Banking recommendations fall victim to credit-fuelled COVID recovery

Less than half of commissioner Kenneth Hayne’s recommendations have been implemented in the two years since he delivered his final report relating to the financial services royal commission.

Guardian Australia analysis of Mr Hayne’s 76 recommendations shows 44 are yet to be implemented and five have been abandoned.

Guardian Australia’s Ben Butler says the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry took aim at “financial planners getting as rich as plum pudding by ripping off their clients; rubbish insurance that can never be claimed; the callous treatment of distressed borrowers”.

He says the recommendations, intended to rein in a “renegade banking sector”, have been ignored in favour of the “exciting new world of free-flowing credit” favoured by Treasurer Josh Frydenberg.

“One of Frydenberg’s most obvious moves in support of his dream of an economic rebound fuelled by bingeing on the old household credit card has been the abandonment of responsible lending laws, which were designed to protect consumers from having loans they couldn’t afford pushed on to them by bank salespeople,” Mr Butler writes.

Maintaining those lending laws was Mr Hayne’s first recommendation.

“And given the change in tone at the top, it is little wonder consumer advocates fear the lessons of the royal commission, the tears and heartbreak from victims in the witness stand, and the half-decade of scandals that led up to it, are being forgotten.”

Gerard Brody, chief executive of the Consumer Action Law Centre (CALC), said the government was “just walking away from some of the core recommendations”.

“COVID is part of it, but there are some very important recommendations that have just fallen aside,” he said.

“At the moment they act entirely outside of regulation,” he said. “It hasn’t happened.”

“Responsible lending, the government has walked that one backwards.”

Mr Brody also believes the government wants a “credit-fuelled recovery”.

“They don’t want restraints or oversight on credit at the moment, and they’re not concerned at the harm that risks consumers.”

However, the royal commission is having some influence on the banks, according to

“Major Australian banks face a tougher year in 2021, as their scaled-down operations following a spate of misconduct cases has left them with less cushion against high compliance costs, record low interest rates, elevated loan loss provisions and competition from non-banks …”

It says the four major Australian banks have “sold or are off-loading their wealth management and insurance businesses since the royal commission exposed their misconduct and violations of consumer rights …”

“The Australian major banks are now faced with real management challenges ‘as opposed to the almost automatic profit uplifts of recent years’.”

Analysts told their primary revenue sources are now corporate and mortgage lending and they no longer enjoy the benefits of risk diversification and fee growth.

Martin North, founding principal and banking sector analyst at Australia-based Digital Finance Analytics, said: “The banking landscape is changing, and fast.

“If the economy bounces back soon, then (the banks) may surprise on the upside by reducing provisions and allowing that to come back to the bottom line.

“The reverse is also true, if the economic recovery falters and bad debts rise, so will provisions, and profits will fall.”

But Mr Butler says the banks are reaching new lows in an industry already “neck deep in muck”.

“In November, AUSTRAC [Australian Transaction Reports and Analysis Centre], the agency responsible for monitoring the flow of money through the economy, hit Westpac with a mammoth lawsuit alleging millions of breaches of anti-money laundering laws, including failing to detect or stop several thousand transactions consistent with child exploitation in the Philippines,” he said.

“In the week before Christmas, the corporate cop shovelled more of the smelly stuff into the faces of executives at NAB in a federal court lawsuit alleging it broke the law more than 10,000 times by charging customers fees for services they never received and failing to keep proper records of financial advice.”

NAB may also face action from AUSTRAC, now the banking sector’s most effective regulator. It can levy fines in the billions of dollars.

The treasurer says the government remains focused implementing the remaining recommendations of the Hayne royal commission.

Is enough being done to improve the behaviour of banks? Did the Hayne royal commission change any of your banking habits?

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Written by Will Brodie


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