Why we don’t need a royal commission into banks

By Steven Munchenberg, Chief Executive, Australian Bankers' Association

An edited version was published in the Sydney Morning Herald, 9 August 2016

Labor did not win the Federal election, but continues its demands for a royal commission into banks. They know it is a popular call. Most Australians, if asked, “would you like to give the big banks a bash?”, will say, “yeah, sure!”

But what does Labor actually want to achieve with a royal commission? What is the problem it is supposed to fix?

During the election campaign, the Leader of the Opposition was asked repeatedly what particular issues a royal commission would look at. He gave various answers, but in one radio interview he did give a clear answer, setting out what he saw as the priorities for a royal commission.

Mr Shorten said that more needs to be done to protect whistleblowers, people with the courage to call out poor behaviour in the banks when they see it. The banking industry agrees. That’s why we’ve promised to implement the highest standards of whistleblower protections across the industry, making sure whistleblowers get independent support and are protected from financial disadvantage.

He questioned whether the way bank staff are paid – particularly in ‘vertically integrated’ banks that offer a wide range of products and services – encourages them to sell products to customers that the customers don’t need. The banking industry agrees that this needs to be look at. That’s why a former Australian Public Service Commissioner, who used to oversee how government employees get paid, is conducting an independent review of payments and commissions to bank staff and to third parties, like mortgage brokers. The industry has promised to remove or change any payments that could lead to poor customer outcomes.

Labor says we need a royal commission to look at a last resort compensation scheme. This is to make sure people who have been given bad financial advice can get their money back, even if their adviser has gone broke or disappeared. The banking industry agrees. That’s why we support such a scheme and are already working on getting one put in place. Banks are also working to make sure they have good systems in place, covering all types of financial products and all financial advice, so that, if the bank hasn’t done the right thing, customers can be compensated.

Labor has raised valid issues, and we are taking action now. But we are also going beyond the issues identified by the Leader of the Opposition. Banks have promised to appoint a customer advocate for retail and small business customers to make sure any complaints are dealt with promptly. If customers aren’t satisfied with the way a bank has handled a complaint, they can go to the Financial Ombudsman Service. Banks also want to see access to the Ombudsman expanded, so more customers can get an independent hearing and ruling on their complaints.

We’re also setting up an industry register to record any bank employee who breaches the law or a code of conduct. This will make sure people who fail to live up to expected standards of conduct don’t just keep moving from job to job within the industry.

An independent review of the Code of Banking Practice, which sets standards of good conduct for banks, is also underway.

These are real actions by the banks. But why should Australians have confidence that we’ll actually do these things? That’s a fair question, and that’s why a former Australian Auditor-General is responsible for making sure the banks are delivering. An independent quarterly report will show whether we’re living up to our promises. The first report was published in July.

The corporate regulator, the Australian Investments and Securities Commission, will also be keeping a closer watch on the banks. The Government has made the banks pay an additional $121 million to ASIC to boost its regulation of the banks and industry.

ASIC has much greater powers than any royal commission, which can only ask questions and write a report. And ASIC has shown it is not afraid to use those powers.

Labor has claimed that the allegations of ‘rate rigging’ against the banks are a further reason for a royal commission. But ASIC has already taken the banks to court on these allegations. The banks reject these claims and will defend them, so this matter will be settled by Australian courts, as they should be, not by Labor’s royal commission.

There have been problems in the banking industry. We accept that. Our answer is to fix these things now, so customers can trust their banks and have confidence that their bank is doing the right thing by them. Labor’s answer is a royal commission that produces yet another report.

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