Beginners Guide to the Banking Royal Commission

As late as the afternoon before the announcement, Prime Minister Malcolm Turnbull was adamant a Royal Commission into the banks was unnecessary and a distraction from the real issues at play.

Banking royal commission announcement

Photo: Malcolm Turnbull (Twitter) 

That all changed on Thursday 30 November when the government announced a twelve-month $75 million enquiry into the banks and the rest of the financial services industry. So, how did we get to here and what will the Royal Commission look at?

How we ended up with a Royal Commission

A decade of scandal after scandal has impacted public trust in the financial services industry, with recent polling by SkyNews/ReachTEL suggesting as many as 69% of Australians were in favour of a Royal Commission into the behaviour of the sector. Alleged misleading financial planning advice, breaches of anti-money laundering laws and a culture that could have incentivised aggressive selling have brought the Royal Commission to a head.

The Labor party has proposed a Royal Commission as a major policy plank for over a year and a half, and took the issue to the last federal election. They’ve also found support among the Greens, One Nation, the crossbenches and some politicians among the Liberals and the Nationals. Reports and investigations by the government in the last few years haven’t managed to dissuade concerns, not even Scott Morrison’s plan to force banking executives to regularly face parliamentary hearings.

In the end, it seems the recent Queensland state election was the straw that broke the camel’s back. After losing substantial ground to One Nation, who supported a Royal Commision, in traditionally safe coalition seats, Nationals senator Barry O’Sullivan drafted his own bill for a parliamentary enquiry, which would have taken control of the Commission from the government and put it in the hands of the parliament. With the government down two seats because of the citizenship crisis, and backbench MPs threatening to cross the floor, Prime Minister Malcolm Turnbull was under intense pressure to cave.

The final piece of the puzzle was the banks themselves calling for a Commission, with a letter signed by executives from ANZ, CBA, NAB and Westpac delivered to the Treasurer. While the banks maintained they didn’t think an inquiry was necessary, they thought it was needed to put a rest to the political uncertainty surrounding the issue. By announcing the Royal Commission himself, Turnbull was able to control the terms of reference and the timeline, and prevent the long list of demands that had been added to the O’Sullivan bill by the other parties.

What will the Commission look at?

While we only have the draft terms of reference for the enquiry, we know the government intends for them to produce an interim report by next September, and the full report by February 2019. We also know it wants the Commission to inquire into:

  1. the nature, extent and effect of misconduct by a financial services entity (including by its directors, officers or employees, or by anyone acting on its behalf);
  2. any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations;
  3. the use by a financial services entity of superannuation members’ retirement savings for any purpose that does not meet community standards and expectations or is otherwise not in the best interest of members;

This expands the scope of the enquiry from banks to also include wealth managers, small banks, insurance companies and the superannuation industry, including the union-linked industry super funds, a previous target of government inquiries. The broad scope and short timeframe has drawn criticism from some quarters, but the Prime Minister is adamant the inquiry would not run indefinitely and cost hundreds of millions of dollars, while still being a comprehensive review.

While the enquiry will not have the authority to address misconduct itself, it will provide recommendations for the government to act on as it sees fit. The Commission is also prevented from looking into ‘macro-prudential policy, regulation or oversight,’ as well as avoiding duplicating inquires already established, like the ongoing investigation into the CBA’s culture by the Australian Prudential Regulation Authority.

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