As the federal govenment burns are Turnbull and Co. just tinkering at the edges of banking and finance regulations or are they seriously committed to reform?

Way back in October 2016 the Australian Securities and Investments Commission (ASIC) began an Enforcement Review which examined the adequacy of legislation dealing with corporations, financial services, credit and insurance, with regard to serious contraventions in the financial sector, including fraud and criminal activity.

0n 18 December 2017 ASIC handed its Enforcement Review Report to the Turnbull Government.

It was probably no accident that four days earlier the same government ceased its sustained opposition to a highest level inquiry and created the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. 

With the extent of bank money laundering becoming an issue and the review report on its doorstep there was nowhere else to turn, given the average voter would not have been receptive to the argument that the big banks were historically a protected species because of their generous political donations.

In April 2018 in the midst Royal Commission revelations concerning a host of bank and financial system abuses the Turnbull Government finally released its response to the ASIC review report.

This response "agrees" with or gives "in principle agreement" to all 50 recommendations but has placed 20 recommendations on the backburner.

Knowing that ASIC’s investigative abilities has been crippled by funding/staff cuts, that entities with annual profits in the billions just seem to shrug off large corporate fines, often indemnify executives in relation to individual fines and are able to play the legal system so that executives rarely see the inside of a prison, on 20 April the Turnbull Government via the Minister for Revenue and Financial Services revealed that by legislative amendments it will implement the potential for larger individual and corporate fines and double potential maximum prison sentences:

The Turnbull Government is strengthening criminal and civil penalties for corporate misconduct and boosting the powers of the Australian Securities and Investments Commission (ASIC) to protect Australian consumers from corporate and financial misconduct.

These stronger new penalties will ensure that those who do the wrong thing will receive appropriate punishment.

These reforms represent the most significant increases to the maximum civil penalties, in some instances, in more than twenty years. They bring Australia's penalties into closer alignment with leading international jurisdictions, and ensure our penalties are a credible deterrent to unacceptable misconduct.

The Government will increase and harmonise penalties for the most serious criminal offences under the Corporations Act to a maximum of:

For individuals: (i) 10 years' imprisonment; and/or (ii) the larger of $945,000 OR three times the benefits;

For corporations: (i) the larger of $9.45 million OR (ii) three times benefits OR 10% of annual turnover.

The Government will expand the range of contraventions subject to civil penalties, and also increase the maximum civil penalty amounts that can be imposed by courts, to the maximum of:

the greater of $1.05 million (for individuals, from $200,000) and $10.5 million (for corporations, from $1 million); or

three times the benefit gained or loss avoided; or

10% of the annual turnover (for corporations).

In addition, ASIC will be able to seek additional remedies to strip wrongdoers of profits illegally obtained, or losses avoided from contraventions resulting in civil penalty proceedings.

ASIC's powers will also be significantly increased through:

expanding their ability to ban individuals from performing any role in a financial services company where they are found to be unfit, improper, or incompetent;

strengthening their power to refuse, revoke or cancel financial services and credit licences where the licensee is not fit or proper; and

boosting ASIC's tools to investigate and prosecute serious offences by harmonising their search warrant powers to provide them with greater flexibility to use seized materials, and granting ASIC access to telecommunications intercept material.

The Turnbull Government is committed to ensuring ASIC is armed with greater powers to effectively deter, prosecute, and punish those who do the wrong thing, to improve community confidence and outcomes for consumers and investors in the financial services and corporate sector.

These reforms come on top of strong Government action to reform our financial services sector to better protect Australian consumers over a number of years.

The Government has already provided $127 million in additional funding to ASIC to bolster its investigative and surveillance capabilities; implemented an industry funding model for ASIC to give it secure funding; appointed a new chairman for ASIC, Mr James Shipton, and announced a new second Deputy Commissioner with an enforcement focus, Mr Daniel Crennan QC; established a new standards setting body for financial advisers; and established a new one stop shop for consumer complaints which is free for consumers, binding on financial institutions and can order compensation where appropriate.

Today's reforms to ASIC's powers and penalties follow recommendations made by the ASIC Enforcement Review Taskforce (The Taskforce). The Taskforce was established in October 2016 to fulfil the Government's commitment to review the adequacy of ASIC's enforcement regime in response to the Murray Financial System Inquiry, and provided its report to Government in December 2017.

The Government has agreed, or agreed in principle, to all 50 of the Taskforce recommendations and will prioritise the implementation of 30 of the recommendations.

The remaining 20 recommendations relate to self-reporting of breaches, industry codes and ASIC's directions powers, which will be considered alongside the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The Government thanks all the members of the Taskforce, including the Panel of Experts, Treasury, ASIC, Attorney-General's Department, Commonwealth Director of Public Prosecutions, as well as all stakeholders who participated in the consultation of the various position papers put forward by the Taskforce.

The Government's full response to the Taskforce Report can be found on the Treasury website.

Turnbull Government will ignore this call to extend Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry at its own electoral peril

Remember When Australian Prime Minister and former merchant banker Malcolm Bligh Turnbull ruled out a bankig royal commission?

Telling the nation; "I can tell you wehave as a government decided not to have a royal commission, we made thedecision a long time ago, not because we don't believe there is nothing goingon in terms of problems with the banks, it is because we want to take actionright now and we are".

Recall the time and other limits placed on the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry when it was finally established on 14 December 2017? Giving it the power to ignore anything that it wanted to that would otherwise be within its scope. 

Well things did not go entirely to plan for Malcolm and his banker mates.

Because since13 March 2018 the curtain has been drawn back revealing the systemic unethical, deceitful, rapacious, sometimes fraudulent and, in certain instances criminal behaviour, of the financial sector.

National Australia Bank, Westpac, St George, Citibank, ANZ, AMP Insurance and the Commonwealth Bank of Australia, along with their financial services spin-offs, had all come under some degree of scrutiny by mid-April with more hearings still sheduled.

So it comes as no surprise that Fairfax Media is now saying what many are thinking.............

The Age, 18 November 2018:

Evidence to the fledgling financial services royal commission confirms the inquiry, long-resisted by the Coalition government and the banks, was justified and suggests it will lead to rigorous reforms. It also suggests the government’s decision to limit the probe to one year should be reviewed.

A damning admission by a top executive of what was once one of the nation’s most trusted institutions, AMP, about his company repeatedly lying to the corporate regulator about condoned client fraud intensifies concerns about one of the most crucial industries.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is only in its third week, but there has been a plethora of testimony to unethical and/or illegal practices including: charging clients for wilfully undelivered services; fraud; manipulating ‘‘independent’’ audit information; selling clients irrelevant insurance and financial products (many of them in-house); failing to declare commissions; refusing to honour insurance contracts; rigging interest rate markets; and failing to make proper checks before granting loans.

The banks long argued the malfeasance was the result of ‘‘a few bad apples’’, a position that became untenable as bountiful evidence, much of it revealed by The Age, implicated the companies’ very culture.....

Do We Need A Royal Commission Into The Banks?

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.

Hildegard

Northern Rivers

GuestSpeak is a feature of North Coast Voices allowing Northern Rivers residents to make satirical or serious comment on issues that concern them. Posts of 250-300 words or less can be submitted to ncvguestspeak AT gmail.com.au for consideration. Longer posts will be considered on topical subjects.

The banking and finance sector is still cleaning up after the last mess yet Abbott & Co want to let financial planners off the leash again

The Abbott Government introduced the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 into the Australian Parliament on 19 March 2014 to implement changes to Future of Financial Advice (FOFA) legislation.

This bill winds back consumer protections put in place in 2012 after the 2009 Storm Financial-Commonwealth Bank debacle and resulting court cases revealed significant problems in the finance and banking sector and, winds them back in the face of evidence (such as the media report below) that the sector still hasn’t finished clearing up the mess left by avaricious financial planners.

ABC News 16 May 2014:

The Commonwealth Bank will reopen compensation offers to thousands of its clients affected by its financial planning scandal, after the corporate regulator said it was "extremely disappointed" in the bank's compensation process.

The move follows a joint investigation by Four Corners and Fairfax which exposed how poor financial planning advice at the bank had left some clients almost penniless.

The program revealed that commissions and bonuses helped create a sales-driven culture inside the bank which led to some planners losing millions of their customers funds.

The Commonwealth Bank will now have to dramatically expand its compensation scheme, with 4,000 clients now potentially having their case for compensation reopened. Originally, only 1,100 were offered compensation.

Australian Securities and Investment Commission (ASIC) chairman Greg Medcraft said the problem was not with the original compensation arrangements, but with the implementation.

"The compensation process originally developed was carefully designed to include a range of measures to protect the interests of customers involved. ASIC is extremely disappointed that not all of those measures were applied to all customers," he said.

"We are now taking immediate action to remedy the inconsistent treatment."…..

On 20 March 2014, the Senate referred the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 to the Senate Economics Legislation Committee for inquiry and report due on 16 June 2014.

The Senate changes composition on 1 July 2014 and the Abbott Government is likely to vigorously woo those new senators from minor parties in order to get its own way.