Only one head of Australia’s Big Four banks has lasted two years in the job following the Royal Commission into misconduct in Australia’s financial service industry– one year after Commissioner Hayne handed over his report in a memorably frosty encounter with Treasurer Josh Frydenberg (pictured above).
The Commissioner made 76 recommendations in his final report released on 4 February 2019 after dragging the country’s banks, insurers and financial services companies through a series of high-profile media scandals.
So, what has been the result – and does it hint at what could come out of the Royal Commission into Aged Care?
- An exodus of senior management and bonuses slashed
- Fees and products cut
- Civil penalties now apply
- Huge bills for operators
- A tougher regulator
- Greater transparency
- Improved complaints handling and governance
- Pushback from the industry
- Doubts about the long-term impact
- A loss of trust
See below for further details.
An exodus of senior management and bonuses slashed:
The Chairs and CEOs of the Big Four signed a letter in November 2017 calling on the Government to set up a Royal Commission. Two years on, just three of those eight people are still in the job.
Fees and products cut:
The banks have been forced to drop their fees, such as no longer charging dishonour fees on basic accounts as well as simplifying their range of products.
Civil penalties now apply:
Superannuation fund trustees and directors who don’t act in the best interests of members now face civil penalties. They are also banned from wining and dining employers who are considering moving their employees’ accounts.
Huge bills for operators:
Around $1.5 billion in remediation has been paid back to customers with the overall bill expected to hit $10 billion.
A tougher regulator:
Both the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) are now more likely to prosecute civil and criminal cases they would not have previously taken to court. For example, the Commonwealth Bank pled guilty over 87 criminal charges of ‘hawking’ life insurance in unsolicited phone calls.
Greater transparency:
While the recommendations still must pass Parliament and some of the bills will not be introduced until the end of this year, legislation has been amended to outlaw unfair contract terms in insurance and provide more transparency for customers.
Improved complaints handling and governance:
The sector has had to improve its culture, with recommendations aimed at moving away from the traditionally predatory-style sales culture to a more people-focused approach.
Pushback from the industry:
The industry has had some wins, with superannuation funds on the warpath to protect their interests. The Government has also backed down on bans for commissions in the mortgage broking industry and increased protections for small business loans.
Doubts about the long-term impact:
While the industry has committed to reform, many are voicing concerns about how much will have changed in five to seven years’ time. An independent review of industry practices to evaluate whether customers are better off is due in 2022.
Critically, a loss of trust:
Despite the Government stating in its response to the Hayne report that its main goal was restoring trust in the financial system, the Big Banks’ reputation has suffered – and others are reaping the benefits.
Industry super funds saw their inflows increase by $24.25 billion between March 2018 and September 2019, while $19.72 billion disappeared from retail super.
The ‘Big Four’ also grew their mortgage books by just 1.8% in 2019 compared to 15% for smaller banks and non-bank lenders, according to the Reserve Bank of Australia.
Bendigo Bank – now the fifth largest retail bank in Australia – was the real winner, recording a 145% increase in the number of Millennials banking with them and taking their number of customers to over 1.7 million.
Interestingly, at the height of the Banking Royal Commission, its Managing Director Marnie Baker pointed to trust as a key difference for her bank.
“No bank is immune from the heightened attention surrounding the Royal Commission and other inquiries, but this also presents a strong opportunity,” she said.
“Our strategy, combined with our passionate culture and innovative mindset, drives the highest trust and advocacy in the industry.”
Points for boards and CEOs to take away as the Royal Commission launches into its final year?
