Banking royal commission: financial tsars kept in the dark before inquiry called

The Australian 6:36am March 1, 2018

Michael Roddan

Treasury did not consult any member of the Council of Financial Regulators before the Turnbull government announced a royal commission into the banking and financial services sectors.

Treasury deputy secretary John Lonsdale revealed during a Senate estimates hearing on Wednesday the department provided advice and a draft terms of reference for a potential royal commission to Scott Morrison two days before the Treasurer announced the inquiry in late November.

Mr Lonsdale said the Australian Prudential Regulation Authority, the Reserve Bank of Australia and the Australian Securities & Investments Commission were not consulted on the draft terms of reference prior to Mr Morrison’s announcement.

The Turnbull government has said the royal commission was triggered by the chief executives and chairmen of the four major banks — Commonwealth Bank, Westpac, National Australia Bank and ANZ — signing a joint letter to the government asking for it to launch an inquiry to fend off a likely private members bill from rogue Nationals MPs which looked certain to pass both houses of parliament.

In the week leading up to the announcement, Treasury held discussions with the Attorney-General’s department about content and scope of a royal commission, Mr Lonsdale said.

“After the announcement we sought comments from APRA, ASIC, and the Reserve Bank on the terms of reference,” he said.

“The Treasurer said in his press conference that he had discussions with the (RBA) governor and the chairman of APRA prior to the announcement, but that is not something that I was involved in.”

The royal commission, headed by Kenneth Hayne, kicked off earlier this month. The next hearings start on March 12, where it will examine mortgages, credit cards and car finance.

Mr Lonsale said Treasury had “spent quite a lot of time thinking about a royal commission” before the year-long inquiry was formally launched by the government last November.

“It’s been a matter of public importance for some time. It’s something on which we’ve given a great deal of advice to the government, in terms of what it might look like,” Mr Lonsdale said.

He said the financial regulators commented on the draft terms of reference which, along with arguments from peak bodies and other political parties, informed the final letters patent that were issues in December.

Mr Morrison said he held discussions with RBA governor Philip Lowe and APRA chairman Wayne Byres the night before announcing the inquiry. But ASIC, which is also a member of the Council of Financial Regulators, was left in the dark.

The government’s terms of reference for the royal commission include an examination of the “effectiveness and ability of regulators” to address financial misconduct, meaning ASIC will also be under the inquiry’s spotlight.

The terms exclude “macro-prudential policy and regulation”, which appear to exempt the RBA and APRA from the inquiry, although the regulators have complied with requests from Commissioner Hayne for information.

Finance Minister Mathias Cormann took separate questions regarding the extent to which Treasury had prepared for a royal commission into the banking and financial services sector. A 2014 Senate inquiry called for a royal commission into the Commonwealth Bank and the corporate regulator ASIC to find out how the bank’s financial planners lost millions of dollars of clients’ money.