- In November 2017, the Turnbull Government announced the establishment of a Royal Commission into the alleged misconduct of Australia’s banking, superannuation and financial services industry.
- The announcement came after internal Government pressure and a letter from the big four Australian banks to Federal Treasurer Scott Morrison calling for the Commission to restore public faith in the banking sector, noting that it is imperative to “deliver certainty to Australia’s financial services sector, our customers and the community”.
- The official inquiry began on February 12, 2018 under the direction of Commissioner the Hon Kenneth Madison Hayne AC QC. The Royal Commission has 12 months to complete its inquiries, with a final report expected to be delivered by February 1, 2019.
- In general, the Royal Commission will be investigating misleading and deceptive behaviour in the industry and any conduct that “falls below community standards and expectations” and can make recommendations for the Government to consider such as criminal prosecutions and changes to laws and regulations.
- The Royal Commission’s initial public hearing was held on February 12, 2018. The second round of public hearings commenced on March 13, 2018 and is focused on consumer credit lending products including car loans, home loans, credit cards, credit offers such as pre-approved overdrafts, and add-ons such as loan insurance.
- The Australian Government and financial services entities have emphasised that the Royal Commission will not undermine the strength of the institutions under review nor will it question the “robust nature of [the] prudential system”, rather it will ensure “a strong, well-regulated and well-governed banking system in the interest of all Australians”.
- As of March 9, 2018, 1,894 submissions have been received from the public for consideration by the Commission. The majority of submissions cover personal finance, superannuation and small business finance.
- One key point of contention is the documentation provided by the institutions under scrutiny. Though the Royal Commission can ask institutions to provide as much or as little detail as required, it is up to the institutions as to whether and when they comply with the requests.
Future Outlook with insights from Chamber Member Encompass:
- The outcome of the Royal Commission is critically important to the stability, profitability and reputation of the Australian financial services sector, especially on the global stage.
- The level of trust between consumers and traditional financial institutions is at an all-time low, and there is already evidence that alternative financial services are reaping the benefits as consumers seek out different options, including community-based or fintech offerings. Unless trust is re-established, this trend will continue, placing increased pressure on traditional providers.
- To ensure continued competitiveness, financial institutions should consider using the Commission as an opportunity to proactively review their governance practices and culture of compliance, as well as the effectiveness of the systems they have in place to oversee these.
- The Commission seeks to establish the effectiveness and ability of regulators to identify and address misconduct, and to this end, we expect to see increased global cooperation between Australian regulators and law enforcement and their international counterparts as well as improved information sharing.
- Regulators may be given enhanced powers, and the size and severity of penalties for breaches and non-compliance may be substantially increased to ensure they are a true deterrent.
- The close ties between Australia and the UK may indicate that the Australian government will look to align its own laws more closely to the UK’s existing financial regulatory system.
- The opportunity exists for Australia’s big four banks to play a central role in transforming the country’s financial services sector, leading by example to put in place the governance, risk and compliance framework to restore consumer trust, and enhance overall customer experience.
Presented in partnership with