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  • Writer's pictureNations Voice

Rot Down Under

“If a healthy banking system is dull, then Australia’s must be sick to the core.” - The Economist.

Australia’s four biggest lenders saw a combined 66$ billion shaved off their combined value while a newly formed royal commission was investigating them for criminal and civil misconducts. This royal commission had found a wide variety of troubling practices being perpetuated and encouraged throughout Australia’s financial institutions. AMP, Australia’s biggest asset manager was found to have charged customers for financial advice, then not provided said advice, while continuously lying to regulators about their services. The commission, led by Judge Kenneth Hayne, has asked regulators to look into 24 possible breaches of criminal and civil law.

Judge Kenneth Hayne. Photo from The Sydney Morning Herald

Judge Kenneth Hayne. Photo from The Sydney Morning Herald

Roughly 1$ billion has already been paid out in compensation to those who have experienced banking misconduct. Judge Hayne expressed serious contempt and disgust for those who charged fees for services they didn’t supply or ever intend to supply. However, serious crimes were committed other than not providing services that were paid for. A particularly horrendous example of this would be how the Commonwealth Bank actually charged the accounts of dead customers exorbitant fees.

The various wrongdoings that have been exposed by the royal commission have led to a few executives losing out. AMP’s chief executive and chairman were both sacked after their various offences and crimes were exposed. The National Australia Bank’s chairman and chief executive both resigned after being singled out by Judge Hayne. The royal commission responsible for investigating these wrongdoings has also produced a report, released February 1st 2019 with the intention of providing a set of recommendations on how the banking industry could be cleaned up. An example of these recommendations would be a bank-funded compensation scheme for victims of banking misconduct. However, by far, the most impactful and controversial recommendation was a prison sentence of up to 10 years for any individuals involved in defrauding customers or engaging in other malicious and illegal financial acts. If this recommendation were to be implemented, Australia may become one of a very select group of nations where bankers are seriously reprimanded for continuous and conscious wrongdoings.

These recommendations and the measures they would entail are earnestly welcomed by the vast majority of Australians, however many feel they do not go far enough. It has been posited that the fact that the commission did not encourage the separation of the advisory and wealth-management branches of the banks (which were implicated in most of the wrongdoings) merely allows conflicts of interest within banks to continually harm customers. Three of the banks implicated had expected a ruling that would have forced the separation of the conflicting advice and wealth-management branches and have begun restructuring. Nor did the commission call for checks on affordability before encouraging and making loans. Lenders have already begun to tighten up their practices here as well. However many consumer-protection groups fear that lenders will simply resume their old practices once public scrutiny has turned elsewhere. Many also criticise the recommendations of the commission for their unachievable goals. As the Australian Securities and Investments Commission, in charge of regulating the various financial institutions, has lacked funding since the early 1990s.

“We are disappointed that some recommendations did not go far enough, such as improving remedies for breaches of responsible lending law and banning junk products,” - Karen Cox, Financial Rights Legal Centre.

Both the current coalition government and the Labour Party have promised to enact the royal commission's recommendations and create legislation based on said recommendations. It is almost a certainty that nothing will occur before the upcoming elections this May. However, the commission did gain a hearing from politicians, a rare feat in Australia and banks ought to be wary of that.

“It depends on the politics.” - Gareth Hutchens, The Guardian.


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