Labor has announced it will hold a Royal Commission into the banking sector if it wins the upcoming Federal election. Here is a quck backgrounder on some key points. We'd love to hear what you think - leave a comment below!
Background:
- Labor has proposed a Royal commission into “Misconduct within the Financial Services Sector”, that will run for 2 years and cost $53 million dollars.
- It follows a string of financial scandals in the past few years, including the CBA financial planning scandal, bank rate-rigging allegations against ANZ and Westpac, and the CommInsure life insurance scandal involving claims of unethical and illegal behaviour.
- Prime Minister Malcolm Turnbull used a speech at an event celebrating Westpac’s bi-centenary to criticise the Banking sector, saying their “pattern of behaviour…could no longer be ignored” and that it “risks losing its social license if it did not clean itself up”. He also used the to speech to remind the sector that taxpayers had guaranteed the banks during the GFC, and their goodwill was not being reciprocated.
- Labor Shadow Treasurer Chris Bowen said the RC’s objectives would put several things under the spotlight, including: how widespread illegal and unethical behaviour is, how culture, ethics and business structures affect conduct, and whether regulators such as ASIC and APRA are capable (through adequate funding and legislation) of identifying and preventing illegal and unethical behaviour. The exact “terms of reference” for the commission however, were left for another day...
“Front Page Politics”:
- The proposed RC announced by Labor led to a swift political reaction from Liberal heavyweights, the PM calling it a “thought bubble”, and Treasurer Scott Morrison calling it “classical political distraction” – saying Labor was trying to distract from the Government’s proposed Australian Building and Construction Commissioner (ABCC) legislation.
- Morrison also said "I'm not saying for a second there aren't issues to be addressed – and they are being addressed when we have a tough cop on the beat (ASIC) in this area”
- Labor leader Bill Shorten, said he wanted to keep the Australian banking sector strong and that the decision was not taken lightly, but that “public confidence in the banking and financial services industry has taken hit after hit over the previous few years. Many Australians have suffered through the decisions of banks and financial institutions...There are literally tens of thousands of victims if not more and today I say enough is enough.
One should be in no doubt that there is an election coming soon, as the strong, statesman-like language above attests. Behind the scenes however, both major parties have divisions in their ranks. At least 8 coalition MP’s are open minded about the need for the RC and the Finance Sector Union has said they would want to see the terms of reference before they would be willing to support it.
The main issues for financial advisers seem to be based around any incentives offered for products they use and the institutional practice of vertical integration of the services they provide. An RC would explore further whether the arrangements around this integration,(including any sales target expectations or institutional “cultural” influences) are contributing in any way to the well-known criticisms of the wider industry. There is no doubt an RC would continue the media spot-light on the troubled sector, but many have argued that the problems are already known - thanks to the many inquiries, submissions and reports the industry has faced in the last few years.
Telling us something we don't know?
The main point of disagreement then, seems to be whether we need the “extra powers and reach” of a Royal Commission, or if there is already enough regulatory capacity in existing arrangements. The previous Labor government cut ASIC’s budget and ASIC chief Greg Medcraft said in a senate inquiry in 2014 that the further $120 million taken from its budget in the coalitions first year in office meant "staff losses and a severe curtailing of the agency’s ability to do its job."
The early consensus in media circles seems to be that with most people agreeing there are still problems that need to be addressed (shown by continuing bad behaviour), the most likely short-term outcome is the that Treasurer Morrison with will be forced to give ASIC (his “tough cop on the beat”) a funding boost in the upcoming budget. Politically, this could potentially ward off the impression that the Liberals are soft on the big-end-of-town (especially when they have implemented an $80 million Royal Commission into Trade Unions), but the practical implications of this may result in an even more aggressive “tough cop on the beat” - and more examples of financial sector malfeasance until the industry commits to changing its ways.
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Comments5
"The issue is not the banks or the ABCC, it is a strike at each of the main political parties power base. Unfortunately Financial Planners are just collateral damage."
Macca 16:47 on 15 Apr 16
"I would welcome a Royal Commission but after the damage inflicted on the retail sector of the industry by Bill Shorten introducing legislation drafted by union funds, I will not vote Labor to achieve one. The bank model of target setting for planners with incentives and penalties has led to desperate - and greedy - people acting in their own interest and we all know of the consequences which reflects badly on all of us and creates distrust in the community. All the regulation in the world will not prevent criminal activity and sadly all the recent reactive regulatory changes are not only ineffective, they impose an added layer of cost and frustration over our services which achieves nothing except driving planners from the industry and clients who need our services most into a union fund. If we are to serve the community well, we have to drive our costs down, our professionalism up and get rid of the draconian, ineffective minefield of regulation inhibiting our industry. With the expectation that a RC will lead to improvements to the framework in which we operate and include investigation into the political bias plus some of the questionable interrelationships between unions and union funds, bring it on!"
Keith L. 13:41 on 15 Apr 16
"We have had so many enquiries what will another one tell us? It is easy to spend other peoples money, ie ours as taxpayers. Perhaps once an outcome has been reached and they find one way or another, the party found wanting should pay the bill. "
Brad 13:33 on 15 Apr 16
"It's just more money down the drain from the seemingly never empty taxpayers' pockets. What's wrong with just applying the law already in place? If CBA is incapable of running a compliant financial planning business then the solution is staring you in the face. Just revoke its licence. Apply the same principle to any banking function. There would be immediate improvement in all the places where there is illegality because the crooks would be out of business. ASIC has all of the power it needs to do all of this already but obviously not the will. So a RC is just a lot of expensive hot air."
Jane 13:27 on 15 Apr 16
"If it takes a Royal Commission to put some more focus on banks' behaviour then I am all for it. Cost or no cost, more scrutiny must surely be better than less!"
Bryan 12:56 on 15 Apr 16