Banking royal commission: Hayne’s world of banking pain

The Australian 12:00am March 3, 2018

Richard Gluyas

Black humour abounds in the ­office towers of Melbourne and Sydney, as the relentless royal commission machine piloted by Ken Hayne chews into the daily routines and sleep patterns of countless lawyers and bankers.

On hearing a rival legal team had stayed back the previous night until almost 4am, a senior banker deadpans: “So you’re ­telling me they had an early night, right?”

Like a casino, the 24/7 micro-economy spawned by the financial services royal commission has its own artificial time zone where the lights are always on. Canteens operate through the night, with UberEats on standby as highly priced legal talent sweats on the arrival of another “Friday afternoon special” — a notice from the commission to electronically transmit all documents on a ­specified topic within 48 hours.

Weekend plans are quickly ­discarded as though they were never made, as teams of 100 people or more click into action. The easy part is the automated retrieval and early scanning process.

However, once human — as opposed to artificial — intelligence is introduced to make a ­detailed assessment of relevance, the minutes can quickly give way to hours, then days and sometimes weeks. The scale of the task is ­immense, and the potential for distractions is clear.

While the banks have formed separate dedicated teams, a top banker told The Weekend Australian he fears many of his best and brightest are in a bunker dealing with issues in the distant past ­instead of preparing for the disruptive challenges of the future.

There are also reports of some staff wilting and showing signs of physical stress because of the unrelenting nature of the work, exacerbated by sleep deprivation.

One of the major banks has ­already retrieved one million ­documents from its systems. The pruning process is huge, with only a fraction of that amount — in the thousands — passed on to the commission.

The document churn will inevitably surpass the rate-rigging prosecution brought by ASIC against the big four, which is possibly the most complex commercial case heard by an Australian court.

A single bank in that case ­produced almost two million ­documents. “We (the big four banks) all have five to 10 million customers and we don’t want to miss anything,” a banker says of the royal commission.

“That would be the worst ­possible thing that could happen.”

There was never any doubt that the financial services royal commission would become a lawyers’ picnic, if not a particularly enjoyable one.

The stakes are too high and the terms of reference extraordinarily broad, taking in the banking, insurance, wealth and mortgage-broking sectors that account for trillions of dollars in assets. In truth, the banks have been circling the wagons and building their legal teams ever since Bill Shorten pledged in the lead-up to the July 2016 federal poll that an incoming Labor government would call a royal commission.

While the prospect of a ­Shorten victory was remote, the banks are in the risk game and scrambled to engage their ­preferred law firms.

National Australia Bank took on Freehills; ANZ Bank went to Ashurst; Commonwealth Bank retained Clayton Utz; and Westpac chose Allens.

Nothing has changed since then, although Westpac has added Gilbert + Tobin to its team after then-Allens partner Richard Harris jumped ship to the rival Sydney firm.

The Turnbull government continued to oppose a royal ­commission. However, the banks were keenly aware of the government’s wafer-thin majority.

A royal commission was inevitable if Labor won power, but it was also a potential outcome if the government traded it for a higher political objective.

In the end, the banks grew weary of being kicked around like a political football.

Last November, the government immediately agreed to convene a royal commission after the chairs and chief executives of the big four called for a properly constituted inquiry to put an end to the uncertainty and “restore trust, respect and confidence”.

Since then, war rooms have been set up, armies created and strategies plotted, all in preparation for the first round of public hearings on consumer lending, from March 13 to March 23.

Part of the pressure on the banks and their teams is a result of the opening public hearing on February 12, where Hayne made it clear he had zero tolerance for ­dissent, even if it was limited to a rudimentary application for a deadline extension. He’s yet to be tested on a lost file or a document mistakenly overlooked. At the hearing, the commissioner castigated some large institutions for seeking more time to respond to follow-up questions raised by the commission from documents handed over in ­response to the mid-December notice.

Hayne fumed that the answers had been due the following day, on February 13, and covered only five years of conduct instead of the original 10 years.

“That a request for details of events of misconduct ... identified during the last five years cannot be met within the time sought, even though the initial request for that information was made approximately two months ago, is itself a matter to which further attention may have to be given,” he scolded. “Whether it is will be a matter for debate at a later time.”

The commissioner extended a cloak of anonymity to the banks, but it quickly became apparent only ANZ Bank had not sought an extension. It also became clear that, just as the banks had to scale up for the document churn, the commission would also have to rise to the occasion, particularly after Michael Borsky QC, one of the two counsel assisting, withdrew because of a personal matter.

Borsky was replaced by two barristers — the Brisbane silk Michael Hodge and the Melbourne commercial barrister Albert Dinelli. They’ve joined senior counsel assisting Rowena Orr, along with Eloise Dias and Mark Costello.

When The Weekend Australian asked about speculation that an external law firm would tag-team with the Australian Government Solicitor, a commission spokesman was tight-lipped. “Over the term of the inquiry, the size of the commission’s workforce will vary,” he said.

The cost of the entire royal commission exercise is anyone’s guess, but will be stupendously large. In its February half-year ­result, CBA made a $200 million provision for regulatory, compliance and remediation costs, ­including the royal commission. The estimate per bank is already in the tens of millions of dollars.

An extremely rough guide would be $200m-$250m, including the CBA’s costs.

Five years ago, the impact on the Victorian economy of the ­Australian Open tennis tournament was estimated to be $239m.

The financial services royal commission will be around the same scale. But much less fun.