Dissenting report: Labor committee members
1.1
This inquiry was established to examine the impairment of customer loans
as a matter of public interest. At the completion of this year-long inquiry and
many hours of discussion with loan providers and banks, the committee was not
able to obtain a satisfactory explanation for the spike in impaired commercial
loans in the years following the Global Financial Crisis (GFC). Throughout the
inquiry, loan providers consistently maintained that: they always acted in the
best interests of the customer; the number of impairments was insignificant in
relation to the volume of their business; and the process they initiated to
recover funds was only started after the customer failed to meet their
obligations. In stark contrast, many submissions suggested that bank behaviour
appeared to be unusually aggressive in shutting down commercial loans. Some
evidence suggested that the practices adopted by banks to handle impaired loans
made it particularly difficult for loan customers to seek alternative financing
and retain their businesses as a result of loan impairment.
1.2
Labor members of the committee believe that the causes of increased
impairment of loans in the post-GFC period remain unclear. There are a number
of complex factors, including increased pressure on financial institutions
during their transition to a dramatically changed financial and economic
environment post-GFC. The changed economic environment may have led to
greater pressure on banks to generate higher return on equity, which could have
been at the expense of consumer outcomes.
1.3
Labor members of the committee concur with most of the findings of the
committee’s majority report and its recommendations.
1.4
We agree with the finding that there has been a persistent pattern of
abuse arising from the asymmetry of power in the relationship between lender
and borrower. However, we do not agree that the evidence received in this
inquiry is sufficient to conclude that there was no widespread or systemic
illegal or unethical behaviour by banks.
1.5
Labor members of the committee believe that there is more evidence of
banking misconduct that needs to be investigated. Recent media reports
highlighting the Comminsure scandal, the tampering of loan documents (revealed
on Four Corners, 1 May 2016), various financial planning scandals, bank bill
swap rates and other matters indicate that there may be broader systemic issues
with the behaviour of banks.
1.6
Labor members of the Committee consider that the evidence presented at
the inquiry has highlighted the need for further examination of the banking and
financial services sector, to examine:
-
how widespread instances of illegal and unethical behaviour are
within Australia’s financial services industry;
-
how Australia’s financial services institutions treat their duty
of care to their customers;
-
how the culture, ethical standards and business structures of
Australian financial services institutions affect the behaviour of these
institutions;
-
whether Australia’s regulators are really equipped to identify
and prevent illegal and unethical behaviour;
-
comparable international experience with similar financial
services industry misconduct and best practice responses to those incidents;
and
-
other events as may come to light in the course of investigating
the above.
1.7
Labor members of the Committee believe that the handling of impaired
customer loans by banks should be considered as part of any Royal Commission
into the financial services industry.
1.8
Labor members of the Committee do not believe that the announcements
made on the 20 April 2016 in the government’s response to the ASIC Capability
Review were sufficient to get to the bottom of the broader systemic issues in
the industry.
1.9
The behaviour of banks and financial services companies, including that
revealed in evidence to the Committee, has led to real reputational harm to
Australia’s financial services industry. Labor members of the Committee believe
that a Royal Commission is the only way to restore confidence in the Australian
financial services industry.
Recommendation:
That a Royal Commission be established to examine the
banking and financial sector, and particularly:
-
how widespread instances of illegal and unethical behaviour
are within Australia’s financial services industry;
-
how Australia’s financial services institutions treat their
duty of care to their customers;
-
how the culture, ethical standards and business structures of
Australian financial services institutions affect the behaviour of these
institutions;
-
whether Australia’s regulators are really equipped to identify
and prevent illegal and unethical behaviour;
-
comparable international experience with similar financial
services industry misconduct and best practice responses to those incidents;
and
-
other events as may come to light in the course of
investigating the above.
Senator Deborah O'Neill Senator
Chris Ketter
Deputy Chair
Ms Julie Owens MP Mr
Tim Watts MP
Navigation: Previous Page | Contents | Next Page