Australia’s royal commission into the financial sector will be welcome news to many consumers who feel like pawns in the booming business of the big four banks – but a superannuation CEO says people should ‘be careful what you wish for.’
Prime Minister Malcolm Turnbull announced the $75 million commission into misconduct in the nation’s financial sector on Thursday.
The decision has been met with applause from large parts of the Australian public after countless cases of fraud, poor advice and over charging of ATM and bank fees.
However Martin Fahy, the CEO of the Australian Superannuation Association, says people need to be wary of the ‘unintended consequences’ a royal commission will bring.
‘As an Irish person I know you may not like profitable banks, but you’ll like unprofitable banks even less,’ he told Daily Mail Australia.
Prime Minister Malcolm Turnbull has announced a $75 million royal commission into misconduct in the nation’s financial sector
The decision has been with applause from large parts of the Australian public after cases of fraud, poor advice and over charging of ATM and bank fees
Speculation of a royal commission within the political sphere combined with growing distrust from the Australian public led to the big four banks requesting the commission from the PM.
A reported combined profit for the big four exceeding $31 billion, despite the increasingly risky state of the housing market, has seen consumer faith wane.
The royal commission will serve to identify lingering issues and clean up the sector which has been rocked by scandal over the past five years.
In November, NAB fired 20 employees over loan fraud, which placed the mortgages of more than 2,000 Australians in jeopardy.
The Australian Securities and Investment Commission revealed in May that 300,000 customers had been ripped off a total of $205 million for bank fees for advice they were never given, including the big four banks.
As many as 8,500 ANZ clients were refunded a total of $30 million after they failed to receive any services from its financial planning business Prime Access, despite paying for the system.
Perth resident Rob Skerratt feels he is one such victim of mismanagement from a big four bank, blaming Westpac for the potential loss of $200,000 in poor housing investments.
Mr Skerrat, who was on worker’s compensation at the time of buying investment properties in Melbourne and Tasmania eight years ago, received bad advice from Queensland property spruikers.
He says he received loans from Westpac through a mortgage broker who failed to disclose his current income, instead was given the funds based on his tax office notice of assessment from the year before.
‘We’ve already borrowed from family, from friends. Sold assets just trying to keep this, our family home,’ Mr and Mrs Skerrat told the West Australian.
‘Westpac are the enablers here.’
However, Mr Fahy says the growing sentiment that the banks are the enemy is dangerous, saying strong banks is hugely important for Australia as a national and international business
In September the big four banks announced they were scrapping ATM fees, meaning customers could use competition dispensers without being charged a transaction fee.
That decision created concerns other charges could be hiked and systems may be shut or cut, with Treasurer Scott Morrison echoing those fears.
‘I don’t know why they’d want to withdraw services to customers because I think their customers would respond appropriately to that,’ he told ABC Radio.
Australians reportedly spent $500 million in ATM fees in the past year alone.
Mr Morrison has asked parliament to approve new laws allowing authorities to cap executive salaries, delays bonuses and remove directors if they are found guilty of wrongdoing.
‘Australians want us to do something now,’ he said.
However, Mr Fahy says the growing sentiment that the banks are the enemy is dangerous, saying strong banks is hugely important for Australia as a national and international business.
‘We need to be careful we don’t embrace the populist narrative. We have a very well regulated system, recognised around the globe,’ he told Daily Mail Australia.
‘Yes it’s profitable, but it needs to be strong. If we send message after message after message we’ve got problems with the banking system, offshore capital will wonder what is going on.
‘Governments around the world have bailed out banks, people have lost their houses. Australian banks have survived two GSTs and didn’t have to bail anyone out.’
Prime Minister Malcolm Turnbull has announced a royal commission into misconduct in the nation’s financial sector
Australia’s four big banks (Westpac, Commonwealth, NAB and ANZ) called on the federal government to set up the inquiry
Commonwealth Bank have particularly come under the microscope of the Australian government, who accused the bank of widespread breaches of money-laundering and counter-terrorism financing rules, according to reports in August.
Financial intelligence agency AUSTRAC said it had initiated civil penalty proceedings in the Federal Court against CommBank for ‘serious and systemic non-compliance’, in the biggest case of its kind in Australia and the first against a major bank.
‘The effect of CommBank’s conduct in this matter has exposed the Australian community to serious and ongoing financial crime’, AUSTRAC said in a court filing.
Australia’s biggest mortgage lender failed to report suspicious matters ‘either on time or at all involving transactions totalling over A$77 million ($61 million)’, AUSTRAC said.
The agency alleged 53,700 contraventions of the anti-money laundering and counter-terrorism financing Act, particularly with regards to so-called intelligent deposit machines, or IDMs.
The banks (NAB and Commonwealth pictured) have since last year fought off calls for a royal commission in the face of mounting political pressure
The banks have since last year fought off calls for a royal commission in the face of mounting pressure on the coalition government from Labor and Nationals MPs.
Now, the bank chiefs agree an inquiry is needed to restore public trust and confidence after taking in a collective net profit of almost 30 billion this year.
The inquiry will be run by a former or serving judicial officer for 12 months, reporting back to the federal government by February 2019, Mr Turnbull said on Thursday.
The terms of reference will ensure a comprehensive investigation into how financial institutions have dealt with cases of misconduct in the past, and whether those examples expose issues of cultural and governance issues, Mr Turnbull said.
But the big banks want the inquiry widened to cover the insurance and superannuation sectors and foreign banks.
‘It is now in the national interest for the political uncertainty to end,’ they wrote in the email dated November 30.
‘It is hurting confidence in our financial services system, including in offshore markets, and has diminished trust and respect for our sector and people.’
The bank chiefs agreed an inquiry was needed to restore public trust and confidence
The bosses acknowledged that while their banks hadn’t always ‘got it right and have made mistakes’, they had since 2014 taken steps to improve what they do.
A strong, well-regulated banking system was in the interests of all Australians, they added. The stability of Australia’s banks was key to the nation being spared the worst of the economic ramifications of the 2008-2009 global financial crisis.
‘We now ask you and the government to act to ensure a properly constituted inquiry into the financial services sector is established to put an end to the uncertainty and restore trust, respect and confidence,’ they said.
The CEOs want the inquiry to be run by an eminent and respected ex-judicial officer.
The terms of reference should be ‘thoughtfully drafted and free of political influence’.
And they want its scope to cover core community concerns including banking, insurance, superannuation and non-Australian deposit-taking financial institutions.