Tuesday, 12 February 2019
Economics Committee; Report
On behalf of the Standing Committee of Economics, I present the committee's report, incorporating dissenting reports, entitled Review of the four major banks: fourth report, together with minutes of the proceedings.
Report made a parliamentary paper in accordance with standing order 39(e).
by leave—The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has revealed shocking examples of behaviour by Australia's four major banks. The conduct has, in many cases, been contrary to the law.
We have heard that the CBA sold junk credit insurance policies to 64,000 customers, charged fees to dead clients, charged double the rate of interest to thousands of its business customers and was the worst offender for charging customer fees for financial advice they never received.
It was revealed that Westpac has been the most resistant of the four major banks to the supervision of the banking regulator, the Australian Securities and Investments Commission. ASIC told Westpac that its loan controls, which should ensure people can only borrow what they had the capacity to pay, were inadequate. Westpac ignored ASIC and continued to offer credit card limit increases to people without verifying their incomes. The issue affected more than one million customers. ANZ has also come under fire for weak loan controls, particularly in relation to loans submitted by brokers and through its car finance business. We heard that ANZ inappropriately sold loans to more than 300,000 customers and then repeatedly ignored ASIC's requests to compensate those people. Some of the most appalling cases of misconduct were revealed during the royal commission's scrutiny of NAB's Introducer Program. NAB bankers accepted loan bribes, forged customers' signatures and manipulated incentive programs to generate bonus payments. NAB has been slow to compensate their victims.
In October 2018, the CEOs of Australia's four major banks appeared before the economics committee for the fourth round of inquiry hearings, which were scheduled shortly after the release of Commissioner Hayne's interim report. All committee members attended hearings at different points and contributed to the discussion from all parties. I'd like to thank the committee members who did present, including the deputy chair, who of course asked questions as well and worked cooperatively.
Since the committee began its inquiry into the four major banks in October 2016, the government has undertaken major reforms to the banking and financial sector. These reforms include establishing a one-stop shop for external dispute resolution, the Australian Financial Complaints Authority, and a Banking Executive Accountability Regime, which will impose higher standards of behaviour on senior executives. The government has also taken action to improve competition in the banking sector, including reducing barriers to entry for new financial institutions and establishing a comprehensive credit reporting system.
Since the royal commission was announced, the banks have increased their focus on remediation and complaints handling, sacked staff and replaced executives. They have moved to break up elements of their vertically integrated business models, including selling off whole divisions that have been particular problem areas, such as wealth management. Each of the four major bank CEOs has made public apologies for the mistreatment of their customers and the policies and programs that caused financial hardship and distress. They have committed to do better, to provide remediation more quickly and to appropriately deal with complaints. However, these apologies will be meaningless, of course, unless they're backed up by lasting and real reform.
The banking regulators have been criticised for being too timid. Australians expect the banks to fear their regulators. ASIC in particular needs to be tougher and has relied too much on enforceable undertakings rather than seeking penalties in the courts. This has led to the perception in the community that the banks have been let off scot-free despite the injustices and financial losses suffered by so many of their customers. The committee notes that there is a new chair and deputy chair of enforcement of ASIC who are committed to taking a stronger stance on enforcement, supported by a range of tougher penalties recently introduced by the government. I note that tougher penalties are also part of the royal commissioner's report
On 4 February 2019, Commissioner Hayne released the royal commission's final report, charting a course for future reform of the banking and financial sector. The government has agreed to take action on all 76 recommendations and is going further in a number of important areas. The message for the big four banks should already be clear: the pursuit of profit at the expense of customers' best interests and basic community standards has been the root cause of widespread misconduct and systemic failings. As a consequence of their actions, the banks now face a considerable challenge in rebuilding trust and confidence. I commend the report to the House.