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.
by leave—This is the fourth report of the House of Representatives Standing Committee on Economics into hearings with the bank CEOs, and the Labor members of this committee made two additional recommendations in our additional report. Firstly, we recommended a mechanism to give bank victims who had not been called before the royal commission the opportunity to tell their stories to that commission. We asked that those hearings take place in both city and regional areas. Unfortunately, of course, the commission has now passed, and the government didn't take up this recommendation. It's a great shame, because I and members of the Labor economic team spent months meeting with many of the bank victims, and many of their stories are absolutely harrowing, particularly those—they may have been running small businesses or may have been farmers—who had met all of their obligations under their loans when they took out loans with banks as mortgages. They never missed a payment but, because the banks decided to revalue assets associated with those loans and impair those loans, they found themselves in dire circumstances. We believed that these people should be given the opportunity to tell their story before the royal commission. It's unfortunate that the government didn't take up that recommendation.
The second recommendation that we made is related to the banking accountability regime proposed by the government—the BEAR, as it is more widely known. We recommended increased accountability obligations for bank executives be extended to cover matters that affect consumer outcomes. It's pleasing to see the royal commission allude to this in recommendation 6.8, which states that the BEAR should be extended to APRA regulated financial service institutions. That's something Labor looks at positively in terms of the recommendations that were made by the royal commission.
On the royal commission more broadly, it should never be forgotten that the Prime Minister and those opposite voted 26 times against a royal commission. This is the report that they did not want to see. These are the scandals, the rip-offs and the undermining of businesses in the Australian banking and financial system that they did not want to be exposed. Labor had been calling for two years for the government to hold a royal commission into banking and financial services because we had seen what had gone on in that industry and, as I mentioned earlier, we had sat down with some of the victims against whom these rip-offs have been perpetrated.
It also should be noted that many of the activities, cases and instances that have been uncovered in the royal commission as breaches of law and illegal—and for which some are facing the prospect of prosecution—would never have been illegal if this government had had its way when it was originally elected. That is because many of the cases presented at the royal commission are breaches of the FOFA legislation. They're breaches of the duty of financial advisers to act in the best interests of their clients. They're breaches about disclosure obligations, particularly when it comes to grandfathered commissions and people paying fees for services that they are not actually getting, let alone people who had passed away and were paying fees on accounts that obviously they were getting no more services for.
Many of the situations would not be illegal if this government had had its way. Labor introduced the Future of Financial Advice reforms when we were last in government. Guess what the then opposition, led by the member for Warringah, did? They opposed the introduction of FOFA. They had an inquiry set up to oppose FOFA. Believe it or not, they relied on the advice of AMP. They said that in this instance the advice of AMP should be relied upon when they say that we shouldn't introduce FOFA regulations into Australia. Yes, that's right. They accepted the advice of AMP, who said that the world would end if Labor introduced FOFA regulations and if we introduced the best-interest duty for looking at what was going on in this industry. They actually suggested that there would be a loss of tens of thousands of jobs in Australia if Labor introduced its FOFA legislation.
We now know why AMP weren't so keen on Labor's FOFA regulations when they were introduced—because it uncovered the acts and the rip-offs that were going on in this industry that we've seen in the royal commission. We should never forget that in the Australian banking and financial services sector this government never wanted the royal commissioner's recommendations to be uncovered. They never wanted to see these sorts of recommendations being made for consumers of financial products in this country. For that they should eternally stand condemned. This is the government that did not want to see new recommendations made about how we fix our banking and financial services industry.
Some of these recommendations require urgent attention. They require detailed analysis and urgent attention of this parliament. We all know that there are only three sitting weeks left for the House of Representatives and only one for the Senate. Urgent attention is required from this parliament to look at issues like grandfathered commissions, where people are still being ripped off. That is why Labor is suggesting that we meet for an additional two weeks to get on with the business of looking at implementing the recommendations of the royal commissioner. This will be a test for the Morrison government. Do they agree that the rip-offs and scandals that have occurred in this industry are unacceptable, that the recommendations of the royal commission should be adopted immediately and that we should get on with the business of legislating for them, so that people can get the protection they deserve and we can restore trust and confidence to Australia's banking and financial services sector?