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The banking sector has committed to working with policymakers and regulators to implement reforms proposed by Commissioner Kenneth Hayne in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Banking sector recommendations
Among the reforms relating to consumer lending and banking services offered by Australia’s banking institutions are proposed changes to the Code of Banking Practice, which include introducing amendments, which provide that:
- banks work with customers who live in remote areas, or who are not adept in using English, to identify a suitable way for those customers to access and undertake their banking
- if a customer is having difficulty proving his or her identity, and tells the bank that he or she identifies as an Aboriginal or Torres Strait Islander person, the bank will follow AUSTRAC’s guidance about the identification and verification of persons of Aboriginal or Torres Strait Islander heritage
- without prior express agreement with the customer, banks will not allow informal overdrafts on basic accounts
- banks will not charge dishonour fees on basic accounts
- the definition of “small business” be changed to apply to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million
- while a declaration remains in force, banks will not charge default interest on loans secured by agricultural land in an area declared to be affected by drought or other natural disaster
The commission has also called for:
- the introduction of a national scheme for farm debt remediation
- amendments to the Australian Prudential Regulation Authority’s (APRA) Prudential Standard APS 220 relating to land valuation
- changes to the way distressed agricultural loans are managed
- amendments to the law to strengthen and broaden the Australian Securities and Investments Commission (ASIC) enforcement of banking code breaches
- the establishment and imposition of mandatory financial services industry codes
- clarification of the responsibilities of institutions subject to the Banking Executive Accountability Regime
Banks, however, were spared from significant structural changes in the banking sector, with the commission choosing not to recommend further restrictions on vertical integration or changes to the National Consumer Credit Protection (NCCP) Act for direct lending.
In contrast, the third-party mortgage industry has borne the brunt of Commissioner Hayne’s recommendations, which include a ban on commission-based broker remuneration and the introduction of “best interests duty” for brokers.
Industry response
ANZ, the Commonwealth Bank of Australia, NAB, Westpac, Suncorp, MyState Bank, and the Australian Banking Association (ABA), have all issued responses to the commission’s final report.
NAB was singled out by Commissioner Hayne in his report, who said that the bank “stands apart from the other three major banks”.
“Having heard from both the CEO, [Andrew] Thorburn, and the chair, Dr [Ken] Henry, I am not as confident as I would wish to be that the lessons of the past have been learned,” he said.
Mr Thorburn expressed his disappointment with Commissioner Hayne’s remarks.
“As the CEO, this is very hard to read and does not reflect who I am or how I am leading, nor the change that is occurring inside our bank. While we have made mistakes, I believe there is a lot of evidence that we are making sustainable and serious change to once again regain the trust of all our customers.
“I am proud to be a banker; it has always been a profession of service. I am proud to be CEO of NAB and am more determined than ever to lead NAB with even greater urgency and intensity and show through our ongoing actions that we do what we say.”
The NAB CEO also revealed that he has cancelled his planned long-service leave, which he announced in December in order to “recharge and reflect”.
“I will lead this personally and visibly and alongside NAB’s 33,000 employees who share my determination to be better for customers.”
NAB chairman Ken Henry added: “The royal commission has challenged NAB and we have welcomed that. We led the sector in calling for the royal commission to be held.
“In his final report, Commissioner Hayne said I seemed unwilling to accept criticism of how the board had dealt with some of the issues raised by the commission. I am disappointed that the commissioner formed this view. I know that it is not so. The board and I have reflected deeply on those and other issues and, as I have said previously, we take them very seriously.”
ANZ, CBA, and Westpac have also expressed their commitment to working with relevant stakeholders to implement the commission’s reforms.
ANZ CEO Shayne Elliott said: “This is a defining moment for both our company and industry. It has been a humbling experience for me, our leaders and all our people. We have learnt from this and accepted responsibility for our failings.
“The final report and the insights arising from the commission will change our industry for the better. It provides a thoughtful path forward that will ultimately result in a better banking system for all Australians.
“ANZ is committed to continuing the work and investment required to build a bank worthy of the trust and respect of our customers and the community as well as helping ensure these failures aren’t repeated.”
CBA CEO Matt Comyn added: “We are working through the royal commission’s final report and the 76 recommendations.
“Commissioner Hayne has called out the clear need for change. The government has announced a comprehensive set of measures in response and we will work through the impact of these over the next few days.”
He continued: “We are addressing past failings, implementing important changes, and improving our processes to ensure we remain focused on what is best for our customers.”
Westpac CEO Brian Hartzer said the commission’s report was a “turning point” and would help rebuild community trust.
“We will continue to engage constructively in the reform process and support the essential role this industry plays in the Australian economy,” he said.
“We will work with policymakers and regulators on the best path forward for customers and the industry. Our focus remains on learning from the mistakes of the past and preventing them from happening again.”
Suncorp CEO and managing director Michael Cameron also stated: “Suncorp has been a supporter of the royal commission as we believe it will result in better outcomes for customers and drive positive change for the industry.
“We are reviewing the details in the final report to understand in more depth the potential implications for Suncorp.”
MyState managing director and CEO Melos Sulicich said: “I think [the] delivery of the report makes it a pivotal point for us to ensure that consumers’ best long-term interests are looked after.”
ABA CEO Anna Bligh welcomed the commission’s recommendations concerning amendment to the banking code.
“He has recommended a number of things, including that some parts of the code, and indeed other industry codes in other parts of the sector, should have some provisions that are enforceable,” she said.
“The banking industry welcomes that. We have always regarded the code as enforceable, and if it’s enshrined, if those appropriate parts are enshrined in law, that will put beyond any doubt the rights of customers and their entitlements.”
Find out more about what the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry means for the broking industry, and what the next steps are, by attending the Better Business Summit 2019.
Running across five different states every Thursday from 14 February, the Better Business Summit provides brokers with straight-talking, practical advice to help them grow and improve their businesses in this time of change.
Tickets are selling out – so make sure you secure your ticket today to stay ahead of the curve and prepare your business.
[Related: RC’s final recommendations revealed]
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