn’t it better that we’ve got on with all of those reforms?”

Turnbull dismissed Bill Shorten’s call for the government to consider a compensation scheme for victims by saying this matter was already in the commission’s terms of reference.

Among the reforms it has made, the government highlights giving ASIC more power, resources and a new chair.

But Nationals backbencher senator John Williams, who has been at the forefront of calls for tougher action against wrongdoing in the financial sector, told the ABC that ASIC has got to be “quicker, they’ve got to be stronger, they’ve got to be seen as a feared regulator.

“That is not the situation at the moment,” he said.

He had sent a text message to Peter Kell, ASIC deputy chair, a couple of nights ago “and I said, mate, Australia is waiting for you to act”.

Asked how the culture within ASIC could be changed, Williams said, “I suppose you keep asking them questions at Senate estimates, keep the pressure on them, keep the message going on with the management of ASIC regularly.

“As I have said to the new boss [chair James Shipton], you’ve got to act quickly, you’ve got to be severe, you’ve got to be feared. If you’re not a feared regulator, people are going to continue to abuse the system, do the wrong thing without fear of the punishment”.

He welcomed the increased penalties announced by the government last week.

The chair of the Australian Competition and Consumer Commission (ACCC), Rod Sims, while declining to comment on ASIC, said he agreed with Williams “that you really do have to be feared. And frankly I’d like to think the ACCC is.

“I won’t comment on others but you want people to be really watching out – watch out for the ACCC, watch out that you don’t get caught because if they catch us it’s going to be really dire consequences. And I think we’ve got that mentality,” he told the ABC.

Updated at 4:30pm

The ConversationIn an interview on Sky late Monday, Finance Minister Mathias Cormann admitted, “With the benefit of hindsight, we should have gone earlier with this inquiry.” This was in stark contrast with his colleague, Minister for Financial Services, Kelly O’Dwyer, refusing to make the concession when she was repeatedly pressed in an interview on Sunday.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

View from The Hill: Shorten puts heat on government over bank victim compensation, as Coalition gets better poll news


Michelle Grattan, University of Canberra

Sometimes it’s not a bad idea to have a lie-in on Sunday morning. Financial Services Minister Kelly O’Dwyer might wish she’d done so at the weekend.

O’Dwyer should not have gone out – or been put out – on the ABC’s Insiders program with the lines she had on the banking royal commission. The interview was agony to watch, and counter-productive for the government, as she steadfastly refused to admit the Coalition had been wrong in not agreeing earlier to the inquiry, which has produced such devastating disclosures.

So often the government seems to take the public for fools. Scott Morrison’s attempts to turn everything to a discussion of Bill Shorten are ludicrous. O’Dwyer’s effort to avoid any confession of error just drew more attention to the bad call.

Remember O’Dwyer is well-versed in the financial services area. Look at her CV. She was a senior advisor to then-treasurer Peter Costello. Later she worked at the National Australia Bank. She has seen the banking system from inside as well as from her ministerial and advisory roles.

And yet, because of the government’s “admit nothing” strategy, she visibly struggled at every turn in Sunday’s interview.

Asked about her 2016 claim that “for the Labor party to propose a royal commission into banks is reckless and ill-conceived”, she could only fall back to the weak defence that “you can obsess and Labor can obsess about these issues. I’m actually obsessed about fixing the problems”. In other words, the government can be political when convenient but if brought to book, that’s just others “obsessing”.

Labor’s idea of a royal commission had been “a stunt”, she said, but then “there is no question we got it right in establishing the royal commission”. The difference is that the government did it soberly and deliberately, according to O’Dwyer. Grudgingly and belatedly would be a better description.

The alternative strategy would have been for the government to say, “Yes, in retrospect we did not move quickly enough. We were concerned about shaking confidence in the banking system. We did not appreciate how systemic the problems were. We thought we were doing enough but we weren’t”.

Everyone knows the government’s hand was forced in the end by rebel Nationals. Conceding it had been wrong would have been humiliating. But by doing so the government would have gone some way to clearing its own decks. That might have given it a fighting chance of being seen as part of the solution rather than having the attention so sharply focused on its abysmal failure.

Morrison in an interview in AFR Weekend also tried a convoluted avoidance game, as he sought to reconcile being surprised by the royal commission’s revelations with earlier arguing it wouldn’t find issues government didn’t know.

“When I say they were known to government, they were known to government agencies”, he told the newspaper.

“There is a difference between individual ministers being aware of particular things and the regulatory agencies being aware of them.”

Morrison likened his position to that of a police minister not knowing every criminal investigation underway. “I am not aware of every court case and every decision and every practice of every bank in the country any more than anyone else is – indeed than the executives in the banks and they run the things,” he said.

But the issue was not one of knowing “every practice of every bank”. It was a case of being aware of broad malfeasance – and there was plenty of evidence of that, through parliamentary inquiries and what was being said by victims, financial journalists and government backbenchers such as senator John Williams.

When politicians are unwilling to take responsibility, that just adds to the distrust and anger voters feel towards them. It’s a sign they are treating the people with disrespect, so is it any wonder they don’t get respect in return?

This bald-faced refusal to acknowledge their own inconvenient history in part comes from the politicians’ belief that if you just burnish the “spin”, you can get away with saying anything. The idea is that you brainstorm some “lines”, repeat them shamelessly, and hope they will be accepted – regardless of their disconnect from reality.

It might work for an occasional glitch when life generally is going well for a government and the public are in a good mood. These days, neither condition is present.

Meanwhile, as the government implausibly denies being out-manoeuvred over the commission, Shorten is pushing ahead again in the banking debate.

He has released a letter to Turnbull in which he says: “Given the shocking evidence that has been revealed so far, it is time the government gave serious consideration to a compensation scheme for the victims of proven wrongdoing. It’s unacceptable for people to suffer because of the misconduct of others, with no dependable access to justice.”

It will be a popular pitch out in the electorate, just as Labor’s call for a royal commission was.

POSTSCRIPT

The ConversationThe government has received some good news in Monday’s Newspoll in The Australian, with Labor now leading only by a narrow 51-49% in two-party terms. This compares with a 52-48% ALP lead in the poll a fortnight ago, when the Turnbull government passed the 30th consecutive loss landmark. The current poll is the Coalition’s best two-party preferred result since September 2016.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Heavy penalties are on the table for banks caught lying and taking fees for no service


Dimity Kingsford Smith, UNSW and Alex Steel, UNSW

Another week of hearings of the Financial Services Royal Commission has seen financial services company AMP admitting it mislead the Australian Securities and Investment Commission (ASIC) on 20 occasions. The commission also saw evidence of both AMP and the Commonwealth Bank of Australia paying themselves client money when there was no adviser allocated to provide services, or the client had passed away.

It seems ASIC and the Director of Public Prosecutions will have no lack of evidence to pursue civil penalties and criminal cases. The bigger issue is what charges to go with.

In deciding what to pursue, ASIC and the DPP will need to weigh up the costs, the charges individuals are willing to plead guilty to, and the outcomes that will best serve the public interest.

Convicting individuals clearly “sends a message”, but these employees are easily replaced with others just as willing to commit the offences, unless the organisation’s culture is changed.

ASIC has confirmed it has a broad-ranging investigation into AMP already underway, and the Treasurer has suggested the behaviour might attract jail time.

Whether or not bankers get jail time will depend on the actual offences charged and a range of sentencing factors. However, the courts are increasingly emphasising the importance of substantial sentences for white collar crime.

Offences with similar maximum penalties in the UK led to a UBS banker who manipulated the London Interbank Offered Rate being sentenced to 14 years jail in 2015. Another joined him in 2016 for two years and nine months and three others were also convicted.

What AMP and CBA did

AMP and CBA have admitted they failed to provide information and report breaches to ASIC as required by the Corporations Act. Misleading Australian government agencies is also a criminal offence under the Act and the Commonwealth Criminal Code.

As well as dealing truthfully with ASIC, all entities licensed to offer financial services must act “efficiently, honestly and fairly” and take reasonable steps to ensure their employees do likewise.

It is not hard to see how taking clients’ money without providing a service is not efficient, honest or fair.

Civil penalties

Civil sanctions could apply to conduct at AMP and CBA which could ultimately involve disqualification for up to 20 years from working as a corporate officer and/or a fine of up to A$200,000.

Officers of a corporation are very senior employees and usually immediately below board level. They have a duty to be careful and diligent and act in the best interests of the company under the Corporations Act. There is a range of lesser charges from general dishonesty to false documentation offences.

Officers of a corporation have duties which require them to be careful and diligent. This is because the officers may have failed to follow up or failed to prevent conduct) after finding out about what was going on.

If ASIC and the DPP can go further and prove that AMP and CBA officers have intentionally caused their company to break the law, it is virtually impossible that conduct could be in the interests of the corporation. AMP and CBA officers may have also breached criminal offences in the Corporations Act if the wrongdoing was reckless or intentionally dishonest.

Criminal charges

Turning to more general offences, here criminal penalties range from 12 months in jail for misleading ASIC, to significant penalties for conspiracy to defraud.

Any bank employee who was involved in the creation of misleading documentation might well be exposed to fraud charges. Under Commonwealth and state law, fraud can involve reckless deception of another (either ASIC or the clients) with an intention to gain a financial advantage for another (AMP or CBA) Those offences have maximum penalties of 10 years jail. There is a range of lesser charges from general dishonesty to false documentation offences.
Those who assisted might well also be liable through accessorial liability.

Prosecutors could also turn to the conspiracy to defraud offence. The Commonwealth version of the offence involves an agreement to dishonestly influence a public official’s decisions. An agreement to provide false documents to ASIC would seem easily to fit this offence. Again, this has a maximum penalty of 10 years.

Similarly, common law conspiracy to defraud charges could be available for dishonestly misleading customers in a way that caused them financial loss. There are no prescribed maximum penalties for this version of the offence.

Multiple offences could mean sentences served concurrently, or partly cumulatively.

The ConversationAlthough the wrongdoing may seem clear to the public, it is likely that complex matters of proof will emerge and ASIC will need to make a range of decisions about the best approach to ensuring cultural change occurs. While convictions might be deserved, the public interest is best served by ensuring that prosecutions are part of wider regulatory action leading to better banking practices.

Dimity Kingsford Smith, Professor and Director, Centre for Law Markets and Regulation, UNSW Law, UNSW and Alex Steel, Professor, UNSW Scientia Education Fellow, UNSW

This article was originally published on The Conversation. Read the original article.

Grattan on Friday: Government’s misjudgement on banking royal commission comes back to bite it



File 20180419 163991 1y4wm8w.jpg?ixlib=rb 1.1
In light of what is coming out the government should be ashamed of its past performance.
Flickr, CC BY-SA

Michelle Grattan, University of Canberra

If you are a politician, what do you do when your bad judgement – or worse – has been dramatically called out for all to see?

That’s the question which has faced the government as appalling behaviour by the Commonwealth Bank, AMP and Westpac has been revealed this week at the royal commission into misconduct in the banking, superannuation and financial services industry.

Former deputy prime minister Barnaby Joyce went the full-monty confession. “In the past I argued against a Royal Commission into banking. I was wrong. What I have heard … so far is beyond disturbing”, he tweeted.

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Joyce is now a backbencher, and free with his opinions. It’s another story with current ministers. They continue trying to score political points over Labor, which had been agitating for a royal commission long before it was set up.

The ministers claim the government laid down terms of reference that took the inquiry beyond what Labor was proposing. But although Labor never released terms of reference, it flagged in April 2016 a broad inquiry into “misconduct in the banking and financial services industry”.

The real difference between the government and the opposition was the emphasis on superannuation. While Labor’s inquiry would have covered it, the government wrote in a specific term of reference, hoping evidence about industry funds might embarrass the unions and therefore the ALP. The commission has yet to reach those funds.

Revenue Minister Kelly O’Dwyer, pressed about her refusal to admit the government had erred in opposing a commission, told the ABC on Thursday, “Initially, the government said that it didn’t feel that there was enough need for a royal commission. And we re-evaluated our position and we introduced one”.

Well, that’s the short version. In fact, the government was forced to drop its resistance when Nationals rebels threatened to revolt. Take a bow, Queensland Nationals backbenchers Barry O’Sullivan, George Christensen and Llew O’Brien. You did everyone a service.

Indeed, the Nationals were on the case of the banks very early. Nationals senator John “Wacka” Williams for years pursued the rorts, through Senate committee investigations.

The government’s resistance to the royal commission was bad enough but remember its earlier record on consumer protections in the financial services area.

When the Coalition came to power it was determined to weaken measures Labor had introduced. Eventually, it was thwarted by the Senate crossbench, with the upper house disallowing its changes.

Just why the government was so keen to shield an industry where wrongdoing had been obvious is not entirely clear. It appears to have been a mix of free market ideology, a let-the-buyer-beware philosophy, and some close ministerial ties with the banking sector.

In light of what is coming out, the government should be ashamed of its past performance.

This week, the commission heard about AMP, which provides a wide range of financial products and advice, charging for services it didn’t deliver, and deliberately misleading the regulator, the Australian Securities and Investments Commission (ASIC), about its behaviour. By week’s end, AMP Chief Executive Craig Meller had quit.

It also heard how the Commonwealth Bank’s financial planning business charged customers it knew had died, including in one case for more than a decade. Linda Elkins, from CBA’s wealth management arm Colonial First State, agreed with the proposition put to her that the CBA would “be the gold medallist if ASIC was handing out medals for fee for no service.”

A nurse told of the financial disaster after she and her husband, aspiring to set up a B&B, received advice from a Westpac financial planner, including to sell the family home.

Seasoned journalist Janine Perrett, who now works for Sky, tweeted, “I thought nothing could shock me anymore, but in my forty years as a journo, most of it covering business, I have never seen anything as appalling as what we are witnessing at the banking RC. And I covered the 80’s crooks including Bond and Skase.”

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The commission’s interim report is due September 30 and its final report by February 1, not long before the expected time of the election. There is speculation over whether the reporting date will be extended. Bill Shorten says the inquiry should be given longer if needed; Finance Minister Mathias Cormann has indicated the government would do what Commissioner Kenneth Hayne wanted.

Those in the government who think the original timetable should be adequate note that, unlike for example the royal commission into institutional responses to child sexual abuse, this inquiry is not undertaking deep dives into everything, but exposing the general problems.

From the opposition’s point of view, it would be desirable for the inquiry to run on. That would keep the banks a live debate, and leave it for Labor, if elected, to deal with the commission’s outcome. Shorten is already paving the way for a compensation scheme financed by the industry. Given the poisonous unpopularity of the banks, the Coalition could hardly run a scare about what a Shorten government might do.

Ideally, the government needs the issue squared away before the election.

The government insists it has already put in train a good deal to clean up the industry including a one-stop-shop for complaints, higher standards for financial advisers, beefing up ASIC, and a tougher penalty regime.

Treasurer Scott Morrison and O’Dwyer on Friday announced the detail of hefty new penalties for corporate and financial misconduct, including ASIC being able to ban people from the financial services sector.

One argument the government made against a royal commission was that it would just delay action. But of course if it had been held much earlier, by now we might have in place a full suite of reforms.

The ConversationMost immediately, the shocking stories from the commission are adding to the government’s problems in trying to sell its company tax cuts for big business to key crossbench senators and to the public.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

What the Royal Commission can do if the banks don’t play ball on evidence


Anna Olijnyk, University of Adelaide

At the first round of hearings of the Financial Services Royal Commission, the counsel assisting, Rowena Orr QC, was unimpressed with the material some of the banks have provided. The Commonwealth Bank provided two submissions, the first of which, according to Orr:

…adopted a high level and general approach, which meant that it did not disclose the totality of the conduct that it has engaged in…

The CBA’s second submission was no more helpful: it consisted primarily of a large number of spreadsheets. Orr said these were “not in a form which made it possible to easily understand the type and the scale”, of CBA’s conduct.




Read more:
Broad mandate for financial services royal commission takes the heat off banks


CBA wasn’t alone; the National Australia Bank also won a mention from Orr for “failing to grapple with the task” set by the commissioner.

Can the Royal Commission do anything to get more useful information out of the banks? There are two issues here: what the Royal Commission can make the banks do, and what it has to ask the banks to do.

What can the Royal Commission make the banks do?

The Royal Commission has several powers under the Royal Commissions Act 1902 that might be used here. Failure to comply with the Royal Commission’s requirements under these powers is punishable by up to two years’ imprisonment.

The Royal Commission can require the banks to produce documents. But this is not a power to make the banks create new documents to help the Royal Commission.

The Royal Commission can require witnesses to give evidence. Using this power, the Royal Commission could make key personnel within the banks attend the Royal Commission and answer questions about the bank’s conduct.

It can also require a person to provide information, or a statement, in writing. This is probably limited to matters the person already knows about; it’s not a power to order a person to conduct investigations to provide a full picture of a bank’s conduct.

What the commission can ask for

Quite apart from its coercive powers, the Royal Commission can ask the banks to provide the material it wants, in the form it wants. In fact, the commissioner wrote to the banks the day after the commission was established, inviting them to make submissions. It was in response to this invitation that CBA and NAB provided the documents Rowena Orr QC referred to on the first round of hearings.

The Royal Commission could ask the banks, for example, to provide as much or as little detail as the commission needs; to create summaries or chronologies of events; to explain how to interpret technical documents; to provide a full account of a specified event.

It would then be up to the banks as to whether (and when) they comply with the requests.

The banks have announced their intention to cooperate with the Royal Commission. Given this, it would be surprising to see the banks defying any reasonable requests for additional documents or information without giving a good reason.

But it’s not quite as simple as “ask and it shall be given you”. Banks hold millions of documents.




Read more:
Banks and financial providers one step ahead of consumers who struggle with personal bias


Each bank stores its documents in a system that suits the bank’s operational needs, and is unlikely to align with the Royal Commission’s priorities. A request to collate all documents on a given topic might take the bank many hours of searching and analysis across multiple databases. The banks then may have to return to the Royal Commission to clarify what is required.

There’s nothing to stop the Royal Commission using both coercive and cooperative techniques. It may, for example, ask banks to provide an overview of the handling of certain complaints, and then require the banks to produce certain documents mentioned in that summary.

The ConversationBut a combination of asking and demanding may be needed to get the information the Royal Commission needs.

Anna Olijnyk, Lecturer, Adelaide Law School, University of Adelaide

This article was originally published on The Conversation. Read the original article.

The royal commission’s final report has landed – now to make sure there is an adequate redress scheme



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The royal commission has handed down its final report – now the real work begins.
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Ben Mathews, Queensland University of Technology

The Royal Commission into Institutional Responses to Child Sexual Abuse has performed its task magnificently. Its scale, complexity and quality is unprecedented. Its work is already being acknowledged internationally as a model of best practice.

As a nation, we can be proud of the commissioners and their staff. We should acclaim the courage of all survivors, including those who informed the commissioners about their experiences, and we should honour those who have not lived to see this day.

We must recognise the integrity and strength of those who advocated for the inquiry, including survivors, their families, journalists and police. We should applaud former prime minister Julia Gillard for initiating the commission, and the current federal government for ensuring it was adequately resourced.

But this is not the end. The real work begins now. Australian governments and major social institutions now have not only the opportunity, but the responsibility, to create lasting social change. Their responses will be monitored here, including through requirements to report on their actions, and around the world.

The royal commission’s impact

This watershed inquiry has created the conditions for a seachange in how society deals with child sexual abuse in institutions, which can flow to our treatment of sexual abuse in other settings.

Our society’s leaders can build progress from the pain of former failings. Not meeting this responsibility would surely stick as a lifelong regret for those in positions to cement change. Fulfilling this imperative can leave a legacy of which these government and institutional leaders can be proud.

Substantial progress has already been made. The commission’s earlier reports have influenced important changes to civil justice systems, criminal justice systems, organisational governance, and prevention, including situational prevention in child and youth-serving organisations.

The Child Safe Standards now promoted by the commission are substantially embedded in legislation in several states, requiring organisations to adopt comprehensive measures to prevent, identify and respond appropriately to child sexual abuse.

Civil laws have been amended in most jurisdictions to allow claims for compensation, holding individuals and organisations accountable.

In some states, new requirements to report known and suspected cases apply through special “failure to report” and “failure to protect” offences in criminal laws. They also apply through separate reportable conduct schemes that add essential independent external oversight.


Read more: Royal commission recommends sweeping reforms for Catholic Church to end child abuse


Yet much remains to be done. The reforms already made in some states must be adopted elsewhere to create national consistency.

Accountability of individuals and organisations is essential to create cultural change, and needs to be achieved through both civil systems (such as following Western Australia’s recent bill enabling lawsuits against organisations that previously could not be sued, such as the Catholic Church), and criminal systems (for example, prosecuting those who harbour offenders, and removing criminal law principles that compromise criminal prosecutions).

Other state and territory mandatory reporting laws need to be harmonised, as recommended by the commission. Many of the commission’s new 189 recommendations are rightly directed towards prevention, especially through the Child Safe Standards, including their requirements for education, codes of conduct, situational prevention, and the commitment required of organisations’ leadership.

We must focus our efforts on the future, but we must also ensure we properly deal with the past. Perhaps the single most important aspect of this is the redress scheme.

What happens now with redress?

The national redress scheme is behind schedule and must be finalised with sufficient funding, and government and institutional commitment.

The bill for the scheme remains before parliament, awaiting a committee report due in March 2018. It is yet to receive the commitment of all states, territories, and relevant organisations.

The commission recommended the scheme be operational by July 1, 2017, with an upper cap of A$200,000 and an average redress payment of $65,000. Under the bill, the scheme’s cap is $150,000, substantially below the recommendation, and even further below the average payment awarded in Ireland of more than €60,000 (about A$92,200). In Ireland, the highest payment was more than €300,000 (about A$461,000).

The Australian scheme contains three elements. First, a monetary payment as tangible recognition of the wrong suffered by a survivor. Second, access to counselling and psychological services (estimated at an average of $5,500 per person). Third, if requested, a direct personal response from the responsible institution(s), such as an apology.

Not all survivors will apply to the scheme, as many are not financially motivated. However, it is an essential part of a healing response. This has been shown internationally in Canada, Ireland and elsewhere.

Redress schemes are more flexible and speedy, with less formality and cost, and less trauma and confrontation, than conventional legal proceedings. Payments are not intended to replicate the amount that would be payable under a formal civil compensation claim, and instead are far lower.

Accordingly, institutions should recognise the lower financial commitment required to discharge their ethical obligation to participate compared with their liability in formal civil compensation amounts, especially since recent reforms to civil statutes of limitation have removed time limits and allow a claim to be commenced at any time.

Ten key aspects of the proposed Australian scheme are:

  1. People are eligible to apply to the scheme if they experienced sexual abuse in an institution while they were a child, before July 1, 2018.

  2. A lower evidentiary threshold applies, meaning that eligibility for a redress payment is assessed on whether there was “a reasonable likelihood” the person suffered institutional sexual abuse as a child.

  3. Applicants who have received redress under another scheme or compensation through a settlement or court judgment are still eligible, but prior payments by the institution will be deducted from the amount of redress.

  4. Only one application per person can be made; where a person was abused in more than one institution, provisions enable the decision-maker to determine the appropriate share of each institution.

  5. Applicants can access legal assistance to help determine whether to accept the offer of redress.

  6. A person who accepts an offer of redress must sign a deed of release, meaning the institution(s) responsible for the abuse will not be subject to other civil liability.

  7. Payments are not subject to income tax.

  8. Reviews of decisions are limited to internal review, and not to merits review or judicial review.

  9. Criminal liability of offenders is not affected.

  10. The scheme is intended to open on July 1, 2018, and operate for ten years; applications need to be made at least 12 months before the closing date of June 30, 2028.


Read more: When it comes to redress for child sexual abuse, all victims should be equal


Five further factors need to be accommodated by the scheme to ensure it functions properly and complies with the clear recommendations of the royal commission.

  1. The upper cap should be $200,000 to ensure sufficient recognition of severe cases.

  2. To ensure equal access to the scheme, legal assistance must be made available to assist people in making applications.

  3. Governments and institutions should opt in as soon as possible and commit resources to discharge their duty to participate in the scheme.

  4. Governments – federal or state – should be the funder of last resort in all cases where the institution is unable to reimburse the Commonwealth (for example, where the institution no longer exists, or lacks resources to participate).

  5. The method of determining the amount of the payment, based on the severity of the abuse, its impact, and other relevant factors, must be made available as soon as possible so it can be adequately debated.

The commission’s work contributes a historic, international legacy. The sexual abuse of children in institutions will be revealed in more nations in coming years. This will involve some of the same religious institutions in which it has been found here to be so prevalent, and so heinously concealed and facilitated. Simply due to population, countless children will be shown to be affected.

The ConversationFor this reason, our governments and institutions must now ensure their actions add to the royal commission’s example, and demonstrate to other countries how civilised societies should respond.

Ben Mathews, Professor, School of Law, Queensland University of Technology

This article was originally published on The Conversation. Read the original article.