Royal Commission: The simple reason behind the failure of culture at the banks

Photo; Cameron Spencer/ Getty Images.
  • The financial services royal commission says the misconduct by the banks was driven by money.
  • Executives were paid more and companies were rewarded with greater profit
  • And claims by the banks that they have changed remuneration policies will need to be carefully looked at.

A telling observation by the interim report of the financial services royal commission is that the bad behaviour of the banks was driven by one thing — money.

Behind the culture of the banks was cash in the form of bigger bonuses for executives and greater profits for the organisation, which flowed to shareholders in the form of profits.

“All the conduct identified and criticised in this report was conduct that provided a financial benefit to the individuals and entities concerned,” writes royal commissioner Kenneth Hayne.

“If there are exceptions, they are immaterial. For individuals, the conduct resulted in being paid more. For entities, the conduct resulted in greater profit.”

Employees of banks learned to treat sales — revenue and profit — as the measure of their success.

Commissioner Hayne calls it greed. “The pursuit of short term profit at the expense of basic standards of honesty,” he says.

The royal commission says this resulted in misconduct over four areas:

  • Taking a customer’s money when not entitled to take it (such as by charging a fee for service when no service was given.
  • Preferring personal financial interest over the customer’s interest when obliged to act in the customer’s best interests.
  • Misleading or deceiving the customer.
  • Breaking some specific requirement of the law such as the consumer lending provisions of the National Consumer Credit Protection Act.

Dishonesty and greed became a theme during the royal commission hearings, the report says.

“The banks say that they have changed or are changing their remuneration policies and it will be necessary to look carefully at those claims,” says the report.

“But almost every piece of conduct identified and criticised in this report can be connected directly to the relevant actor gaining some monetary benefit from engaging in the conduct.

“And every piece of conduct that has been contrary to law is a case where the existing governance structures and practices of the entity and its risk management practices have not prevented that unlawful conduct.”

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