Monday, October 1, 2018

Today by Paddy Manning


Banking on reform
The public wants real and lasting change in financial services

After surprising boosters and sceptics alike with a string of scandalous revelations this year, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed down on Friday an interim report, which, instead of presenting findings or recommendations, makes searing observations. If it stands in for a proper diagnosis of the problem, accusing the finance industry of greed or putting profits before people is worse than simply stating the obvious. Okay, this is an interim report, and there will be hearings focused on policy solutions in November. There is a risk, however, that having posed some very hard questions about the finance industry, the royal commission is going to shy away from the hard answers.

In an interview with the AFR yesterday [$], Treasurer Josh Frydenberg said he would not rush to impose heavy-handed regulation on financial companies. He argued that, despite the royal commission’s scathing assessment that greed in the sector had failed consumers, ill-considered rules could constrict lending and hurt the economy, and he backed that up in interviews today.

On the ABC’s RN Breakfast program this morning, even Nationals Senator John “Wacka” Williams, one of the first to call for a royal commission into white collar crime, backed away from serious reform (though he did call for penalties to be increased and for the inquiry to be extended [$]). Surely it will not be enough to hope the banks have learnt their lesson and won’t do it again.

In much-quoted lines from the report’s executive summary, after asking why misconduct happened, the commission wrote: “Too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty.” Then, the report went on to finger the regulators, particularly the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA): “When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done. The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court.”

But commissioner Kenneth Hayne, who has proved a force to be reckoned with in the combative hearings, then seems to soft pedal: “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?” Perhaps the law should be simplified rather than expanded, the report suggests, and it is this suggestion that the treasurer has taken up with apparent enthusiasm.

AFR columnist Adele Ferguson, whose investigations for Fairfax Media and the ABC’s Four Corners spurred the appointment of the royal commission, writes [$] today that until the commission makes recommendations in its final report, “we have to read the tea leaves”. Ferguson’s column leads with another question posed in the report – “Why do staff (whether customer-facing or not) need incentives to do their job unless the incentive is directed towards maximising revenue and profit?” – and writes:

Removing incentives, commissions and bonuses and changing remuneration settings would ring the death knell for grandfathered commissions, life insurance commissions and other conflicted remuneration, which survived the Future of Financial Advice (FOFA) reforms, which banned commissions on financial products and required financial advisers to act in the best interests of their clients.

In the absence of recommendations, there is plenty of speculation and commentary today about what might be done. The AFR canvassed industry debate [$] about whether ASIC’s remit is too big, and whether a new financial regulator or regulatory oversight body is needed. Elsewhere, the AFR pointed out [$] that the report “lays bare that perverse remuneration incentives are at the heart of many of the problems driving financiers to put their own interests ahead of customers”. And the paper’s Chanticleer columnist wrote [$] that the report justified the decision of CBA, ANZ and NAB to get rid of their wealth businesses.

In The Australian, John Durie writes [$] that the government should not wait for recommendations, but should move immediately to introduce more competition into the banking sector, and also improve the regulatory system that protects the banks. “The Big Four banks are a cosy club regulated by another insiders’ club – the Council of Financial Regulators,” writes Durie. The council should be expanded to include the ACCC, he argues, and APRA should undergo the capability review first proposed by David Murray’s financial system inquiry.

After so many finance scandals, and so much resistance to a royal commission, and so much genuine outrage at the conduct it has uncovered, it will be a major let-down if this inquiry does not result in a significant shake-up of the banking industry and of its oversight. The Greens, who moved a motion for a royal commission into misconduct in the financial services industry in June 2015, said as much in a statement on Friday: “Endless greed in the banking sector won’t be stopped without major reform.” In 2015, the Greens motion was defeated 39–14 after Labor sided with the government – John Williams crossed the floor. Now, the inquiry’s findings will be delivered in the immediate run-up to a federal election. It is a unique opportunity for lasting change.

 


since this morning


In an address to a group of young leaders in New York, former prime minister Malcolm Turnbull said the recent leadership change was “crazy” and that internal polling of 40 marginal seats had shown his government was in an election-winning position. He also described his predecessors Tony Abbott and Kevin Rudd as “miserable ghosts”.

Crikey’s Chris Woods writes [$] that the Department of the Environment and Energy’s release of six-month-old, record-breaking greenhouse gas figures late last Friday – ahead of the footy finals – was met with cynicism, outrage, and a solid shot at spin over the weekend. The figures show emissions have risen for the fourth year in a row.


in case you missed it


New South Wales is over-funding private schools by $160 million, with some receiving almost $3 million more than they need from state coffers this year, while public schools remain underpaid by almost half a billion dollars, according to Fairfax Media.

The Australian reports [$] that Australia may be forced to refit its entire fleet of Collins Class submarines and operate them for another 30 years, given long delays beginning construction of the navy’s 12 new subs.

Fairfax Media reports that influential crossbencher Tim Storer has proposed a radical overhaul of the ABC board selection process, which would include US Senate-style confirmation hearings. Meanwhile, the government has begun the search for the next ABC chair, with former Nine chief David Gyngell reportedly knocking back the role.

Plans to dump up to 15 million tonnes of salt and other waste from coal seam gas extraction near a creek in drought-stricken Queensland carry a “considerable” risk of water contamination.


by Mungo MacCallum
Politics
Australia Day: ScoMo doesn’t get it
The PM’s thought bubble about an Indigenous national day misses the point

by Don Watson
Archive
A pack of bankers
The financial services royal commission has revealed more than anyone banked on

Paddy Manning

Paddy Manning is a contributing editor (politics) at The Monthly. He is a writer and journalist who has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including Boganaire: The rise and fall of Nathan Tinkler.

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