The Royal Commission – What You Need To Know
What is the royal commission?
The banking royal commission was established in late December, after years of public pressure from whistleblowers, consumer groups, the Greens, Labor, and some Nationals MPs.
Its first public hearings began on 13 March, and they will run at irregular intervals through 2018.
The royal commission has been asked to investigate whether any of Australia’s financial services entities have engaged in misconduct, and if criminal or other legal proceedings should be referred to the commonwealth.
Here is the link for audio with me on 3aw on the 18th of April 2018.
What have we found out so far?
We’ve heard evidence of appalling behaviour by Australia’s major banks and financial planners from the past decade, including alleged bribery, forged documents, repeated failure to verify customers’ living expenses before lending them money, and misselling insurance to people who can’t afford it.
In last week’s hearings, AMP admitted to lying to regulators, and the Commonwealth Bank admitted some of its financial planners have been charging fees to clients who have died.
AMP’s chief executive became the first high profile casualty of the commission announcing he was standing down from the company with immediate effect.
Which banks are involved ?
The so-called big four banks – Commonwealth Bank, Westpac, ANZ, National Australia Bank – are being looked at. They comprise four of the five largest companies in Australia by market value, holding an inordinate amount of power over the financial system.
Other companies including AMP, BT Financial, Aussie Home Loans and St George, and a number of small car finance companies will also be called, and more financial institutions will be asked to appear as the year rolls on.
What is the problem with their financial advice?
The banks discovered long ago it was highly profitable to sell their customers financial advice and financial products. If they could charge customers for financial advice, and if that “advice” consisted of purchasing their financial products, then they would enjoy a profitable feedback loop. The business model was called “vertical integration”.
Earlier this year, the corporate regulator published a report scrutinising the practice: “Vertically integrated institutions and conflicts of interest.”
It concluded there was an “inherent” conflict of interest arising from banks providing personal financial advice to retail clients while also selling them financial products.
Or in my opinion advisers not operating in clients ‘best interest’.
How has this affected customers?
It’s not just poor financial advice that’s affected bank customers. The poor advice has combined with reprehensible behaviour by bank employees.
What is the reaction so far to the royal commission?
The Turnbull government realised this week how bad the situation is.
After AMP executive Anthony Regan admitted that AMP had lied repeatedly to the corporate regulator, the treasurer, Scott Morrison, warned wrongdoers could face jail. “That’s how serious these things are,” he said this week.
The former Nationals leader Barnaby Joyce admitted he was personally wrong to have argued against a royal commission.
The Nationals senator John Williams said he was concerned the inquiry had been given too little time to unearth wrongdoing, and if it needed an extension of time it should be given it. The finance minister, Mathias Cormann, made a similar argument.
But the government has also tried to take credit for the royal commission, saying it established it, and if it wasn’t for the government the terms of reference wouldn’t be so robust.
But wasn’t it the Liberals and Nationals who were so opposed to the commission?
Yes. The Coalition had to be dragged kicking and screaming to establish the royal commission.
For years, they rejected calls by the Greens and Labor to establish the commission, and when Malcolm Turnbull finally relented in November he presented the backdown as a “regrettable but necessary” step to deal with mounting political pressure and uncertainty for the industry.
So what happens next?
The royal commission will run through the rest of this year. An interim report is due in September, and a final report is due in February 2019.
But there’s a lot of time between now and then. It may have its time extended. It may have its terms of reference changed. It depends on the politics.
Source:The Financial Standard, The Guardian, Money Management, The Age