Royal commission on the abuse of disabled people to be announced soon


Michelle Grattan, University of Canberra

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 Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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NAB’s Andrew Thorburn and Ken Henry quit after royal commission lashing


Michelle Grattan, University of Canberra

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.




Read more:
Defence mechanisms. Why NAB chairman Ken Henry lost his job


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
reflection.

“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.




Read more:
Hayne’s failure to tackle bank structure means that in a decade or so another treasurer will have to call another royal commission


“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”.




Read more:
Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn


The Conversation


Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Hayne’s failure to tackle bank structure means that in a decade or so another treasurer will have to call another royal commission


Andrew Linden, RMIT University and Warren Staples, RMIT University

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.

Has Kenneth got the frequency right this time?

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.




Read more:
Compensation scheme to follow Hayne’s indictment of financial sector


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.

The deepest flaw lies unaddressed…

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.

…and putting the onus on directors won’t much help

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.

Some of the One.Tel directors have had long corporate careers. The former chair at of the collapsed Allco Finance Group Bob Mansfield went on to review the ABC.

As Adam Schwab bluntly put it, “corporate Australia is nothing if not forgiving”.

It’ll chase horses rather than close doors

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.




Read more:
Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn


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.The Conversation



Andrew Linden, Sessional Lecturer, PhD (Management) Candidate, School of Management, RMIT University and Warren Staples, Senior Lecturer in Management, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Banking Royal Commission: How Hayne failed remote Australia



File 20190204 86210 1jbt4td.jpg?ixlib=rb 1.1
The remote community of Urapunga in South East Arnhem Land, more at the mercy of the finance industry than most.
J. Louth, CC BY-SA

Jonathon Louth, University of South Australia

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.

Automatic teller machines

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.

The only government access point and only phone and only internet service in Urapunga, Northern Territory.
Jonathon Louth, CC BY

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.

Superanuation

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%.

Portion control

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.


Final Report, Royal Commission into the Misconduct in the Banking, Superannuation and Financial Services Industry, Vol. 1.


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.




Read more:
Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn


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.

My research in the NT suggests that financialisation reinforces the systemic disadvantage introduced by white settlement and transmits it across generations.

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.

Many of us seem unwilling to accept that an economic world existed prior to European settlement, that (international) trade routes and agriculture were sustained for millennia.

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:

Final Report, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Vol. 1.

The need to “identify a suitable way for those customers to access and undertake their banking” is vague, but important.

It ought to mean that the financial sector works with communities to develop its cultural competencies. It ought to mean exploring community and cultural literacies and embracing community knowledge.

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.The Conversation



Jonathon Louth, Research Fellow, The Australian Alliance for Social Enterprise, University of South Australia

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Shorten: we should legislate on Hayne recommendations before election


Michelle Grattan, University of Canberra

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.




Read more:
Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn


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.




Read more:
Compensation scheme to follow Hayne’s indictment of financial sector


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
nail.”

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.




Read more:
Six questions our banks need to answer to regain trust


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 Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Compensation scheme to follow Hayne’s indictment of financial sector


Michelle Grattan, University of Canberra

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.”




Read more:
Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn


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.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn



File 20190201 108351 1n512x1.jpg?ixlib=rb 1.1
The government is acting on all 76 of Justice Hayne’s recommendations.
Peter Martin, CC BY-SA

Peter Martin, The Conversation

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.




Read more:
Six questions our banks need to answer to regain trust


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.




Read more:
Compensation scheme to follow Hayne’s indictment of financial sector


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.The Conversation

Peter Martin, Section Editor, Business and Economy, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Hayne holds fire, but the banks’ day of reckoning is coming



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Putting people rather than profits at the centre of banking culture is possible, but difficult.
Shutterstock

Andrew Linden, RMIT University and Warren Staples, RMIT University

The evidence presented in the first four rounds of the Royal Commission into Banking and Financial Services was harrowing.

It would be a mistake to think the appalling misbehaviour uncovered so easily by the Commission was unconnected, just a few bad apples, as the banks and their supporters had been claiming.

It’s a mistake Commissioner Hayne doesn’t make in his interim report, describing the misconduct as systemic, orchestrated as a matter of corporate policy, and against the law.




Read more:
Banking Royal Commission’s damning report: ‘Things are so bad that new laws might not help’


So shocked is he about what he concludes is law-breaking sanctioned at the highest levels that he asks rhetorically whether there would be any point in new laws, given the old ones were often ignored by banks and are not enforced by regulators.

The law already requires entities to “do all things necessary to ensure” that the services they are licensed to provide are provided “efficiently, honestly and fairly”. Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, “Do not do that”, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?

He makes no recommendations in his three-volume 1000 page interim report, instead drawing together a long list of questions he intends to answer in his final report, due in February.

Before then, the bank chief executives appearing in the Comission’s final round of hearings will be asked some very tough questions.

No more convivial chats

It won’t be like the convivial chats the bank executives are used to with the heads of regulators, eager to please their ministers in love with financial innovation and the concept of Australia becoming a global financial centre, a new City of London in the East.

Nor will it be like the “I’m sorry, I’ll take that on notice” parliamentary hearings the government arranged a year or two ago in an effort to fend off the Commission.

We’ve always had the evidence

For decades few have thought to ask why Australia’s big banks have been consistently among the world’s most profitable.

Certainly not shareholders who loved the returns and wanted more.

Too many middle and higher level employees were happy to take the bonuses.

Now a new treasurer, Josh Frydenberg, who wasn’t centrally involved in fending off the Royal Commission, appears to have got the message.

Whatever the criticisms are of the regulator, we should remember actually who perpetrated the wrong conduct. And that was the financial institutions themselves. So they are ultimately, and the individuals involved, ultimately the ones who must be held accountable and responsible for their actions. The regulators need to enforce the laws they have at their disposal, impose the penalties that are available to them, and in doing so we are more likely to see a culture of compliance than what we have seen.

Commissioner Hayne has framed the fundamental problem as one of greed overriding respect for the law and respect for customers.

We allowed greed to become good

Hayne asks how that could change.

We have argued with reference to AMP and IOOF that while greed might be an ever present part of the human condition, it can be suppressed or contained.

Greed-induced systemic financial crises were common before the 1940s and after the 1970s, but not during the war or in the decades immediately after the war.




Read more:
Britain’s broken corporate governance regime


The 1980s saw a sea change in attitudes to greed, brought about by financial deregulation and the popularising of the view taught in economics classes that pursuit of individual self interest was in society’s best interest.

Rules, codes and views about what constituted good governance came to be based on a theory that gave a central role to greed, maximising shareholder returns and incentivising managers.

Boards were encouraged to think that putting shareholders first was more important than following directors duties and the law.

Bureaucratically, there was an unrelenting policy preference for self-governance, light touch regulation and cooperation with wrongdoers rather than enforcement.

It’s hard to change

Relying on good character (individual virtue) isn’t enough when corporate structures and policies facilitate systematic misconduct.

It’s impossible to buy organisational culture off the shelf. It is a product of many things.

Changing culture requires more than better professional credentialing, increased financial literacy and embedding regulators inside banks. By themselves, these measures are unlikely to be systemically effective.




Read more:
Trust has to be as important as profit if banks and their boards are to regain their corporate legitimacy


We need to change the rules by which boards operate.

Containing greed requires many, many eyeballs, not just those of shareholders and consumers, but also employees, unions, customer advocacy organisations, regulators and the parliament, as well as clear and well-designed rules, active enforcement, appropriate rewards and strong consequences, and a new shared ethos of prudence, responsibility, honesty, service and fairness.

It is possible, but difficult.The Conversation

Andrew Linden, Sessional Lecturer, PhD (Management) Candidate, School of Management, RMIT University and Warren Staples, Senior Lecturer in Management, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Three simple steps to fix our banks



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It isn’t brain surgery.
Shutterstock

Elise Bant, University of Melbourne

Here are three simple steps to address the widespread misconduct revealed in the interim report of the banking royal commission, arising out of research I have undertaken with my colleague Associate Professor Jeannie Paterson.

While not exhaustive, they are good places to start:

Step 1: back to basics

Commissioner Hayne is spot on when he says that simply adding more regulation is not going to do the job.

In fact, more regulation can be more damaging than helpful.

There are literally dozens of overlapping state and federal statutes that prohibit misleading or deceptive conduct, and they often use subtly but significantly different language and impose different penalties.

This “legislative porridge” splits the regulation of financial services and products in ways that defy rational justification.




Read more:
Banking Royal Commission’s damning report: ‘Things are so bad that new laws might not help’


The result is protracted and cripplingly expensive litigation to determine who is covered by what prohibition.

This plays perfectly into the hands of well-funded corporations who know that delaying tactics and the limited resources of regulators and commercial and consumer are likely to produce soft settlements, “agreed penalties” and no real pressure to change behaviour – all while profits continue to flow in.

So we need to get back to basics. Simple, overarching prohibitions contained in one or two pieces of key legislation, which apply to every trader and corporation who engages in trade or commerce. No exceptions. No carve outs. No special treatment. The same penalties and remedies. Simple, powerful and unavoidable.

Step 2: calling out deceptive conduct

For many years, the Australian Securities and Investments Commission has concentrated its relatively meagre litigation efforts on proving “misleading” conduct by corporations. This is probably because it is notoriously difficult to prove the personal dishonesty traditionally required to prove fraud (the “deceptive” part of the prohibition on “misleading or deceptive” conduct).

Part of the problem has been that corporations are artificial persons and so need to operate through directors, managers, employees and agents.




Read more:
Fees for no service: how ASIC is trying to make corporate misconduct hurt


Nailing down instances of individual personal dishonesty, intention and responsibility is often impossible.

Misleading conduct, by contract, is relatively easy to prove, because it focuses on the objective meaning of conduct, does not require proof of fault – and does not require ASIC to identify the personal intentions of individuals behind the conduct.

But, focusing on misleading conduct comes at the cost to effective regulation.

The reputational damage flowing from a finding of misleading conduct is very low.

As Commissioner Hayne has noted, corporations are quick to characterise this sort of conduct as involving “mistakes”, to apologise and to promise reform.




Read more:
Hayne holds fire, but the banks’ day of reckoning is coming


It is time to face the reality that what matters is the behaviour of corporations rather than what is in their (artificial) minds.

It isn’t brain surgery.

As the commissioner himself as noted, you don’t need legal advice to know that “charging for doing what you do not do is dishonest”. Much of the reported conduct “ignores basic standards of honesty”.

A change in focus from personal intention to objective standards of honest conduct is needed to address what the commissioner identifies as “the root causes of conduct, which often lie within the systems, processes and culture cultivated by an entity”.

Step 3: genuine punishment

The final piece of the puzzle (missing from the otherwise incisive discussion in the interim report) is to bring courts on board.

Australian courts have been very cautious in awarding penalties for misleading conduct, and give substantial weight to mitigating factors such as expressions of remorse and cooperation with regulators.

They have said repeatedly that the focus of penalties should be on deterrence rather than punishment.




Read more:
How courts and costs are undermining ASIC and the ACCC’s efforts to police misbehaving banks and businesses


Their approach may be entirely appropriate in cases where courts are dealing with human defendants facing personal ruin. But when applied to corporations, it can undermine the legitimate role of punishment in changing repeated and longstanding corporate misbehaviour.

Again, there are some simple changes to the law that could address this problem.

One is to clarify that punishment is an important aim of the civil penalties regime, required for “public denunciation” of bad behaviour and to provide effective deterrence.




Read more:
The problem with Australia’s banks is one of too much law and too little enforcement


Another is for courts to frame penalties with a strong eye to the profits amassed as a result of the breach. Often the profit earned will be larger than the damage to consumers. Misconduct cannot be allowed to make good financial sense.

Yet another (also not yet on the commission’s radar) is to seriously consider expanding private rights of redress to include additional, punitive damages in cases of serious misconduct.

Not only would this make private claims more feasible for commercial victims. The recent launch of group proceedings by Slater & Gordon shows that, when brought together, private litigants are capable of sharing the regulatory burden of keeping banks on the straight and narrow: it needn’t all be done by the Australian Securities and Investments Commission.

There are important issues to consider about the strengths and dangers of group litigation, currently the subject of review by the Australian Law Reform Commission.

But if it can be done properly, the deep pockets of banks might well meet their match in well organised teams of lawyers and litigation funders, aggressively seeking justice both in the interests of their clients and for their own financial reward.The Conversation

Elise Bant, Professor of Law, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The problem with Australia’s banks is one of too much law and too little enforcement



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bank cards.

Deborah Ralston, Monash University

Prime Minister Scott Morrison and Treasurer Josh Frydenberg moved very quickly to deliver the interim report of the Royal Commission into Financial Services to the public. It was submitted to the Governor General, tabled in parliament (out of session), and made public on the same afternoon – Friday September 28.

The three-volume report is limited to findings from the first four rounds of hearings, on consumer credit, financial services, lending to small- and medium-sized enterprises, and experiences with regional and remote communities.



So far the commission has received almost 10,000 submissions, mainly related to banking (67%), superannuation (12%), and financial advice (9%). Most address issues relating to personal finance, superannuation, or small business finance.

In receiving the interim report, Frydenberg reiterated its key message that financial institutions have put “profits before people”.

It’s about the money

According to the report, poor culture and conduct in banks have been driven by their remuneration policies, with almost every instance of misconduct being directly linked to monetary benefit.




Read more:
Banking Royal Commission’s damning report: ‘Things are so bad that new laws might not help’


The interim report is also highly critical of the regulators, painting a disconcerting picture of their determination to detect and monitor misbehaviour and enforce compliance with the law.

The Australian Securities and Investments Commission comes in for particular scrutiny, with Commissioner Kenneth Hayne noting that where the law had been broken, “little happened beyond an apology from the entity, drawn-out remediation, and an infringement notice or an enforceable undertaking that acknowledged no more than ASIC had reasonable concerns about the entity’s conduct”.

The penalties imposed were often immaterial, given the size of the institutions involved.

The letter of the law can smother its spirit

It’s hard to know how to regulate. On occasions, as with the Future of Financial Advice legislation, the spirit of the law has been lost in complexity about prescribed behaviour, and of course so-called “grandfathering provisions” which ensure commissions that began in the past can continue even though they would no longer be legal.

The interim report asks whether, rather than more legislation, the answer lies in less: in simplifying the laws to better reflect their intentions.




Read more:
Royal Commission shows banks have behaved appallingly, but we’ve helped them do it


It is something Labor had in the original version of the financial advice legalisation – an overarching obligation on advisers to act in their client’s “best interests”, an obligation the Coalition tried to remove on attaining office, arguing that specific provisions would do the job just as well.

On releasing the interim report, Frydenberg was asked where our regulators had been ineffective because they had been captured by industry or had inadequate resources.

Frydenberg replied that culture was indeed substandard, but that giving the regulators more resources would be seriously examined.

The government has already given ASIC and APRA more.

In August, ASIC received A$70 million in additional funding to strengthen supervision and give it the capability to embed its staff members inside major banks.

Earlier this year the government appointed a second ASIC deputy chairman, Daniel Crennan QC, to bolster its enforcement credentials.

The new chairman James Shipton appears to be reshaping the ASIC culture.

But that’s only the beginning of the changes we are likely to see.

It’s our turn now

Public submissions in response to the interim report are now open and are due by Friday October 26, 2018.

Two more rounds of hearings are yet to be held, with the final report due by February 1, 2019.The Conversation

Deborah Ralston, Professor of Finance, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.