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Australia banks set for major shake-up from landmark inquiry
SYDNEY, Feb 3, 2019 (BSS/AFP) – A major shake-up of Australia’s massively
profitable banking sector is on the cards as a landmark inquiry into abuses
in the financial services industry releases its final report Monday.
Sweeping legislative and regulatory changes, a crackdown on the bulging
pay packets of bankers and even criminal charges against senior executives
could be among the recommendations issued by the royal commission.
Major lenders including the country’s “big four” banks — among the
developed world’s most wealthy — have been under scrutiny in recent years,
amid allegations of dodgy financial advice, life insurance and mortgage
fraud.
Some unscrupulous brokers were found charging customers long after they
were dead.
The wide-ranging inquiry was established in late 2017 to quell public
anger over their misbehaviour, and a preliminary report released in September
slammed the banks’ culture of greed.
“I think there will be some substantive changes… around strengthening
the regulators and increasing the punishments (for misbehaviour),” RMIT
University’s Warren Staples told AFP.
Australia’s conservative government has been cautious in committing to
implement the report’s recommendations in advance, while the left-leaning
opposition Labor Party said it would adopt the suggestions in full.
But with a federal election due by mid-May, the potentially explosive
findings and recommendations are broadly expected to be embraced by
legislators eager to cash in on the public’s anti-bank sentiments.
In the firing line will be the regulators, viewed as being too soft on
corporations, and standards in the home lending, financial planning,
insurance and pension sectors.
The commission’s hearings exposed poor behaviour by financial houses and
executives with rules repeatedly breached, personal gains prioritised over
clients’ interests and loans given to customers who could not repay them.
These sectors are expected to be reined in through tighter standards such
as increased penalties for misconduct and greater oversight of behaviour.
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The recommendations could go as far as banning certain types of sales
practices and removing underperforming pension funds.
– ‘Over-inflated pay’ –
Regulators the Australian Prudential Regulation Authority (APRA) and
Australian Securities and Investments Commission (ASIC) are tipped to be
given more powers to chase wrongdoers, while also being subjected to
performance reviews.
Shares in the major banks have weakened in recent days ahead of the
report’s release, but Bell Potter banking analyst TS Lim said investors had
priced in any potential bad news.
“I think it’s probably going to be a limited response… my belief is that
they will increase the fines or penalties for companies that engage in
misconduct,” Lim told AFP.
“I think there shouldn’t be too many new laws coming in.”
With the royal commission coming a decade after the global financial
crisis, where rampant misbehaviour by senior banking executives went
unchecked and mostly unpunished, Staples said the inquiry needed to go
further and clamp down on a key root cause — performance-based pay.
“These banks have been wildly profitable… and I think a lot of the
executives and staff within the banks have probably got used to over-inflated
pay,” he said.
“If we don’t tackle that issue of performance-based pay and we then go
back to rewarding staff primarily financially for their contribution to
overall profitability, then I think there’s an enormous risk that the whole
thing will fail.”
Analysts have said possible remuneration recommendations from the report
could involve regulating incentives and pay.
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