The Morrison government has promised to establish a compensation scheme of last resort - paid for by the financial services industry - as it seeks to avoid the outcome of the banking royal commission becoming a damaging election issue for it.
Treasurer Josh Frydenberg, releasing Commissioner Kenneth Hayne’s three-volume report which excoriates the financial sector, said the government would be “taking action” on all 76 recommendations.
The commissioner has made 24 referrals to the regulatory authorities over entities’ conduct in specific instances. All the major banks have been referred except Westpac. AMP, Suncorp, Allianz and Youi are among entities that have been referred.
Commissioner Hayne has made civil and criminal conduct referrals - he was dealing with entities rather than individuals.
In an indictment of years of bad behaviour which has left many customers devastated, Hayne says “there can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities”.
“Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards,” the commissioner says.
“Entities and individuals acted in the ways they did because they could.
"Entities set the terms on which they would deal, consumers often had little detailed knowledge or understanding of the transaction and consumers had next to no power to negotiate the terms.”
Hayne says that “too often, financial services entities that broke the law were not properly held to account.
"The Australian community expects, and is entitled to expect, that if an entity breaks the law and causes damage to customers, it will compensate those affected customers. But the community also expects that financial services entities that break the law will be held to account.”
The commissioner stresses that “where possible, conflicts of interest and conflicts between duty and interest should be removed” in financial services.
Hayne says that because it was the financial entities, their boards and senior executives, who bore primary responsibility for what had happened, attention must be given to their culture, governance and remuneration practices.
Changes to the law were “necessary protections for consumers against misconduct, to provide adequate redress and to redress asymmetries of power and information between entities and consumers”.
The commission’s multiple recommendations propose:
simplifying the law so that its intent is met
removing where possible conflicts of interest
improving the effectiveness of the regulators, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC)
driving cultural change in institutions and increasing their accountability
increasing protection for consumers from “misconduct or conduct that falls below community standards and expectations”, and providing for remediation.
The government has provided point-by-point responses to the recommendations.
The commission had seven rounds of public hearings with about 130 witnesses, and reviewed more than 10,000 public submissions. It dealt with banking, financial advice, superannuation and insurance.
While there have been claims the fallout from the commission could risk a further tightening of credit for small business in particular, Hayne has been careful in his report to minimise that danger.
But he makes it clear there should be no excuse for avoiding needed action. “Some entities used the undoubted need for care in recommending change as a basis for saying that there should be no change. The ‘Caution’ sign was read as if it said ‘Do Not Enter’.”
The commissioner has some sharp words for the NAB in his report, saying that “having heard from both the CEO Mr Thorburn, and the Chair, Dr Henry, I am not as confident as I would wish to be that the lessons of the past have been learned.
"More particularly, I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly. I thought it telling that Dr Henry seemed unwilling to accept any criticism of how the board had dealt with some issues.
"I thought it telling that Mr Thorburn treated all issues of fees for no service as nothing more than carelessness combined with system deficiencies […] Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains.”