Financial advisers have been knowingly charging fees to customers who died up to a decade ago. Bank employees accepted cash bribes to falsify proof of employment documents in loan applications. Banks have entirely inadequate processes in place to verify borrowers' financial information. These examples of bad behaviour on behalf of Australia's most prominent financial institutions are just the tip of the iceberg in terms of what the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has uncovered so far. Just a few months in and it is already apparent that the commission is not restoring confidence in the financial sector as was hoped by the Government and the financial sector itself.
This article discusses the ever-evolving and ongoing Royal Commission. First, we explain why there were calls for the inquiry in the first place, describe the political landscape that made it unavoidable and highlight the commission's mandate. We discuss the common inherent weaknesses across the sector as a whole and discuss the extent of irresponsible behaviour on behalf of the banks.
In the latter half of the feature article, we discuss the likely implications of the commission, with the most probable being tighter lending standards. The extent of the ramifications depends on how much tighter the lending standards get, but a credit crunch, trouble in the Australian property market and subdued economic growth are certainly not out of the question.
The Royal Commission
Banks behaving badly
Australia went through the global financial crisis (GFC) relatively unscathed as compared to many of its developed market peers. At the time, it was largely believed that the country's banking sector not needing to be bailed out was because of relatively sound banking regulation.
However, in the years since, a series of scandals have plagued Australia's four major banks - Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac Banking Corporation (WBC). The scandals have involved a whole range of allegations, including poor financial advice given, failure to honour insurance claims, the manipulation of benchmark interest rates and the mistreatment of small business owners. Since the GFC, Australian banks have paid more than $1 billion in fines and compensation.