*
Perhaps the most telling verdict on the report came on the day after its release, when investors added more than $19 billion to the combined market values of the big four banks, AMP and IOOF – the biggest one-day gain in years for these financial giants.
The report clearly pleased executives and boards, including AMP director John Fraser, who until 31 July 2018 had been the head of Treasury. Fraser had joined the ranks of AMP on 8 August 2018 as a key proponent of vertical integration, bringing with him a powerful network of contacts in Treasury and the government.
From the day the final report was publicly released, it became a political football. Labor went out on the hustings, calling for better whistleblower protections and reminding the community how Labor had backed a royal commission long before the Coalition was dragged kicking and screaming into calling one. Shorten wanted some real accountability, saying, ‘Banks somehow seem to think that community attitudes don’t apply to them . . . I think if no one out of the banks goes to jail, if no one gets prosecuted or charged, I think Australians would say there’s been a cover-up.’3
The two major parties began trying to outdo each other with proposed responses to the report. The Coalition launched a $30 million compensation scheme of last resort to compensate victims with unresolved complaints going back as far as 1 January 2008, to be administered by the industry-funded external-dispute resolution body, the Australian Financial Complaints Authority. It would include compensation of up to $500,000 for consumers, $1 million for small businesses and $2 million for primary producers. Labor upped the ante, pledging a $640 million Fairness Fund to help victims of financial misconduct. It said it would double the number of financial counsellors from five hundred to one thousand; they would offer free help to victims and rely on federal and state grants for funding. It also promised to increase the number of community lawyers by two hundred, again to help victims of financial crimes. ‘Labor will make the big banks pay what they owe. We will fight for victims to get what they are owed,’ Shorten said.4 The catch was this would only happen if Labor won the impending federal election.
*
Hayne’s report did contain many powerful recommendations that will improve the system if they are properly implemented. Banks and financial institutions have been put on notice. As Reserve Bank Governor Philip Lowe told Federal Parliament on 17 August 2018, ‘Sunlight is acting as a very good disinfectant here.’5 Every financial institution is spending more on compliance costs, and since the release of the final report all banks have announced profit downgrades on the back of increased remediation provisions. Scores of directors and executives have lost their jobs, some organisations are mortally wounded – including Freedom Insurance, which closed – grandfathered commissions are dead and financial advisers are in chaos.
Vertical integration might have survived, but most of the banks have sold their life insurance businesses and flagged that they want to get rid of their wealth management arms. ANZ is in the process of selling its wealth management business to IOOF, CBA and NAB have flagged that they want to spin off their wealth businesses to reduce the risk of more scandals, and even Westpac, after defending it during the royal commission, has decided to offload its financial advice business.
The public shaming of APRA and ASIC at the royal commission has spurred both into action. APRA is finally flexing its muscles. After years of putting up with non-compliance, conflicts and failures to meet regulatory imposed deadlines, in December APRA took legal action in the Federal Court against IOOF’s chief executive Chris Kelaher, general counsel Gary Riordan, chairman George Venardos, chief financial officer David Coulter, and general manager of risk and compliance Paul Vine, seeking to disqualify them on the basis they were not fit to run a superannuation fund. It also requested IOOF restructure several entities to meet its obligations under the law – a move that sent shudders through the financial services sector. It was the first legal action of this type APRA had taken in a decade. In April, it also set out a new enforcement approach to hold organisations to account, after an internal review by its new deputy chairman, John Lonsdale, who had joined APRA from a senior role in Treasury in September 2018.
ASIC is also making the right noises. It has appointed a few new gung-ho commissioners who are committed to changing its culture to become more enforcement focussed and announced it has started more than forty investigations and reviews of alleged corporate civil and criminal breaches – some referred by Hayne, some relating to case studies raised during the royal commission. In May 2019, ASIC’s deputy chairman, Daniel Crennan, reinforced the regulator’s new hardline approach, telling an ASIC annual forum that in the post-royal commission world enforceable undertakings are ‘fairly unlikely to be provided’ by the regulator because they do not require an admission of liability.6 ASIC will be keen to throw a few bodies on the funeral pyre and use tough new sanctions introduced for white-collar offences. Executives will now face maximum jail terms of fifteen years for criminal offences and companies will be liable for fines of up to $525 million per civil violation. But if ASIC goes for middle managers, instead of senior executives and directors, it will have little impact.
*
The reset is now upon us. How that will look will depend on many factors, including how successful the lobby groups are in watering down the royal commission’s recommendations, and how determined the regulators are to prosecute after the spotlight has gone and further political developments play out.
The six principles outlined in the final report of the royal commission are that institutions and individuals need to:
•obey the law;
•not mislead or deceive;
•act fairly;
•provide services that are fit for purpose;
•deliver services with reasonable care and skill; and
•when acting for another, to do so in the best interests of that other.
These principles will only be effective if the law is applied rigorously, penalties are big enough and the regulators are willing to put executives and directors behind bars. Only then will fear override greed.
As Hayne said in his interim report, ‘Too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained?’ Sadly, it seems to be in few people’s interests to change bank culture. Greed has become part of the economic fabric. It accounts for a huge part of the economy and the sharemarket, and, as we have seen, there are deep links between the banks, the regulatory authorities, the administrators and the political class. Ex-NSW Premier Mike Baird is now a senior executive of NAB; former Queensland premier Anna Bligh runs the peak lobby group for the banks, the Australian Banking Association; Bob Carr did a stint at Macquarie; and when it comes to ministerial advisers, the list of people who have crossed over to the financial and banking sector is too long to include. The meshing of the political class into the finance sector both reflects the power of the banks and, in turn, contributes to the power of the banks. It is why lobbying by the banks has been so effective and made them so successful: today the big four banks make a combined net profit of $30 billion a year – which places them among the most profitable banks in the world.
Of course, bad behaviour isn’t isolated to Australian banks. In Europe and the United States similar misconduct has taken place. A report by Hong Kong consultancy group Quinlan & Associates estimated that since 2009 US and European regulators have slapped the top fifty global banks with fines to the tune of US$342 billion for misconduct, rigging markets, money laundering, mis-selling financial products, misreporting, misleading investors and trading scandals. That figure will rise to US$400 billion by 2020.7
For now, though, the Australian banks – and their massive profits – are safe. When the Coalition won the election on 18 May, the big four banks added a combined $27 billion in market value. Days later they had another win when APRA loosened regulations o
n mortgage credit. Whereas it had previously stipulated minimum requirements for borrowers seeking loans, it was now leaving it up to the banks to set their own minimum assessment rates – a vote of confidence that the banks had learned their lessons on irresponsible lending.
But have the banks learned their lessons? What will happen as memories of the royal commission fade and media and political attention turns elsewhere? Will the banks revert to arrogance and greed? Will the regulators slip back into their old ways of being timid and too trusting? Will peak bodies and industry lobby groups water down the recommendations – as they always have? Will the media be strong enough to report on financial misconduct? And will whistleblowers be able to come forward without facing criminal prosecution?
In the current environment, speaking up is becoming increasingly difficult. In June 2019, a series of Australian Federal Police raids on two media organisations made global news as a serious violation of press freedom in Australia. At the same time, ATO whistleblower Richard Boyle talked publicly about the personal toll of being charged with sixty-six offences that could result in a 161-year prison sentence if he is found guilty – a longer sentence than meted out to some of our worst serial killers – even though he had initially spoken out under the provisions of the Public Interest Disclosure Act, which is supposed to protect whistleblowers. It seems truth-telling is being punished in frightening ways.
Epilogue
AS SENATOR JOHN ‘Wacka’ Williams arrived at Parliament House on the morning of 13 February 2019, it was a day like no other. His wife, Nancy, was sitting next to him in the back seat of the car as he fiddled nervously with his favourite blue silk tie. Wacka was set to disappear from Canberra. At 5 pm sharp, he would stand up in the Senate and give the most important speech of his life, his valedictory speech. It was his goodbye to politics after a stellar eleven-year career, a move hastened by a recent diagnosis of Parkinson’s disease.
Sitting in the chamber later that day and staring at his watch, it struck Wacka that the timing of his departure was serendipitous. The royal commission was over, the final report had been released, and the voiceless had, to a degree, been heard. He was disappointed the royal commission hadn’t called for structural separation of vertically integrated models, which had been the cause of so many conflicts and problems. But he was thankful the inquiry had gone some way towards addressing the problems of farmers and scrutinised the financial sector’s many failings.
As he began to speak, he glanced up at the people he’d invited to witness the moment, all of whom had contributed to his legacy. He smiled up at the front row of the president’s gallery, where his wife, three children and grandchildren were seated. I was in the row behind them, along with media friends Janine Perrett from Sky News and the Daily Telegraph’s Piers Akerman.
Other invitees included CBA’s Matt Comyn, who had visited Wacka at his farm in Inverell shortly after becoming CEO in an attempt to earn the trust of one of the bank’s toughest critics; ASIC’s Daniel Crennan, who was flying the flag for the regulator; and Sean Hughes, whom Wacka had met in 2013 and had recommended to various financial services ministers for the role of chairman of ASIC; CBA whistleblower Jeff Morris; bank victims; and some of the country’s most respected journalists, including the Financial Review’s political editor Phillip Coorey, ABC’s AM presenter, Sabra Lane, and veteran journalist Michelle Grattan. Prime Minister Scott Morrison was also present, as were former Prime Minister Tony Abbott, Deputy Prime Minister Michael McCormack and the former Nationals’ leader and Deputy Prime Minister Barnaby Joyce. It was a rare achievement for any backbencher to pull in a current prime minister, never mind a former one as well.
But Wacka was no ordinary backbencher. He’d come into politics with firsthand experience of going up against the Commonwealth Bank, with its deep pockets and ruthless culture. He understood better than most that the necessary foundations of financial organisations – trust, customer service and risk management – were deficient. During his political career he had acted without fear or favour to help other hard-working battlers like himself. Along the way, he’d exposed wrongdoing and never compromised himself or his beliefs. Years before it was popular, he had pushed for a royal commission into banks and the financial sector.
Wacka told the crowd of onlookers he’d had a fortunate life, ‘I never had to go to war. Perhaps the only wars I’ve fought were in this building,’ he said. ‘Had a few wins, had a few losses.’
He talked about his family, colleagues, the media and collaborations with journalists like myself. ‘In this job, you get to meet some great people, and, Piers Akerman, you’re one of them,’ he said. ‘But one of the great things Piers Akerman did was many years ago in Adelaide at The Advertiser. He gave a young lady a start in the media. Her name was Adele Ferguson. Adele, we’ve done a lot of work together and we’ve achieved a lot together . . . I will cherish the memories. As Adele said to me, “When the media and politics teams up, it becomes very powerful.”
‘When I first met with Jeff Morris, the whistleblower from Commonwealth Financial Planning, he asked, “Senator, what should we do?” I said, “I think you should give it to the media.” He asked, “Do you know anyone?” I said, “Yes, I do.” I handed the story to Adele Ferguson: nine hundred pages for her to read. Out of that came some changes for the betterment of all Australia, and a Gold Walkley Award for Adele Ferguson. Well done! You’ll have to extend your house soon, Adele, to fit all the awards in!’
I teared up, feeling a sense of pride at all that we had achieved, but also sad that Australia had lost one of its greatest politicians.
Then, as he signed off, Wacka was given a standing ovation – another rarity in politics.
Photo section
Retired Nationals senator John ‘Wacka’ Williams at his sheep farm and home in Inverell, NSW, where he spent most of his time when he wasn’t helping battlers fight bank misconduct. (Nancy Capel)
A former chairman of the Trade Practices Commission and the Australian Competition and Consumer Commission, Professor Allan Fels called out misconduct in the life insurance industry in 1991 and worked tirelessly to protect consumers. (Arsineh Houspian/Fairfax Media)
On 13 March 2000, Commonwealth Bank (CBA) boss David Murray and Colonial Mutual CEO Peter Smedley held a joint press conference to announce the merger of CBA and Colonial to create the country’s biggest wealth management institution. (Peter Rae/Fairfax Media)
After stockbroking firm Opes Prime collapsed in 2008, Mick Gatto (centre) and his colleagues John Khoury (left) and Matt Tomas travelled to Singapore to attempt to retrieve money lost by investors. (Aaron Francis/Newspix)
Storm Financial founders Emmanuel Cassimatis and his wife, Julie, at their Townsville mansion before the demise of the financial advice company, also in 2008. (Mark Cranitch/Newspix)
Visibly distressed victims of Storm Financial gathered at a parliamentary inquiry into the company’s collapse, in Brisbane, September 2009. (Paul Harris/Fairfax Media)
A former star financial planner at CBA who brought financial ruin to many of the bank’s clients, ‘Dodgy’ Don Nguyen was caught on film during the shooting of the Four Corners ‘Banking Bad’ program in 2014. (Fairfax Media)
In conversation with Adele Ferguson at a Walkley Foundation lunch in Sydney in October 2014, ASIC chairman Greg Medcraft admitted Australia had become a paradise for white-collar crime. (Ben Rushton/Fairfax Media)
Campaigner Merilyn Swan outside the CBA branch in Chatswood, Sydney, where her parents were misadvised by Don Nguyen. Swan has spent years seeking compensation on their behalf. (James Brickwood/Fairfax Media)
After suffering a heart attack and being resuscitated with a defibrillator, James Kessel had his trauma claim denied by CommInsure – on the basis of an outdated medical definition. (Matt Miegel/Fairfax Media)
Whistleblower Jeff Morris (left) helped his former colleague Veronica Coulston (right) battle NAB for compensation after she ran up hundreds of thousands of dollars
of debt by following advice from adviser Graeme Cowper. (Nick Moir/Fairfax Media)
Senators Mark Bishop and Doug Cameron attended a Senate hearing on 6 June 2013 as part of the Senate Economics References Committee inquiry into the performance of ASIC, Australia’s corporate regulator. (Alex Ellinghausen/Fairfax Media)
Led by Naomi Halpern (dressed in red), victims of the collapse of the Timbercorp managed-investment scheme rallied in Melbourne on 12 November 2014, ahead of a Senate hearing into the scheme and the role of banks. Many had lost their life savings and were left owing large debts to ANZ. (Josh Robenstone/Fairfax Media)
Sam Dastyari (with the red tie) and the ‘Coalition of Commonsense’ organised a press conference on 19 November 2014 to announce they had the numbers to scrap proposed dilutions to the Future of Financial Advice laws. To the right of Dastyari are Ricky Muir, Nick Xenophon and Jacqui Lambie; at left are John Madigan and Peter Whish-Wilson. (Andrew Meares/Fairfax Media)
IOOF boss Chris Kelaher appeared before a parliamentary inquiry into the company in July 2015. CBA whistleblower Jeff Morris can be seen in the background, at right. (Peter Rae/Fairfax Media)
Prime Minister Malcolm Turnbull (right) and Treasurer Scott Morrison (left) at a press conference at Parliament House on 30 November 2017 to reluctantly announce a royal commission into banking. The Coalition imposed a time limit on the commission of twelve months. (Alex Ellinghausen/Fairfax Media)
Kenneth Hayne QC, a former High Court judge, was selected to preside over the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Not only was the time limited, so were the commission’s terms. One area of inquiry the government did include was union-backed industry super funds. (Eddie Jim/Fairfax Media)
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