Business Daily Media

The problem with Australia's banks is one of too much law and too little enforcement

  • Written by Deborah Ralston, Professor of Finance, Monash University
The problem with Australia's banks is one of too much law and too little enforcement

Prime Minister Scott Morrison and Treasurer Josh Frydenberg moved very quickly to deliver the interim report of the Royal Commission into Financial Services to the public. It was submitted to the Governor General, tabled in parliament (out of session), and made public on the same afternoon – Friday September 28.

The three-volume report[1] is limited to findings from the first four rounds of hearings, on consumer credit, financial services, lending to small- and medium-sized enterprises, and experiences with regional and remote communities.

So far the commission has received almost 10,000 submissions, mainly related to banking (67%), superannuation (12%), and financial advice (9%). Most address issues relating to personal finance, superannuation, or small business finance.

In receiving the interim report, Frydenberg reiterated its key message that financial institutions have put “profits before people”.

It’s about the money

According to the report, poor culture and conduct in banks have been driven by their remuneration policies, with almost every instance of misconduct being directly linked to monetary benefit.

Read more: Banking Royal Commission's damning report: 'Things are so bad that new laws might not help'[2]

The interim report is also highly critical of the regulators, painting a disconcerting picture of their determination to detect and monitor misbehaviour and enforce compliance with the law.

The Australian Securities and Investments Commission comes in for particular scrutiny, with Commissioner Kenneth Hayne noting that where the law had been broken, “little happened beyond an apology from the entity, drawn-out remediation, and an infringement notice or an enforceable undertaking that acknowledged no more than ASIC had reasonable concerns about the entity’s conduct”.

The penalties imposed were often immaterial, given the size of the institutions involved.

The letter of the law can smother its spirit

It’s hard to know how to regulate. On occasions, as with the Future of Financial Advice legislation, the spirit of the law has been lost in complexity about prescribed behaviour, and of course so-called “grandfathering provisions” which ensure commissions that began in the past can continue even though they would no longer be legal.

The interim report asks whether, rather than more legislation, the answer lies in less: in simplifying the laws to better reflect their intentions.

Read more: Royal Commission shows banks have behaved appallingly, but we've helped them do it[3]

It is something Labor had in the original version of the financial advice legalisation – an overarching obligation on advisers to act in their client’s “best interests”, an obligation the Coalition tried to remove on attaining office, arguing that specific provisions would do the job just as well.

On releasing the interim report, Frydenberg was asked where our regulators had been ineffective because they had been captured by industry or had inadequate resources.

Frydenberg replied that culture was indeed substandard, but that giving the regulators more resources would be seriously examined.

The government has already given ASIC and APRA more.

In August, ASIC received A$70 million in additional funding to strengthen supervision and give it the capability to embed its staff members inside major banks.

Earlier this year the government appointed a second ASIC deputy chairman, Daniel Crennan QC, to bolster its enforcement credentials.

The new chairman James Shipton appears to be reshaping the ASIC culture.

But that’s only the beginning of the changes we are likely to see.

It’s our turn now

Public submissions in response to the interim report are now open and are due by Friday October 26, 2018.

Two more rounds of hearings are yet to be held, with the final report due by February 1, 2019.

Authors: Deborah Ralston, Professor of Finance, Monash University

Read more http://theconversation.com/the-problem-with-australias-banks-is-one-of-too-much-law-and-too-little-enforcement-103996

Business Reports

Save, spend or invest? New offering allows Aussies to maximise their savings

With the turn of a new financial year, Australians are at a loss of how to make the most of their tax refunds this year with rising costs of living and low return on savings. The Australian Investor Sentiment Report 2022 reve...

Commercial Painting Revitalised Shop Fronts and The Economy – Why Did the Funding Dry Up?

State governments provided retailers with grants to revitalise their shop fronts in a bid to help the ailing industry. The $2000 - $10000 grant aims to ‘add a lick of paint” and some street appeal to retail outlets not onl...

How to Succeed as a Call Center

If you aspire to build a productive and prosperous call center, you need to begin from the zenith or top. After all, your workforce won’t be able to create a positive experience for your customers if they’re not managed pr...

QUEENSLAND FAST BECOMING AUSTRALIA’S ENDURANCE EVENT HOTSPOT

Pristine Backdrops, Best-In-Class Offerings and Post-Event Holiday Deals Capturing Interstate and International Interest Recently crowned the tourism capital of Australia, the Sunshine State is drawing thousands of interstate...

Businesses fail the moment they stop asking why

Many business owners don’t realise it, but in business it doesn’t just matter what you do, it matters why you do it. To run a successful company - one better placed to mitigate challenges, grow post-pandemic and buil...

Companies have a simple and legal way to help their workers living in anti-abortion states – expanding paid time off

As the last abortion clinic in Mississippi closes, workers in the state may get some support from their employers. AP Photo/Rogelio V. SolisEmployers looking for ways to support their workers seeking abortions in states where it&r...

Web Busters - Break into local search

WebBusters.com.au