Update on the Australia Royal Commission

The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has exposed significant issues this year and it’s not over yet. To date, there have been six public hearings (including on consumer lending practices, financial advice, loans to small and medium enterprises, superannuation, and insurance) and some entities giving evidence have already acknowledged misconduct. The final hearing in November will be on policy questions.

Last week, the Commissioner (Hon Kenneth Madison Hayne AC QC) published an Interim Report looking at the causes of misconduct and what can be done to prevent it happening again. Key points include:

• all the conduct identified and criticised provided a financial benefit to the individuals and entities concerned
• the governance and risk management practices of the entities did not prevent the conduct occurring
• the culture and conduct of the banks was driven by, and reflected in, their remuneration practices and policies
• regulators failed to take sufficient action when misconduct was revealed.

The report notes that “much more often than not, the conduct now condemned was contrary to law”. Given this, the report doesn’t suggest the need for greater regulation but raises whether existing laws need to be simplified and administered or enforced differently.

Some changes to industry structure and industry remuneration have already occurred as a result of the Royal Commission. The final Royal Commission report is due in February 2019.

In New Zealand, the Financial Markets Authority and the Reserve Bank of New Zealand engaged with banks earlier in the year and asked them to demonstrate to consumers, regulators, and other stakeholders why our own Royal Commission is not necessary. A report on this is due in October/November 2018.