1. Scale and Extent of Banking Misconduct
The sheer scale and extent of criminal, unconscionable and unethical banking conduct is at unprecedented and unacceptable levels, both globally and in Australia.
That is only the conduct that is reported. How much more lies below the surface?
Reports of serious and systemic Banking misconduct in Australia have continued since then. The scale of the problem alone warrants a Royal Commission or Commission of Inquiry into the banks.
2. The Severe Impact of Banking Misconduct
There is arguably no product category that results in greater deleterious impact upon consumers than banking. Examples of the more egregious conduct include:
- Elderly retirees who have lost their hard-earned savings because of unscrupulous financial advisors engaging in forgery and fraud within a big-four bank. The serious misconduct was compounded by the attempted cover-up by senior executives of the systemic behaviour.
- Over 2000 small to medium size business owners forced into bankruptcy despite never missing a repayment.
- Consumers who took out an insurance policy in the belief it would protect them if beset by an unforeseen unfortunate circumstance such as serious illness, only to find when these consumers needed the benefit of the insurance, the insurance turned out to be effectively worthless or unreasonably denied.
Many people never recover from the financial and emotional distress of such misconduct at the hands of a bank.
The cost to the community from banking misconduct - including the financial, emotional and social cost - is extreme, whilst banks continue to make record profits as a result of their actions. Given the significant widespread impact, a Royal Commission or Commission of Inquiry into the banks is necessary.
3. Breach of Trust and Social License
Banks and financial services providers operate under the premise and expectation of acting with the utmost integrity and fidelity. Acting consistently with these expectations leads to high levels of consumer trust in the sector.
Whilst mistakes can be made within a large organisation, the community expectation is that the mistake is acknowledged quickly and resolved fairly and in a timely manner.
Systemic misconduct and the subsequent failure to accept responsibility for and readily redress such misconduct diminish public trust and confidence in the banking sector . The extensive and systemic nature of misconduct has completely eroded trust in the banking sector.
The fact that victims of systemic misconduct are let down by the compound failures of industry self-regulation, the regulatory framework and the consumer redress system magnifies their sense of injustice.
A Royal Commission or Commission of Inquiry with the appropriate powers, resources and terms of reference is the most appropriate mechanism to comprehensively review these compound failures and make well-informed recommendations to rebalance consumer protections and implement effective redress systems.
Without adopting this best-practice approach, it is unlikely that any current industry reforms will achieve the intended outcomes.
There is a strong sense in the community that banks and their senior management are not being held accountable for their actions. The absence of accountability is perceived to contribute to the ongoing and escalating problem of serious systemic bank misconduct.
There is also community resentment around the ‘double standards’ that exist around the lack of prosecutions of serious financial crimes committed by banks. Banks aggressively pursue jail terms for those committing fraud against them. Yet significantly worse conduct perpetrated by banks, often enacted on a systemic basis, is sometimes not even investigated by regulators.
This double standard severely undermines confidence in the banking sector.
A fully transparent Royal Commission or Commission of Inquiry, would identify those responsible for systemic misconduct. This would be the first positive step towards holding banks and individual executives to account to a level consistent with community expectations.
5. Currently No Prospect of Compensation
Despite the banking lobby’s assurances that systemic bank misconduct is ‘in the past’, many victims have not been adequately compensated, with no foreseeable prospect of a fair resolution to their issues.
This also flies in the face of banking industry promises to treat customers fairly when banks are found to have done the wrong thing.
A Royal Commission or Commission of Inquiry would identify the bank’s liability for criminal/unconscionable conduct, which would accelerate the compensation process, as opposed to the current circumstances where many bank victims are left destitute without a way forward.
6. Banks Aggressively Defending Misconduct
Research into bank conduct in courts when litigating has revealed highly concerning conduct by by banks and their lawyers, including withholding evidence, forging signatures and documents and swearing false affidavits.
This goes directly against banking industry promises that where a bank has ‘made mistakes’, it will move to quickly and fairly correct the ‘mistake’.
A Royal Commission or Commission of Inquiry includes the scope to review the suitability and effectiveness of legislation, whereas ASIC and APRA can only review bank conduct within the scope of existing laws. This is a significant strength of a Royal Commission or Commission of Inquiry.
Another significant advantage of a Royal Commission or Commission of Inquiry is that it conducts public hearings. This would ensure maximum transparency and provide for the optimal way forward for government to ensure that unresolved issues are finally properly investigated, senior bank executives held accountable where applicable and public trust toward the banking sector restored.
8. Appropriate Inquiry Resources and Terms of Reference
Numerous parliamentary and industry-led inquiries into the banking sector have been held to date. These have failed to deliver justice for many victims for a multitude of reasons including:
- Inquiry terms of reference not tasked to address serious systemic misconduct.
- Committee resources and investigative structure not optimised for investigating systemic misconduct.
- Dishonest and obfuscatory tactics employed by bank witnesses when giving evidence mislead committee resulting in inconclusive findings.
- Lack of sufficient powers (or willingness to use powers) to seize primary documents.
A Royal Commission or Commission of Inquiry, specifically tasked to investigate serious, systemic criminal and unconscionable banking conduct is the optimal inquiry structure to thoroughly address unresolved matters and eliminates further delay in victim restitution through reactive ad-hoc inquiries and policy which only serve to ‘kick the can down the road’ and exacerbate the social harm.
9. Regulators Have Been Found Wanting
There are numerous cases where questions have been raised in relation to the effectiveness of ASIC, the banking regulator.
In 2014, a Senate Economics References Committee was highly critical of ASIC.
‘In particular, it showed ASIC as a timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for ASIC’s concerns or intervention. ASIC concedes that its trust in this institution was misplaced.’
(Source: The Senate Economics References Committee (2014). Performance of the Australian Securities and Investments Commission June. Canberra: Commonwealth of Australia, p.xviii.)
That Government committee recommended a Royal Commission (effectively the same as a Commission of Inquiry).
12.28 The committee recommends that the government establish an independent inquiry, possibly in the form of a judicial inquiry or Royal Commission, to: · thoroughly examine the actions of the Commonwealth Bank of Australia (CBA) in relation to the misconduct of advisers and planners within the CBA’s financial planning businesses and the allegations of a cover up; · identify any conduct that may amount to a breach of any law or professional standard; · review all files of clients affected or likely to be affected by the misconduct and assess the appropriateness of the compensation processes and amounts of compensation offered and provided by the CBA to these clients; and · make recommendations about ASIC and any regulatory or legislative reforms that may be required.
(Source: The Senate Economics References Committee (2014). Performance of the Australian Securities and Investments Commission. Canberra: Commonwealth of Australia, p.xxiv.)
The CBA was found, through a Request To Information (RTI) process by journalists, to have subsequently influenced ASIC’s press release. This led to respected business commentator to question whether ASIC was ‘captured’ by the banking industry. You can read the press article in full here.
10. A Royal Commission or Commission of Inquiry is the Best ‘Tool’ for the Job
The 'macro' issue with banking sector is the misconduct, failure of regulators to act and the failures of the court system for those seeking redress.
Government has a range of tools available to investigate serious systemic banking misconduct. However only a Royal Commission or Commission of Inquiry can investigate the banking conduct as well as the suitability and effectiveness of the laws governing the banks.
A Royal Commission or Commission of Inquiry is also fully transparent, a necessary attribute to ensure public confidence in the process.
Given the concerning evidence around unfair banking contracts and highly unjust outcomes in courts, banking law and the legal redress framework is in need of review.
A very strong business case exists for the Australian Government to establish a Royal Commission or, failing that, for the federal parliament to establish a Commission of Inquiry into the banking sector in order to address the serious and systemic issues impacting hard-working honest Australians and return public confidence to the banking system through restoring integrity, accountability and fairness.
I ask that you join my call for a Royal Commission or Commission of Inquiry and voice your support for this important and necessary inquiry.