Banking Royal Commission mustn’t be just a paper tiger
30th Nov 2017
It is crucial that any Royal Commission into the banking sector has sufficiently broad terms of reference to deal with the full extent of issues which may be uncovered relating to banking misconduct, the Australian Lawyers Alliance (ALA) said today.
Prime Minister Malcolm Turnbull announced the Royal Commission this morning, reversing his earlier position that an inquiry was not the best way to deal with mounting examples of misconduct in the banking sector.
ALA spokesperson Josh Mennen welcomed the establishment of the Royal Commission, saying it was the appropriate way to seek justice for the victims of malfeasance in the banking and broader financial services sector. However he added that ensuring the scope of the inquiry sufficiently broad was vital to its chances of uncovering the root causes of systemic wrongdoing.
“A Royal Commission is the best way of ensuring that victims of banking sector misconduct receive justice,” Mr Mennen said.
“The Royal Commission must be capable of dealing with the full range of issues we have already seen relating to banks, superannuation and insurance and the financial industry over recent years,” Mr Mennen said.
Mr Mennen questioned why the Draft Terms of Reference released by the Treasurer’s office today did not cover brokers engaged in credit activity within meaning 22 of the National Consumer Credit Protection Act 2009, or bank
"That omission is conspicuous given that they were included in the Banking, Insurance, Superannuation and Financial Services Commission of Inquiry Bill 2017 proposed recently by Senator O’Sullivan,” Mr Mennen said. “That may exclude mortgage brokers from the scope of this inquiry and would risk financial services entities hiding behind their subsidiaries which may not be covered.”
Mr Mennen said the terms of reference for the new Royal Commission must cater for a number of specific issues which have already been uncovered.
“It is crucial that this enquiry examine the systemic failures of banking practices that led to devastating outcomes for thousands of customer during the Global Financial Crisis,” Mr Mennen said.
“Of particular interest are the vertically integrated sales models that transferred the superannuation, insurance and other assets of hundreds of thousands of Australians into their banks’ in-house products.”
“Those practices were driven by conflicts of interest and skewed staff incentives and were performed regardless of whether there were more suitable alternatives for customers,” Mr Mennen said. “Indeed, many banks’ staff were prohibited from recommending non-affiliated investment and insurance products.”
Mr Mennen said the inquiry must also examine the sales, underwriting and claims assessment practices adopted by insurance companies, with a focus on harsh and discriminatory claims assessment tactics that were used to deny legitimate claims.
He said the Royal Commission must also examine ‘insurance churning’ as practised by insurance advisers, where customers were unnecessarily recommended or transferred into new insurance policies simply so the adviser could collect referral fees and commissions.
Mr Mennen said bank and mortgage broking lending practices also needed to be closely scrutinised.
“Bank lending practices have resulted in debt over-commitment, default and bankruptcy for thousands of Australians,” Mr Mennen said. “Of particular interest to the Royal Commission should be practices relating to ‘interest only’ home loans, mortgage broking conduct and misrepresentation, and excessive credit card interest rates.”
“In addition, the Royal Commission must have the scope to examine uncompensated losses suffered by consumers whose financial adviser is insolvent or otherwise unable to pay damages, and where the adviser’s professional indemnity insurer has refused to pay the consumer compensation directly,” Mr Mennen said.