POOR lending practices by Australia’s big four banks will be under the spotlight when the Banking Royal Commission kicks off in Melbourne, with disgruntled customers lining up for a very public airing of grievances.
Commissioner Kenneth Hayne QC, a former High Court judge, will make an opening statement on Monday ahead of what will be an exhaustive 12 months of public hearings into misconduct in the banking, superannuation and financial services industry.
No witnesses will be called at Monday’s hearing.
“It’s important that it [the inquiry] gets to the matters that have disturbed the public,” Australian Bankers’ Association chief Anna Bligh told ABC radio on Monday. “I do expect this will be painful for banks and their staff.”
In a background paper released on Friday, titled: “Some features of the Australian banking industry”, Commissioner Hayne appeared to flag a focus on the big four banks, highlighting the declining competition in the sector and their high profitability.
Martin North, from research firm Digital Finance Analytics, said with issues in the financial advice and insurance sectors having been well canvassed in previous inquiries, lending practices appeared to be the focus.
“Lending is such a large part of the profit-generating engine of the banks and it’s quite complex because there are a lot of third parties like mortgage brokers as well,” he said.
“We might find poor lending practice is called out. Personally I think there will be evidence down the track, but the question is are there sufficient examples now, or is it too early in the cycle because we still have record low interest rates?
“Generally it’s when interest rates start to rise that problems show up. Is there enough evidence to be a smoking gun? Certainly, I think there’s a smell of gun powder.”
WHAT IS IT?
Officially called the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it was established on December 14 last year after Prime Minister Malcolm Turnbull caved to mounting pressure.
The previous day, the heads of Commonwealth Bank, ANZ, Westpac and NAB penned a joint letter to Treasurer Scott Morrison urging him to bite the bullet and call a “properly constituted inquiry” in order to end “political uncertainty”.
WHAT WILL IT INVESTIGATE?
The inquiry has an incredibly wideranging terms of reference and Commissioner Hayne will have a large amount of latitude to choose which areas he wishes to focus on.
Broadly, they fall under three general areas: conduct by the banks themselves, including any potential criminal misconduct; the culture and governance within the banks and whether that contributed to the conduct; and the adequacy of the overall regulatory and legal framework within which they operate.
CAN I GET COMPENSATION?
No. The Commission has been forced to clarify misconceptions that it is a dispute resolution body. “The Royal Commission has become aware that some people may have been receiving information that the Commission can make a decision to refund investors or provide compensation,” the website says.
“Such claims are not correct. The Commission cannot resolve individual disputes. It cannot fix or award compensation or make orders requiring a party to a dispute to take or not to take any action.”
WHAT WON’T BE LOOKED AT?
The inquiry is not required to investigate matters “sufficiently and appropriately” dealt with by another inquiry, investigation or criminal or civil proceeding. That may mean some issues are off limits.
That includes “rate rigging” allegations regarding the setting of the bank bill swap rate — NAB and ANZ reached settlements with the regulator while civil proceedings continue against Westpac. It also rules out CommBank’s alleged contraventions of anti-money laundering and counter-terrorism laws.
The commission will not look at financial stability or the resilience of the banks, nor macro-prudential policy and regulation.
WHO DOES IT COVER?
The Commission covers all banks, insurers including general insurers and life insurance businesses, superannuation providers, but not self-managed funds, wealth managers, financial services providers, and intermediaries between borrowers and lenders such as mortgage brokers.
Not all credit providers are covered. The terms of reference do not specify non-bank lenders. While holders of an Australian financial services licence are included, those who only require an Australian credit licence are not, aside from intermediaries such as mortgage brokers. That appears to exclude the small loans sector and so-called “payday lenders”.
— with AAP
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