Malcolm Turnbull will hold a Royal Commission into Australia’s banking system in a major policy backflip by the government.
The Prime Minister said Cabinet signed off on the plan on Thursday morning. It comes just hours after the CEOs and chairmen of the big 4 banks wrote to the PM and treasurer calling for an inquiry.
Turnbull said it will investigate misconduct in the financial services sector, including the insurance industry, wealth managers, and superannuation companies. It will not award compensation for any wrongdoing.
The royal commission is expected to cost around $75 million and will be chaired by a yet to be appointed judicial officer and finalise its report by February 2019.
“This is not going to put capitalism on trial,” Turnbull said.
The Prime Minister said he called a royal commission because he had to stop banks and the financial services sector “being used as a political football”.
“It’s moving into dangerous territory where some of the proposals being put forward have the potential, seriously, to damage some of our most important institutions,” he said.
“The only way we can give all Australians a greater degree of assurance is a royal commission into misconduct into the financial services industry. Only the government can ensure that a royal commission is created, established with respected and capable commissioners.”
Turnbull said the terms of reference “will ensure a responsible but comprehensive investigation into how financial institutions have dealt with cases of misconduct in the past, and whether those examples expose issues in terms of the cultural and governance issues in terms of the regulation and supervision of the industry”.
He said the establishing a royal commission will end the uncertainty and speculation and protect the integrity of our banks.
The decision is a major policy reversal for the government, which was facing pressure from the backbench for a parliamentary inquiry into the banks as some Coalition backbenchers threatened to cross the floor and side with Labor.
As recently as last week, before cancelling this week’s sitting of the House of Representatives, Turnbull continued to dismiss calls for a royal commission.
Today, with the government still lacking a clear majority in the lower house, he appeared to acknowledge his own party’s internal ructions changed the Coalition’s position.
“Obviously, there’s been a lot of changes in the political environment here,” he said.
“We’ve had, we got two by-elections under way, the numbers are down in the House of Representatives, there is, you know, you all understand the political circumstances and what we, our job is to manage these issues and lead on these issues in a way that protects the national economic interest of Australia and all Australians.”
The Prime Minister said he did not “relish this decision” but needed to act “in the national interest”.
Treasurer Scott Morrison called the decision “a regrettable but necessary action” and said APRA, the RBA governor and Treasury hold the same view, that it was required because of the current political climate.
“Politics is doing damage to our banking and financial system, and we are taking control as a government to protect the strength of our banking system through a properly constituted inquiry on these terms of reference, rather than the alternatives present in other commission of inquiry proposals, subject to the vagaries of politics that would do harm and already has to date,” he said.