Chair's foreword
Australia’s major banks are central parts of our national economy. They underpin the ambitions of Australian businesses and industries to grow, invest and innovate.
They also support the personal aspirations of millions of Australians, whether through help to purchase their first home, keeping personal finances safe, or through supporting long term financial security and peace of mind.
The decisions taken by the major banks can deliver significant benefits for households and the broader economy.
However, experience has also shown that the bad decisions of banks can operate contrary to the interests of customers and the wider community.
Maintaining a sharp spotlight on these actions is one of the principal reasons why the House of Representatives Standing Committee on Economics has continued its program of annual public hearings with the major banks in this new term of Parliament.
In the aftermath of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, these hearings are one of the few remaining public forums that provide transparency and accountability for the decisions made by the nation’s largest financial institutions.
Established in 2017, the Royal Commission was conducted with 68 days of public hearings, it heard evidence from more than 130 witnesses and considered over 10,000 public submissions.
On 1 February 2019, the Honourable Kenneth Madison Hayne AC KC delivered his final report, setting out 76 recommendations aimed at restoring trust, improving governance and strengthening accountability across the financial services sector.
Central among these was Recommendation 5.6, which states that all financial services entities should, as often as reasonably possible, take proper steps to assess their culture and governance, identify problems, address those problems, and determine whether changes made have been effective.
Commissioner Hayne made it clear that ‘to ignore the recommendation would be foolish and ignorant. It would be foolish because one of the chief lessons financial services entities must take from the work of this Commission is that every entity is and must be accountable for what it does. It would be ignorant because those who will not learn from history will repeat it.’
He continued, ‘Above all, it demands recognition that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and with those who manage and control them: their boards and senior management.’
Commissioner Hayne further observed that this obligation is not static. Entities are required to ‘apply, re apply, and keep re applying’ all of the recommendations and lessons of the Royal Commission to their culture and governance over time.
This principle—the need for continual reflection, reassessment and improvement—underpins the committee’s ongoing scrutiny of the banking sector, nearly a decade after the establishment of the Royal Commission.
Despite the passage of time since the Royal Commission, recent evidence examined through this review illustrates why sustained scrutiny of the banking sector remains essential.
For instance, at Australia and New Zealand Banking Group Limited (ANZ), the arrival of new leadership coincided with candid acknowledgement of serious shortcomings in non financial risk management that had developed over an extended period.
Recently, the ANZ was subject to the largest ever fine secured by ASIC on one entity due to the bank’s widespread misconduct affecting the multi-billion-dollar bond issue undertaken on behalf of the Australian Government, and another infraction impacting at least 65,000 retail customers. This comes after regulators were forced to penalise the bank repeatedly over the past decade for misconduct in both institutional and retail activities, including via court enforceable undertakings. These regulatory interventions underscore the consequence of serious governance lapses and cultural weaknesses that appear to be deep-seated and persist in the bank. While the bank’s senior management sought to assure the committee that it expects to see improvements in its governance, the committee intends to not only monitor this closely but also seek to receive reports from our regulators to determine if banks are delivering on their commitments.
Evidence relating to the Commonwealth Bank of Australia (CBA) raised different, but equally concerning, issues. Specifically, the bank’s treatment of low income and concession customers highlighted the tensions that can arise between technical compliance and broader community expectations of fairness and customer focused decision making. Approximately 2.2 million low-income customers were wrongfully held in high-fee accounts and charged $280 million in excessive fees by the bank.
While some remediation work has been undertaken by the CBA, the application of what appears to be tight eligibility criteria along with unnecessarily bureaucratic refund processes by the bank has frustrated the efforts of low-income customers to secure funds owed to them. During their appearance at the hearing, senior management seemed to argue that handing back this money may attract a negative response from its shareholders.This should not even be a consideration, especially in circumstances where the bank may have acted in a way that is contrary to the Banking Code of Conduct. Further, it is not hard to imagine that, were the bank owed $280 million by customers, it would have designed a much quicker way to recover those funds. The CBA cannot be perceived to have unfairly profited from low-income customers, and they are urged in the strongest terms to correct this.
The matters explored in this report reinforce the need for banks to demonstrate that customer interests are genuinely embedded in decision making at all levels. This will remain a critical focus of the committee.
Through the Review of Australia’s Four Major Banks, the House of Representatives Standing Committee on Economics examines not only bank conduct and governance, but also the insights banks can offer into the financial wellbeing of households, the pressures facing businesses, and the performance and resilience of the Australian economy more broadly.
This report reflects evidence received during the committee’s most recent hearings. It considers how the banks are responding to economic conditions, regulatory expectations and technological change, while maintaining a focus on customer outcomes, service delivery and systemic stability.
In doing so, the committee reaffirms its view that sustained public scrutiny remains essential to ensuring that the banking sector continues to operate in the long-term interests of the Australian community.
The Hon Ed Husic MP
Chair