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David Jacobson
lawyer for Australian financial services providers
lawyer for Australian financial services providers
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Financial Services Royal Commission: first impressions

The Royal Commission has started its public hearings with case studies of misconduct in relation to home loans, with particular emphasis on the role of brokers and referrers and the effect of payment of commissions and staff incentives.

Watching bank executive witnesses explain their business internal processes and mistakes in detail in front of the national media has been interesting.

Bank witnesses only acknowledged a "breakdown in controls". The Commissioner observed that there is a difference between a breakdown of controls and a breakdown of obedience to the law.

Counsel assisting the Commission is focussing on the lack of disclosure to consumers of broker commissions, damage to consumers of unsuitable loans and delays in reporting to ASIC.

The Commissioner's questions have related to what could have been done better. He acknowledged that things go wrong through dishonesty, neglect or coincidence.

The Commissioner has made it clear that he will not be deciding on compensation for individual consumers but he will consider:
· how loans are sold, including branding;
· sales incentives and bonuses as drivers of behaviour;
· how banks implement responsible lending;
· whether retail mortgage advice should be regulated in the same way as financial advice;
· monitoring of fraud and breaches;
· how banks respond to problems;
· why bad news takes so long to travel up to boards;
· the role of whistleblowers;
· the length of time to report breaches to ASIC;
· the length of time to fix mistakes;
· record keeping;
· the penalties given to bank staff guilty of dishonesty.

In major banks where there are tens of thousands of employees and multiple divisions, it seems that compliance is difficult and slow to monitor.

Whatever the Royal Commission ultimately recommends its transcripts will provide useful case studies on a range of issues.

The Government's banking reform package has now passed Parliament but current consumer protections will probably be strengthened and the regulators mandated to actively enforce those laws.

Executives will be made accountable for breaches of the law with penalties ranging from loss of bonuses and incentives to dismissal.

Wealth management and financial planning will be the theme of the next round of hearings in April.
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