Royal Commission: How the banks journeyed from institutions to selling at all costs

SuppliedKenneth Hayne

The financial services royal commission interim report explains the misconduct of the major banks as a manifestation of greed, a journey from solid institution to selling at all costs.

Commissioner Kenneth Hayne asked: Why did it happen?

“Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty,” he writes.

“How else is charging continuing advice fees to the dead to be explained? But it is necessary then to go behind the particular events and ask how and why they came about.”

The report says misconduct went unpunished or the consequences did not meet the seriousness of what had been done.

And the regulators, ASIC and APRA, who should have been keeping a rein on misbehaviour, were absent, either never taking offending institutions to court or rarely.

The banks and financial services entities started to go wrong when they recognised that they sold services and products and then selling became the focus.

“Too often it became the sole focus of attention,” says the interim report by Hayne, a former High Court judge.

“Products and services multiplied. Banks searched for their ‘share of the customer’s wallet’. From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales.”

The establishment of the royal commission had an impact even before it started.

The public brought an avalanche of information. More than 8646 online forms were submitted, alongside more than 5,500 emails and 3,200 telephone calls to the Office of the Royal Commission.

And as the Commission went on with its work, banks and insurance companies, and regulators started work as well.

“More than once, the Commission’s announcement of its intention to hold public hearings into particular kinds of conduct was followed soon after by an entity announcing some change in its products, processes or procedures or by an entity and a regulator announcing that some agreement had been made about the regulatory response to some past conduct,” the report says.

A few days before the Commission was to hear evidence about CBA’s conduct in connection with the sale of add-on insurances, including consumer credit insurance, Australia’s largest bank announced that it would no longer offer those products and would implement a refund program for those who had been sold unsuitable consumer credit insurance.

And shortly before the Commission was to embark on its hearings about financial advisers charging clients for ongoing services that had not been provided, ASIC reached agreement, first with ANZ and then with CBA, for enforceable undertakings as a consequence of the conduct.

A further round of public hearings is scheduled before a final report, which will make recommendations, including changes in law processes.

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