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Financial royal commission flags some big changes
The Australian 12:00am March 24, 2018
Ben Butler
After just two weeks of hearings, the royal commission into financial services has flagged fundamental changes to the way the industry operates, including a ban on paying commissions to brokers and other third parties and an overhaul of a culture that puts making sales before looking after customers.
Delivering an address closing a first round of public hearings yesterday in Melbourne, counsel assisting the commission, Rowena Orr QC, made dozens of allegations of misconduct, including misleading, deceptive and unconscionable conduct, against the big banks.
She and commissioner Kenneth Hayne QC found it was open to the commission to make findings of misleading, deceptive or unconscionable conduct against National Australia Bank, the Commonwealth Bank and its subsidiary Aussie Home Loans.
Ms Orr said that based on evidence before the commission over the past two weeks it was open to find NAB, CBA and Aussie, and ANZ had all committed misconduct in relation to consumer credit.
And she identified scores more issues where bank conduct fell below community expectations.
Over the past two weeks, the commission has heard evidence about fraud and a bribery ring involving NAB bank managers and home loan introducers in Western Sydney; about Aussie’s complete inability to detect document forgery by four brokers who were later convicted of fraud; car dealers being allowed by ANZ and Westpac to set their own finance commissions; and, yesterday, about Westpac’s refusal to bow to the corporate regulator by making inquiries about whether customers could afford a credit card increase before offering them one.
The portrait painted so far has been extremely unflattering to an industry that is already on the nose with the public.
And the commission’s team of lawyers is still receiving more information.
Just yesterday morning, CBA, which Ms Orr slammed for its unhelpful submissions when opening hearings a fortnight ago, provided the commission with a flood of new material that identified an additional 41 “significant events” and 469 events the bank claims are “low rated”.
The commission is set to run until next February, with an interim report due in September.
Its tight timescale, which has already prompted talk among onlookers that the inquiry is likely to be extended, yesterday meant Ms Orr did not have time to read out parts of her closing address dealing with issues including car finance at ANZ and Westpac and account-keeping errors at ANZ and CBA.
Ms Orr repeatedly questioned whether the banks were dealing with their customers “efficiently, honestly and fairly”, as required by both credit and financial services laws.
Of the banks dealt with in the first round of hearings, Ms Orr hit CBA, including its subsidiary Aussie, with the highest number of misconduct flags — 20.
ANZ, which featured in four separate case studies, earned 17 while NAB had the highest number from a single case — a dozen.
Ms Orr invited submissions on the issues raised in the first round of hearings from the banks and regulators the Australian Securities & Investments Commission and the Australian Prudential Regulation Authority.
She said NAB’s behaviour towards customers over the bribery ring, and its dealing with dubious loan introducers who included a gym owner and a tailor, raised the question of whether bank bonus schemes encouraged employees to “prioritise the sales of loan products over first the bank’s responsible lending obligations”.
The case also raised the question of whether introducer programs create an “unacceptable risk” that banks will breach their responsible lending obligations and their obligation not to mislead, deceive or act unconscionably towards borrowers.
Ms Orr said upfront and trailing commissions paid to mortgage brokers by CBA and other banks created a conflict of interest, and slammed the bank for failing to tell customers how much they would be paying brokers.
She asked: “Should upfront and trailing commissions be replaced with an upfront flat fee payment?”
Turning to Aussie, which evidence during the commission revealed had failed a CBA risk audit as recently as December, Ms Orr said it was “open to the commissioner to find that the misconduct arose not merely because of rogue conduct by individual brokers but because the systems, processes and culture at Aussie Home Loans permitted such misconduct to occur”.
“The remuneration of Aussie Home Loans brokers was tied directly to the number and size of home loans introduced by the broker,” she said.
The commission’s next public hearings begin on April 16 and are to deal with the scandal-prone financial planning sector.