The state of Australia’s banking and financial services industry is in the news for all the wrong reasons. Following the recent Royal Commission, how can we understand and process the possible ramifications for industry participants?
It’s clear that some participants have acted with recklessness across many sectors within the industry, but what may be more alarming is the institutionalisation of that behaviour, along with the failures of compliance regimes and the systemic failure of organisations to identify and remove those actors from their organisations.
Further, the failure of governance authorities to enforce already relatively strong regulations has not helped. Financial Services Institute of Australia (FINSIA) CEO Chris Whitehead highlighted this point, noting that stronger enforcement along with cultural reform and the elimination of conflicted remuneration models made up the core themes of the final Royal Commission report.
FINSIA and other industry bodies are in an important position after the Royal Commissions’ findings as they are committed to continuing education qualifications and professional ethics from all levels of participant seniority. FINSIA has long advocated for increased education and professionalism and industry bodies like FINSIA are extremely important to the rejuvenation of the whole industry.
Conflicted remuneration models and suspect fees have been a significant thorn uncovered by the Commission, with Commissioner Kenneth Hayne stressing that the cultural toxicity of many organisations to uphold sales and commissions over quality client servicing and observance of the law and standards is a key negative of the industry. Commissioner Hayne stated, “Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards.”
In a commitment to cleaning up the industry, Treasurer Josh Frydenberg noted the Government would follow up the Royal Commission with an independent inquiry in three years to ensure recommendations and guidance had been followed. With the Government and industry bodies committed to change, we shall wait to see the real response from industry participants beyond their initial public statements. Australian Banking Association (ABA) CEO Anna Bligh has stated in no uncertain terms that the banking industry takes full responsibility for its actions and is committed to rectifying the deep issues within its structures and behaviour.
Simply put, we will only know with time whether change brings better client experience, and a fairer fee environment. The importance of the failure of regulatory agencies to impose their powers, prosecute and monitor the industry must not be overlooked. Regardless of the value of self-regulation and best practice industry standards, without proper governance, the industry lost its way. It is possible the government needs to look further into these regulatory agency failures given that the framework already in place was relatively robust.