Friday, 22 April 2016
The Fairfax Ipsos poll of April 17 found 65% of the public supported a banking Royal Commission. Yet the Government (minus initially a few backbenchers) vigorously opposes it, slamming it as “populist”, “reckless”, a “distraction”, and a waste of money. Furthermore the Government claims it would take too long and be likely to erode public confidence in the finance system.
These Government spokesmen – Turnbull, Morrison, Cormann and others – obviously cannot see that the community is sick of the recurring finance sector scandals and has no confidence in any current measures for making these powerful institutions behave ethically – and indeed within the law.
Another oft-cited reason for the Government’s rejection of a royal commission is that we already have “a tough cop on the beat” in the form of the Australian Securities and Investments Commission (ASIC). ASIC, they reiterate, has both the power to investigate and to prosecute. They point out that while a Royal Commission can investigate, it has no power to prosecute.
While the “tough cop’s” powers may exist, it has not had any success in stemming the flow of finance sector scandals. Indeed many of the revelations of bad behaviour have not been as a result of ASIC investigations but the work of whistleblowers and financial journalists. And it would seem that the fines resulting from ASIC investigations have seemed more like “slaps on the wrist” for bad behaviour rather than effective deterrents.
In addition the “tough cop”, along with other government entities, has had its response capacity limited by the very Government which claims ASIC has all that is needed to keep the banks and other finance institutions in line. In the 2014 budget ASIC lost $120 million over 5 years. This has obviously affected its investigative capacity.
The increasing clamour for a Royal Commission has worried the Government because of the proximity of the election. Consequently Treasurer Morrison announced recently a series of measures which he claims will solve the bank problem. These measures include at least $120 million in extra funding, tougher penalties for wrong-doing, greater powers for ASIC and an extra commissioner to focus on prosecuting crimes in the finance sector. These changes will be financed by the banks who will be hit with a levy of $121 million. The costs to the banks are not, according to the Government, to be passed on to bank customers.
Morrison and the Government are obviously hoping this response will undermine the appeal of Labor’s Royal Commission commitment. Presumably the Government backbenchers who were supporting the need for a Royal Commission are now satisfied but it’s doubtful that many in the broader community – and particularly those who have been ripped off by the banks – will be.
Those who want the kind of extensive open inquiry that a Royal Commission can provide, have no confidence in ASIC as a body to expose and deal with financial industry malpractice. This view was highlighted by a Senate committee in 2014 which found ASIC to be “a timid, hesitant regulator, too ready and willing to accept uncritically the word of the bank”. There is considerable doubt about whether these latest measures will change that.
Furthermore, is ASIC to investigate its own responses to the plethora of financial scandals? This is a matter which certainly needs to be investigated to ensure that such inadequate responses do not happen again. Conflict of interest issues mean ASIC cannot be given this important task. There is, of course, a question about whether the Government wants a light shone on ASIC’s performance just as there is a question about what appears to be its cosy relationship with the banking/finance industry.
This close relationship has been seen as a major reason for the reluctance of the Abbott/Turnbull Government to take effective action to protect consumers. A prime example of this was its desire to wind back the Future of Financial Advice reforms legislated by the previous Labor Government. These reforms had been introduced to protect customers from unscrupulous behaviour by advisers and their employers. The Government failed to wind them back only because of Senate opposition. Another more recent example of this close relationship is the funding the National Australia Bank is providing as a co-sponsor for a political fundraising breakfast for Kelly O’Dwyer, member for Higgins and the Assistant Treasurer.
The sense of entitlement that banks have about being able to operate with as little government interference as possible – even when behaving badly – was clearly obvious early this month after Labor announced that, if elected, it would hold a banking Royal Commission. The head of the banking industry lobby, the Australian Bankers Association, refused to rule out the possibility of a mining-style tax ad campaign against Labor. Presumably the widespread community support for a Royal Commission revealed in a recent poll might make this lobby group realize that such a campaign could backfire.
What is very obvious is that there is a need to shine a very strong light on the banking/ finance industry in order to force the changes that are required to make it fairer and more responsive to customer needs. Moreover there is an ongoing need to ensure proper compensation for consumers who have been hurt by unscrupulous behaviour over recent years. And the “bad apples” in the sector need to be identified and removed. This would lead to a marked improvement in public confidence in the banking/finance system. The Government measures are clearly too little, too late and were merely rolled out because of fear of an electoral backlash rather than because of any conviction that action was needed.
The Royal Commission into Institutional Responses to Child Sexual Abuse has shown how powerful is the shining of a strong, very public light on institutions which have done the wrong thing. We need a Royal Commission into the banking/finance industry to force a sweeping clean-up in this sector.
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