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Ken Hayne banking royal commission’s ‘massive dragnet’
The Australian 12:00am December 21, 2017
Richard Gluyas
Royal commissioner Ken Hayne has cast a “massive dragnet” over the financial services industry, asking banks, insurance companies and superannuation funds to report all misconduct cases and behaviour falling short of community expectations since 2008.
In the first serious move by Mr Hayne since the commission was formally established on December 14, the notice also targets industry super funds by asking them to justify expenditure unrelated to the fund’s administration or payment of member benefits.
A senior banker described the request as “a massive, 10-year dragnet”.
“Everyone’s going to set the bar very low for pre-disclosure because they’ll want to avoid a future situation where the royal commissioner’s all over them like a rash for holding back information from the outset,” he said. [Yeah, right—or more likely because they want Hayne snowed under, in hopes he’ll miss the relevant data. –RJB]
Mr Hayne asked the companies to provide their “comprehensive” responses of no more than 50 pages by January 29 next year.
The Turnbull government backflipped late last month on its previous opposition to a financial services royal commission after the chairs and chief executives of the four major banks said an inquiry was needed to restore trust and stability in the sector.
Under the terms of reference, Mr Hayne, a former High Court judge, will examine allegations of misconduct or conduct that falls short of community expectations by banks, insurers, super trustees, holders of Australian financial services licences and intermediaries such as mortgage brokers.
The commission will probe any expenditure of retirement savings by super funds that is not in the best interests of members.
The trade union-affiliated industry super fund sector has long been in the government’s crosshairs, particularly with calls for more independent boards and greater transparency over expenses, such as the recent advertising campaign that depicts banks as foxes in a henhouse.
Prudential regulator APRA has also flagged a consultation paper that proposes greater oversight of fund expenditure.
APRA deputy chairwoman Helen Rowell said in a speech late last month that the paper would provide more details on proposed enhancements to the prudential requirements for strategic and business planning and fund expenditure.
“They are designed to reflect the better practices we have observed across the industry, and so should supplement, rather than disrupt, the practices of trustees who already run their business operations well,” Ms Rowell said.
Industry Super Australia chief executive David Whiteley said yesterday it was important to separate the government’s political agenda from the royal commission.
“Industry super funds will assist the royal commission in any way they request,” Mr Whiteley said.
“We have nothing to hide.”
Apart from the specific request to the super sector, Mr Hayne also asked financial services companies for information about any misconduct since January 1, 2008, or any “conduct, behaviour, practice or business activity” falling short of community expectations.
He wanted to know if the companies were subject to any current investigations, or criminal or civil proceedings, and if this was attributable to some broader cultural or governance practices in the industry.
Finally, Mr Hayne asked for detail about any remedial steps taken, or measures that had been implemented to prevent a recurrence.
Separately, the revised banking code of practice presented to ASIC on Tuesday for approval received a mixed review yesterday from the Australian Small Business and Family Enterprise Ombudsman Kate Carnell.
The code promises greater transparency in transaction fees, small-business contracts written in plain English, and banks will have to give at least 30 days’ notice to change loan conditions and three months’ notice before a loan facility can be withdrawn.
Customers will also be able to cancel credit cards online, and banks will no longer be able to send unsolicited letters offering to increase a customer’s credit limits.
Ms Carnell welcomed some of the initiatives for small business, but said there were unresolved issues with dispute resolution and the power imbalance between the banks and their customers, and expressed concern that the code could not be enforced by a proposed banking code compliance committee.
“The committee will not be fully independent and banks won’t be obliged to accept its recommendations,” Ms Carnell said.
“The code stipulates only that banks will comply with ‘reasonable’ requests of the committee.
“This means effectively that banks will only act on recommendations if they feel like it.
“If they don’t think the committee is reasonable they have an escape clause — it’s like the umpire is appointed by the home team and they don’t have to accept the umpire’s decision.”
While she welcomed the inclusion of a specific section for small business, Ms Carnell said she was concerned that banks could still act unilaterally to change the conditions of a loan if there were “material adverse changes”.
Such changes could include government policy, commodity markets or weather conditions.
“Changes to market conditions are often outside the control of the borrower and should not be used to penalise a small business if they continue to make all their payments,” the ombudsman said.
“The code says a bank won’t default a loan because of a materially adverse change, but they retain the power to change a loan’s terms and conditions.
“We understood the big four banks had individually agreed to remove those clauses so their inclusion in the code is perplexing.”