Banking royal commission’s final report released as Government pledges to act

Labor accepts all recommendations ‘in principle’

Now that she’s out from the lockup, I’m handing over the blog to my esteemed colleague and business reporter Steph Chalmers.

Steph will take you through some areas of the report that we haven’t yet covered, as well as bring you further industry reaction.

So stick around!!

ABC business editor Ian Verrender says that, rather than a radical overhaul or massive restructure of the system, the royal commission has taken aim at exactly where it will hurt our major financiers.

But he says that, in the end, it’ll be the customer that pays. Have a read of his analysis here:

Here’s more analysis from Ian:

Interesting you say that, Rob, because it seems no one particular head is on the chopping block. Commissioner Hayne’s report referred several institutions to the corporate regulator for possible criminal charges, but did not name any individuals or companies that might face prosecution.

There’s been a bit of a mixed reaction from industry bodies

For the uninitiated, Ms Bligh is the CEO of the Australian Banking Association.

Mr Frydenberg dodged questions over whether he should apologise for the Government’s long-held opposition to holding this royal commission.

His response?

It’s actually the Government that’s been delivering better consumer outcomes for Australians with reforms that we’ve been making.

Some of the mortgage broking industry’s worst fears are contained in the final report, with the commission recommending the industry move from a commission-based to fee-based model. And Commissioner Hayne says home loan customers should foot the bill for the fee — not the banks.

At the moment, brokers receive upfront and trailing commissions from banks and other lenders, meaning the broker is incentivised to secure the customer a loan — and the size of the commission on offer can influence the broker’s selection of the lender and the size and type of the loans. Commissioner Hayne recommends a “steady but deliberate” move from the existing model to a model where a borrower pays a fee instead.

The Government says it will ban trail commissions and other “inappropriate forms of lender-paid commissions” on new loans from July 2020, and will conduct a review in three years to consider the implications of removing upfront commissions and moving to the borrower-pays model.

The report also recommends clearing up the question of who the mortgage broker is acting on behalf of.

While brokers currently receive commissions from banks and other lenders, the commission heard evidence that the reality is, customers believe the broker is looking out for their best interests.

Commissioner Hayne recommends enshrining this in law through a “best interest duty” — breaching this obligation could lead to the broker being hit with a civil penalty.

“What if I want to buy a house?”

“What if I have a mental illness”

“What if I own a farm?”

“What if I’ve been a victim of dodgy practices?”

Here are Commissioner Hayne’s four key observations:

1. In almost every case, the conduct was driven not only by the relevant entity’s pursuit of profit, but also by individuals’ pursuit of personal gain
2. Entities and individuals acted in the ways they did because they could – power was taken away from consumers because they had little information to be able to negotiate terms
3. Consumers often dealt with financial entities through intermediaries – in many cases, consumers may have thought the intermediaries were acting on their behalf, but often they were being paid by the financial institutions – therefore, a clear conflict
4. Financial services entities that broke the law often weren’t properly held to account

With 76 recommendations made in total, here’s the breakdown of the areas where those were made

• Banking – 17 recommendations
• Financial Advice – 10 recommendations
• Superannuation – 9 recommendations
• Insurance – 15 recommendations
• Culture, Governance and Remuneration – 7 recommendations
• Regulators – 14 recommendations
• Other important steps – 4 recommendations

Here’s Andrew:

It’s cautious and in some ways common sense. If you’re looking for blood and guts, there’s no great deal of blood and guts.

There’s no specific referrals of executives. There’s 22 referrals in the document, there’s 24 in response to the royal commission. These are 22 individual entities to be referred to APRA or ASIC for civil or criminal offences.

The big banks, everyone but Westpac is named. Either directly or through subsidiaries or companies associated with it.

But Kenneth Hayne has savaged the culture of the banking sector. He said it was driven by profit and gain, rather than the best for the consumer.

What’s the upshot of the report?

Our biz reporter Michael Janda says the banking royal commission report takes the axe to sales culture in finance.

Here’s Michael:

Commissioner Kenneth Hayne’s final report, and the government’s support for all 76 recommendations, leaves some parts of the financial sector at risk of being effectively legislated out of existence.

Mr Hayne’s report was scathing of a sales culture that resulted in poor customer outcomes, and recommended dramatic changes to the payment of mortgage brokers and financial planners that would see many leave the industry, as well as a major overhaul of insurance sales practices, especially for funeral cover.

The commissioner has also referred several institutions to the corporate regulator for possible criminal charges around the fees for no service scandal, but declined to name names of individuals or companies that might face prosecution.

I do hope this will clears the deck and get on with proper business practice, and pay back what is intended to clients

-Pete Dene

So how are the banks feeling right now?

There’s been a lot of coverage on this royal commission in the past year. So much so that you could be forgiven for not reading every single update.

Good afternoon