Why we need a Royal Commission into banking and financial services
Max Atkinson
11.05.16 4:23 pm
There is now a heated debate over the need for a royal commission into banking and financial services, with the government continuing to defend its controversial inquiry into trade union corruption while rejecting moves by Labor and the Greens, backed by two-thirds of voters, for a comprehensive look into the murky world of money-lenders.
Just how compelling their case is was revealed on 29th April by The Guardian, which listed fifty-seven major Australian banking scandals since March 2009, most involving serious fraud or gross mistreatment of their own clients. ( Timeline: banking scandals in Australia since 2009 ) This is a sample:
• In March and April 2016 ASIC began legal proceedings in the Federal Court against the ANZ and Westpac respectively for ‘unconscionable conduct and market manipulation’ in setting the bank bill swap reference rate (BBSW) during the period 2010 to 2012.
• On April 15, 2015 Adele Ferguson wrote in the Age that NAB needed to investigate the bank’s culture after its British banks were fined a record $38.8 million for falsifying records and “inappropriate policies” to short-change purchasers of bank products. This followed an earlier damning parliamentary report into the mis-selling of ‘tailored business loans’.
• In September 2012 ASIC announced its actions had forced the CBA to pay $136 million to customers for losses suffered on investments through Storm Financial. This was in addition to the $132 million CBA had paid out under its Resolution Scheme.
They also include the revelation that CommInsure, the Commonwealth Bank’s insurance arm, used unscrupulous practices to avoid claims, relying on an outdated definition of a heart attack to deny recovery for trauma. Its former Chief Medical Officer has revealed that doctors were pressured to rewrite medical opinions to avoid payouts.
The flaws in the government’s case
While the government argues that these problems can be dealt with by ASIC- which it has recently ‘beefed up’ with more power and resources - Labor and the Greens insist on a royal commission. Their concerns were highlighted by the ABC’s Four Corners, which aired stories of sick and dying CommInsure policy holders.
The problem with the government’s case is that ASIC, which in 1991 replaced the separate state corporate regulators, was set up to “enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors”. It seeks to enforce the law by gathering evidence from witnesses, including those close to perpetrators. This requires confidentiality and perhaps covert operations; it has to protect witnesses and prevent suspects destroying evidence. The primary aim is to investigate criminal behaviour and enforce the law.
By contrast a royal commission is a comprehensive public inquiry to determine whether, after hearing submissions from concerned members of the public, there is a major social problem which has not been responsive to the ordinary processes of government, including its regulatory and policing agencies. It may call for ‘beefing up’ the latter, but it may also find that the law itself needs updating, perhaps with new crimes and harsher penalties.
The ambit of the commission is wider still - it may reveal that public attitudes, perhaps based on ignorance or prejudice, are in part responsible, so that educational programs are needed. It now seems clear that ignorance of the extent of abuse and the nature of victimisation have been major factors in the incidence of violence against women, and that this requires a better understanding of the role of psychological and financial dependence, as well as the need for protection at short notice. Likewise the royal commission into sexual abuse of children has revealed the full extent of criminal behaviour, as well as the terrible consequences, with drug addiction, depression, crime, suicide and shattered lives.
It also brought out something which is still hard for most people to come to terms with - a seeming indifference to suffering on the part of those in charge - who include distinguished and often high-ranking members of the clergy. The evidence suggests they were driven by a concern to protect the reputation of the institution, be it a public service or a religious organisation.
The Fitzgerald commission into corruption in Queensland, set up by the deputy premier when Bjelke-Peterson was out of the state, was not a royal commission, but exemplifies the kind of systemic problem which calls for a comprehensive response, with a commissioner having the moral authority to ensure adequate terms of reference (Fitzgerald twice had to get extensions) and witnesses protected from threat of law suits. The corruption permeated the police and reached to the cabinet, with the premier charged with perjury and ultimately sacked by his own party.
By contrast, the royal commission into trade unions was always questionable, and difficult to justify on public interest grounds. The evidence pointed not to a corrupt system, but a failure to enforce the law, in part due to the silence of construction companies which paid bribes. The solution was reasonably obvious from the outset - to beef up police resources in order to gather evidence and secure convictions. It was the kind of illegality a special task force - perhaps backed by powers similar to those used by ICAC, the NSW anti- corruption body - should have dealt with.
Why banking and financial services need investigation
The need for a royal commission into banking and financial services is different. It arises not from a failure to enforce the law or corrupt officials but a reluctance to address important questions about the kind of society we wish to live in. It rests on a concern, based on an abundance of evidence, that these institutions engage in practices which, while not demonstrably illegal, are unfair and dishonest, in ways which cause irreparable harm. They also undermine public confidence in the institutions themselves.
This calls for a comprehensive inquiry so the public can have a better understanding of how these banking and financial services work and who benefits and who loses. We will then be in a position to judge whether laws are needed to bring them into line with ordinary, everyday standards of fairness and honesty.
We had another reminder of why this is needed in a Lateline report for 21st April. The program recounts the story of Michael and Kaye Downer, a retired couple who were pressured by Westpac to borrow far more money than they could afford, and suffered financial disaster when he was retrenched. There was also evidence that bank staff had forged signatures and falsified incomes, no doubt ‘incentivised’ to earn bonus points and salary increases. Despite compelling evidence of the extent of this abuse of financial power there is a growing sense that the Prime Minister is incapable of taking a leadership role in a debate about the ethical regulation of business and the need to change the culture of the market to avoid going down the American path, which begins with what critics call the ‘revolving door’ and ends with the wholesale capture of regulatory agencies by big business.
Too many lawyers and company directors seem to think legal maxims like caveat emptor are moral principles, which makes no sense when one considers the huge difference in bargaining power and business sophistication which separates Westpac from the Downer family. No one doubts Turnbull’s ability to win a difficult case for a worthy cause, as he did against the British establishment in the ‘Spy Catcher’ trial - a case the Sydney bar said was unwinnable. But it is a big ask to expect serious structural reform of banking and financial services from someone who has benefitted so much from a career spent with media barons and private banks.
However that may be, and regardless of promises to create a ‘first world, high wage, social welfare economy’, he has from the beginning been captive to conservative party forces. It now seems clear there was never a prospect he would have the numbers to bring in progressive liberals - men and women who believe the party can and should stand for fairness and human dignity as well as ideals of freedom and personal responsibility. This is, of course, a matter of opinion, but his implausible claim that ASIC can do the job, when there is overwhelming evidence that what is needed is an open public debate about the entrepreneurial freedom to exploit the likes of Michael and Kaye Downer, suggests he may be unwilling, as well as unable, to bring about any major social reform.
Max Atkinson is a former teacher at the University of Tasmania Law School with interests in jurisprudence, political theory and moral philosophy.
- See more at: http://tasmaniantimes.com/index.php/article/why-we-need-a-royal-commission-into-banking-and-financial-services#sthash.mMhq63kJ.dpuf
Timeline: banking scandals in Australia since 2009
Labor and the Greens are pushing for a banking royal commission, while the Coalition has promised to increase funding to Asic, the corporate, markets and financial services regulator, previously cut by the Abbott government. Here, we’ve collated some of the scandals in the banking and financial sector over the past seven years
Friday 29 April 2016
- Wednesday 6 April 2016
Former ANZ planner jailed for stealing almost $1m
Financial advice
A former ANZ planner was jailed for more than six years (between April 2009 and December 2015) for stealing almost $1m from an elderly client to feed a gambling debt. ANZ promised to reimburse the victim. An appeal can be lodged.
- Tuesday 5 April 2016
Westpac subsidiary paid penalties of $493,000 after breaching consumer protections
Banking
A subsidiary of Westpac Banking Corporation, paid penalties totalling $493,000 after Asic found it breached important consumer protection provisions relating to the repossession of motor vehicles, including failing to provide customers with default notices prior to commencing enforcement proceedings to repossess mortgaged vehicles; and failing to provide customers with legally required information setting out their rights within the required time frame after it repossessed mortgaged vehicles.
Asic
- Tuesday 5 April 2016
Asic sued Westpac over alleged market manipulation in setting bank bill swap rate
Trading
Asic started legal proceedings in the federal court in Melbourne against Westpac for unconscionable conduct and market manipulation in relation to Westpac's involvement in setting the bank bill swap reference rate in the period 6 April 2010 and 6 June 2012. It is alleged that Westpac traded in a manner intended to create an artificial price for bank bills on 16 occasions during the period of 6 April 2010 and 6 June 2012. Westpac denied the allegations and said it would defend the claims.
Asic
- Monday 4 April 2016
ANZ announces it reported three breaches of dispute resolution requirements
Banking
ANZ told a parliamentary inquiry that for 2014-15, it had reported three breaches of the internal dispute resolution requirements under the code of banking practice to the code compliance monitoring committee and six in 2013-14. Two breaches for 2014-15 were self-identified and one was raised with ANZ by the committee.
- Wednesday 30 March 2016
ANZ announced it would refund $5m
Banking
ANZ announced it would refund approximately $5m to 25,000 customers after it failed to properly apply some fee reductions and fee waivers for certain customers.
Asic
- Thursday 17 March 2016
Asic imposed conditions on Macquarie financial services license
Financial advice
Asic imposed additional conditions on Macquarie Bank Limited’s Australian Financial Services (AFS) licence for breaches relating to the handling of client money between March 2004 and 2014. The breaches raised issues including failing to deposit monies into a designated client trust account; and making withdrawals that were not permitted from such an account. Macquarie has filed an application for review of the decision and asked for stay of the new conditions pending the review. Macquarie said it treated client money with the utmost seriousness and self-reported the incidents.
Asic
- Tuesday 15 March 2016
ANZ gives $4.5m compensation for breaches
Financial advice
ANZ confirmed engagement of PricewaterhouseCoopers in January 2016 to conduct an independent compliance review within its OnePath subsidiaries, following compliance breaches that were proactively reported to Asic from early 2013. Since February 2013, ANZ has compensated about $4.5m to around 1.3 million OnePath customers for breaches including not following up on some unbanked cheques and for superannuation contributions not being allocated to the customer’s correct account.
- Monday 7 March 2016
Asic found ANZ breached responsible lending laws
Banking
Asic found ANZ breached responsible lending laws in making offers of overdraft facilities to its customers and ordered it to pay penalties totalling $212,500.
Asic
- Monday 7 March 2016
CommInsure chief medical officer blows whistle on unethical practices
Insurance
The former chief medical officer of CBA’s insurance arm, CommInsure, makes claims about a culture of dishonest and unethical practices to avoid payouts to sick and dying people. The chief medical officer revealed doctors were pressured to change their opinions, outdated medical definitions were used to deny payouts, and medical files disappeared from the internal filing system. CBA's chief executive, Ian Narev, said 'I'm aware … and we've discussed individual cases where the outcomes that the customers have received for policies that they took out have not been good enough'. Allegations of deleting files 'would be completely inconsistent with the culture that we are building at the Commonwealth Bank and inconsistent with the way that we run the bank'.
ABC
- Friday 4 March 2016
Asic sued ANZ for alleged market manipulation in setting bank bill swap rate
Trading
Asic started legal proceedings in the federal court against ANZ for alleged unconscionable conduct and market manipulation in relation to the ANZ's involvement in setting the bank bill swap reference rate, which affects commercial and personal loan rates. Asic alleges that ANZ traded in a manner intended to create an artificial price for bank bills on 44 separate days during the period of 9 March 2010 to 25 May 2012. ANZ rejected the allegations and said it would vigorously defend the legal action. It said Asic had advised it had no concerns about the bank’s current market practices.
Asic
- Thursday 3 March 2016
Asic banned former NAB adviser for misleading and deceptive conduct
Financial advice
Asic banned a former NAB adviser for five years for engaging in misleading and deceptive conduct including falsely representing that he was a member of a superannuation fund in order to obtain unauthorised information about a member’s account. An appeal can be lodged to the AAT.
Asic
- Tuesday 16 February 2016
Asic banned a former director of a Macquarie subsidiary for breach of duties
Financial advice
Asic banned a former director and responsible manager of a Macquarie subsidiary for six years for breaching his duties in 2011 as an officer of a responsible entity of a registered management investment scheme. Conduct included creating fake emails to extract confidential information from his fund’s competitors. An appeal can be lodged to the AAT.
Asic
- Thursday 4 February 2016
Asic banned former NAB adviser for forging client signatures
Financial advice
Asic banned a former NAB adviser for seven years for engaging in misleading and deceptive conduct including forging client’s signatures on change of adviser forms and receiving the remuneration that flowed from processing these false forms. An appeal can be lodged to the AAT.
Asic
- Thursday 4 February 2016
CBA staff accused of complicity in Ponzi scheme worth $76m
Trading
The Sydney Morning Herald reported that two CBA staff were allegedly complicit in an elaborate Ponzi scheme worth $76m. The alleged architects of the scam will face court in February 2017 and have indicated they will plead not guilty to almost 100 fraud and deception offences.
The Sydney Morning Herald
- Tuesday 2 February 2016
Commonwealth Bank offers $3m compensation for financial advice to date
Financial advice
The Australian reported that the Commonwealth Bank of Australia has so far offered nearly $3m to people affected by its financial planning scandal as part of its open advice review, and paid more than $2m to victims of shoddy advice, with more than 6,000 cases still in the program.
The Australian
- Wednesday 20 January 2016
Westpac paid $1m fine over credit limit practices
Banking
Westpac paid $1m following Asic's concerns about credit card limit increase practices. Asic's concerns included the bank's failure to make reasonable inquiries about some consumers' income and employment status before increasing their credit card limit.
Asic
- Friday 15 January 2016
Two dismissed ANZ traders caim culture of sex, drugs and alcohol
Trading
The Sydney Morning Herald reported that two traders dismissed by ANZ for inappropriate behaviour are suing the bank for tens of millions of dollars, claiming a rampant culture of sex, drugs and alcohol was condoned among senior staff on the dealing floor. ANZ said the staff were dismissed for serious breaches of its code and it would 'be vigorously defending both their court applications'.
The Sydney Morning Herald
- Friday 18 December 2015
Asic permanently banned former WA branch bank manager
Banking
Asic permanently banned a former Western Australia branch bank manager, after being convicted and sentenced for nine counts of stealing as a servant and one count of gaining a benefit by fraud, for making unauthorised withdrawals from various bank accounts in a friend's name, totalling $515,000.
Asic
- Thursday 10 December 2015
Macquarie Securities paid $110,000 penalty over market integrity rules
Trading
Macquarie Securities (Australia) Limited paid a penalty of $110,000 for allegedly contravening one of the Asic market integrity rules 2010 and the Corporations Act. The penalty was for failing to prevent a non-designated trading representative from submitting trading messages.
Asic
- Wednesday 25 November 2015
CBA issues $80m refund
Banking
Asic announced the CBA would refund approximately $80m to around 216,000 wealth package customers as compensation for failing to apply fee waivers, interest concessions and other benefits since 2008. The refund payments include an additional amount of interest to recognise the time elapsed since the relevant benefit was not applied. CBA discovered the breach following a customer complaint and reported it to Asic in 2014.
Asic
- Thursday 12 November 2015
ANZ provides $13m compensation after failing to pay bonus interest
Banking
Asic announced ANZ would provide around $13m compensation to 200,000 customers after it failed to accurately apply bonus interest to Progress Saver accounts for a number of years. The refund payment included an additional amount to recognise the time elapsed since the initial breach. ANZ discovered the breach following a customer complaint and reported it to Asic.
Asic
- Thursday 29 October 2015
Westpac offered refunds over unneeded insurance cover
Insurance
Following Asic surveillance, Westpac offered to refund premiums to 10,600 insurance customers who paid for insurance cover they did not need. Customers were charged for loan protection insurance when they did not have a loan and did not intend to be covered.
Asic
- Monday 19 October 2015
CBA to refund $7.6m due to failure to waive fees
Banking
Asic announced CBA would refund $7.6m to 8,400 CBA customers for failing to provide advertised fee waivers and other benefits of services package. CBA discovered the error and reported it to Asic in 2014.
Asic
- Thursday 15 October 2015
Asic banned Westpac subsidiary answer for unauthorised transfers
Financial advice
Asic permanently banned an adviser of a Westpac subsidiary for transferring funds from clients’ accounts without authorisation, falsely creating documents including emails and bank statements, and perpetuating the false documents on client accounts.
Asic
- Friday 24 July 2015
NAB wealth management to pay $25m compensation
Financial advice
Asic reported NAB’s wealth management business announcing it would pay $25m in compensation to 62,000 customers following a system error on its navigator wrap platform relating to estimation of income and tax. NAB Wealth appointed PricewaterhouseCoopers to review the process.
Asic
- Monday 25 May 2015
Asic banned Macqurie Equities representative after unauthorised trading
Trading
Asic banned a former representative of Macquarie Equities Limited after he engaged in unauthorised discretionary trading on his clients' accounts and created false records. Macquarie Equities reported the conduct to Asic.
Asic
- Tuesday 5 May 2015
ANZ to reimburse customers $30m
Banking
The Age reported that ANZ would reimburse $30m for miscalculated interest on credit card cash advances, impacting millions of customers.
The Age
- Tuesday 21 April 2015
CBA announces it has reported 12 advisers to police for fraud or forgery since 2011
Financial advice
CBA told the Senate economics references committee that it had reported 12 CBA advisers to the police over allegations of fraud or forgery since 2011; and that 43 planners had left in previous three years, including some who left while under investigation.
Senate Economics References Committee
- Tuesday 21 April 2015
ANZ announces it has sacked 16 planners in 3 years
Financial advice
ANZ told the Senate economics references committee that in the 12 months to April 2015 it had reported six ANZ planners to Asic for breaches; and terminated the employment of 16 planners over the previous three years for behaviours that range from cultural differences and inappropriate behaviour through to the serious compliance breaches reported to Asic.
Senate Economics References Committee
- Tuesday 21 April 2015
NAB announces it has sacked 41 planners in 5 years
Financial advice
NAB told the Senate economics references committee that 41 planners dismissed over past five years and it has reported 10 planners to Asic for breaches.
Senate Economics References Committee
- Tuesday 21 April 2015
NAB announces a total of $14.5m compensation over 4 years
Financial advice
NAB told the Senate economics references committee that it had compensated more than 750 of its financial advice customers a total of $14.5m between January 2010 and September 2014.
Senate Economics References Committee
- Tuesday 21 April 2015
Macquarie announces total of $9.5m compensation
Financial advice
Macquarie Bank told the Senate economics references committee it had paid $9.5m in compensation to clients of financial advice and reported 11 advisers to Asic. Macquarie was reviewing 2500 client files for possible compensation and found out of 320 files already there were 65 clients eligible for compensation.
Senate Economics References Committee
- Monday 20 April 2015
Westpac sued over alleged misleading and deceptive conduct
Financial advice
The Sydney Morning Herald reported that a Queensland businessman was suing Westpac for misleading and deceptive conduct after the bank allegedly slotted him into highly leveraged financial products and blew up $4m in savings.
Sydney Morning Herald
- Thursday 16 April 2015
ANZ to reimburse $30m in fees
Financial advice
The ABC reported that 8,500 ANZ customers were sold advice packages but did not receive services included in the package. ANZ was due to reimburse $30m in fees.
ABC
- Wednesday 15 April 2015
NAB's British banks receive $38.8m fine over insurance complaints
Insurance
NAB's British banks received a record $38.8m fine from Britain’s Financial Conduct Authority for 'serious failings' in handling complaints regarding payment protection insurance to up to 90,000 customers of UK subsidiary.
The Age
- Friday 27 March 2015
Two former CBA executives charged over alleged bribery
Banking
Two former CBA executives charged over alleged bribery scandal for allegedly receiving more than $1.9m in return for awarding an IT contract to a particular company. The matter is ongoing and the pair will face a hearing in the Downing Centre local court on 6 June.
Sydney Morning Herald
- Tuesday 17 March 2015
Former NAB foreign exchange trader jailed for insider trading
Trading
A former NAB foreign exchange trader was sentenced to seven years jail for insider trading after pleading guilty to masterminding a $7m crime.
The Australian Financial Review
- Thursday 26 February 2015
Asic banned former Westpac home finance manager
Banking
Asic permanently banned a former Westpac home finance manager following conviction of fraud for withdrawing over $113,000 from ATMs after obtaining eight credit cards using false names.
Asic
- Friday 13 February 2015
Macquarie Equities enforceable undertaking concludes after systemic deficiencies
Financial advice
A two-year enforceable undertaking between Asic and Macquarie Equities Limited concluded. The enforceable undertaking was entered into in January 2013 after Asic found 'systemic deficiencies' in its compliance with financial services laws.
- Tuesday 10 February 2015
Former financial planner jailed for defrauding more than $5.9m
Financial advice
A former financial planner was jailed for defrauding more than 150 clients of more than $5.9m over a period of 20 years, including eight years of working for ANZ subsidiary. The company cooperated with Asic, investigated the matter, ensured thorough remediation, and terminated the adviser's authorisation once wrongdoing was established.
Asic
- Sunday 4 January 2015
ANZ traders investigated for possible manipulation of market benchmarks
Trading
The Australian Financial Review reported that seven traders, including a senior ANZ Group trader, were being investigated for possible manipulation of market benchmarks.
The Australian Financial Review
- Wednesday 1 October 2014
NAB fined $10,200 for product disclosure statement
Financial advice
Asic fined NAB $10,200 for potentially misleading statements in a product disclosure statement.
Asic
- Wednesday 17 September 2014
Asice fined NAB $40,800 over loan ads
Banking
Asic fined NAB $40,800 for potentially misleading advertising in relation to a UBank home loan product.
Asic
- Wednesday 17 September 2014
Westpac fined $20,400 for product disclosure statement
Financial advice
Asic fined Westpac $20,400 for potentially misleading statements in a product disclosure statement.
Asic
- Friday 12 September 2014
Macquarie agrees to $82.5m settlement in Storm class action
Financial advice
Macquarie Bank agreed to a $75m settlement in class action brought against it for involvement in Storm Financial.
Asic
- Tuesday 20 May 2014
Asic banned former Westpac trader for fictitious trading entities
Trading
Asic banned a former Westpac trader for eight years after an investigation found he created a series of fictitious trading entries and had created a false document.
Asic
- Thursday 30 January 2014
ANZ reviewed home loans after $70m refunds
Banking
The Sydney Morning Herald reported that ANZ was conducting a sweeping review of all of its home loan, savings and small business accounts to ensure they were operating correctly, after a major glitch forced it to refund $70m to 235,000 home loan customers.
Sydney Morning Herald
- Monday 23 December 2013
NAB gives enforceable undertaking over possible misconduct causing share price spike
Trading
Asic accepted an enforceable undertaking from NAB to monitor and control market direct market access trading after possible misconduct by trading personnel contracted to bank resulted in a share price spike of the ASX 200.
Asic
- Tuesday 17 December 2013
Two CBA companies review handling of client money
Trading
Two members of the CBA Group entered enforceable undertakings to review their handling of client money. The two companies completed a remediation program after identifying weaknesses including unauthorised withdrawals of client money from trust accounts and pooling of client money.
Asic
- Saturday 10 November 2012
NAB settles sub prime mortgage securities class action for $115m
Financial advice
The Australian Financial Review reported that NAB would pay $115m to settle a class action with shareholders following poor disclosure of its investment in securities backed by subprime mortgages during the global financial crisis.
Australian Financial Review
- Friday 14 September 2012
CBA agreed to $136m for compensation over Storm Financial
Financial advice
CBA agreed to make $136m available in compensation for involvement in Storm Financial (the collapse of which hurt 14,000 investors). The $136m is in addition to payments of about $132m and other benefits CBA had already provided to Storm investors under its CBA resolution scheme.
Asic
- Wednesday 5 September 2012
Macquarie bank report finds breaches of compliance standards
Financial advice
The Sydney Morning Herald reported a Macquarie Private Wealth internal report found more than 80% of the division's private client advisers were in breach of compliance standards.
Sydney Morning Herald
- Wednesday 7 March 2012
CBA accepts enforceanble undertaking due to credit limit consent concerns
Banking
Asic accepted an enforceable undertaking from CBA following concerns that a message sent to its internet banking customers was misleading. In December 2011, CBA requested that customers provide their consent to continue to receive credit limit increase invitations. Asic believed the messages suggested if customers did not consent they would lose the chance to receive credit limit increase offers in future.
Asic
- Thursday 31 March 2011
Former Macquarie fund manager jailed over insider trading
Trading
A former Macquarie fund manager was jailed for two and a half years after pleading guilty to making $1.4m from insider trading.
The Australian Financial Review
- Wednesday 14 October 2009
CBA fined $100,000 over continuous disclosure obligations
Trading
CBA fined $100,000 for alleged failure to comply with continuous disclosure obligations under the Corporations Act.
Asic
- Friday 6 March 2009
ANZ agrees to hundreds of millions of dollar settlement with Opes Prime investors