The Malaysian Reserve

How outrage over Australian banks sparked inquiry

Australia (Pic: Bloomberg)

SYDNEY • Rigging interest rates. Enabling money laundering. Giving misleading financial advice.

These are just some of the things Australian banks have been accused of doing in recent years.

Public outrage and a threatened rebellion by lawmakers pushed Prime Minister Malcolm Turnbull to set up a public inquiry into the financial services industry.

By one reckoning, it’s the 52nd investigation of Australian banks since the financial crisis.

1. What will the royal commission examine?

The inquiry will cover any misconduct by financial services companies or conduct that falls “below community standards and expectations”, and will also look into the adequacy of regulators’ powers.

Pension funds will also be probed over how they use the public’s retirement savings.

The terms of reference don’t include looking into wider issues demanded by critics such as profitability or competition.

The inquiry will submit an interim report in September and findings and recommendations within 12 months.

Public hearings started in Melbourne on March 13.

2. What have the banks done wrong?

Australia’s four biggest banks — National Australia Bank Ltd, Australia & New Zealand Banking Group Ltd, Westpac Banking Corp and Commonwealth Bank of Australia — have been plagued by scandals that have mounted since the global financial crisis erupted in 2008.

Borrowers bemoaned that they failed to pass on interest-rate cuts while enjoying record profits.

The securities regulator sued all four lenders for attempting to manipulate the benchmark rate.

The banks have also been accused of giving poor financial advice, failing to honour insurance claims and mistreating small business owners.

3. Why now?

The government and banks had resisted opposition calls for a public inquiry for months.

Turnbull decided to move once the loss of his coalition’s majority amid a dual-nationality fiasco made some sort of probe inevitable.

Banks made a similar calculation when they published a joint letter asking for a “properly constituted” inquiry to end uncertainty.

4. What has been done already?

Amid public pressure to tackle misconduct, the government in 2017 hit lenders with an A$6.2 billion (RM18.35 billion) levy, gave the regulator more control over executive conduct and required top bankers to defer bonuses.

It also summoned bank CEOs to give regular testimony to Parliament. The Australian Bankers’ Association said the sector is already one of the most highly regulated in the world and since the financial crisis has cooperated with 51 separate reviews, investigations and inquiries — a number of which are ongoing.

5. So what’s next for the banks?

Executives will be spending a lot of time with lawyers: UBS Group AG analysts estimate the inquiry will cost between A$50 million and A$100 million for each bank.

It will also prove a distraction at a time of slowing revenue growth, heightened risks in the housing market and increasing competition from financial-technology firms. — Bloomberg