Royal Commission remit “fair” and “reasonable”

by Miklos Bolza01 Dec 2017
Following the announcement of a Royal Commission into the banking sector yesterday (30 November), Prime Minister Malcolm Turnbull has released an associated draft terms of reference which outlines the scope of the Commission’s responsibilities.

Misconduct within the industry looks to be the primary focus, with the Commission charged with inquiring into the following:
  • The nature and extent of misconduct by financial services entities
  • Conduct, behaviour and practices falling below community standards
  • Misuse of superannuation members’ retirement savings
Within the credit space, a financial services entity has been defined within the terms of reference as an authorised deposit-taking institution (ADI), an individual or firm with an Australian financial service licence (AFSL) or an authorised representative of an AFSL holder.

The Commission will need to determine whether these activities are as a result of “particular culture or governance practices” within a financial services business or if it as a result of other practices such as risk management, recruitment or remuneration.

The terms of reference also charge the Commission to examine the effectiveness of current mechanisms to assist consumers in case of financial conduct as well current legislation, internal systems and industry self-regulation to identify and address misconduct within the industry.

Potential changes to legal frameworks, financial services practices and regulators to further minimise misconduct will also be considered.

The terms of reference list several restrictions for the Commission including that recommendations must not adversely affect the economy, must meet with comparable international best practice, and must not prejudice or compromise current inquiries, investigations or legal proceedings. Certain recommendations regarding macro-prudential policy, regulation or oversight will also be off limits.

The conditions laid out in this draft are “actually quite fair” and “cover an awful lot,” Patrick McConnell, honorary fellow at Macquarie University’s Applied Finance Centre, told Australian Broker.

“There’s enough in the terms of reference to delve into the two major issues: the various misconduct scandals that we’ve seen and also the regulation of that misconduct.”

With regards to potential changes to regulation itself, McConnell said that this pertained solely to “containing systemic risk” – a narrow definition which eliminated amendments at the macro-prudential level. This was necessary and reasonable so as to avoid over-extending the inquiry, he added.

“Most of the scandals we’re looking at, none of them affect the prudential status of the banks. They only affect the conduct.”

He noted that the effectiveness of the Commission will depend on two factors: the commissioner chosen and the way the government opts to run the inquiry.

“Hopefully, they’ll pick a judge who’s familiar with the financial sector of which there are a number of very eminent ones around.”

A total of $75m will be allocated to the Commission with the final report to be submitted within 12 months, no later than September 2018.

“The government has decided to establish this Royal Commission to further ensure our financial system is working efficiently and effectively,” Turnbull said in a statement.

“Instead of the inquisition into capitalism that some have called for, the Royal Commission will take a conventional, focused approach. It will not be a never-ending lawyers’ picnic.”

Federal opposition leader Bill Shorten has criticised the timing of the announcement saying, “It says everything about Turnbull’s values and priorities that he only agreed to Labor’s Royal Commission when the banks told him he had to.”

“He ignored the pleas of families and small businesses, he rejected the words of whistle-blowers, but when the big banks wrote him a letter, he folded the same day.”

Related stories:

Turnbull announces Royal Commission

Major banks call for financial services inquiry

Have banks let down the community?


  • by Joe Siragusa 1/12/2017 9:40:49 AM

    Should also include misuse of Industry controlled superannuation funds who are closely aligned to Unions and the ALP

  • by Edward the Broker 1/12/2017 9:42:16 AM

    I entered this industry 17 years ago from the construction industry. Before I worked in the industry I thought the big banks were the baddies too. However that has not been my experience. Home loan bankers are very conscious of doing the right thing by the consumer.

    I expect that the commissioner will find a few rogue individuals but nothing systemic.

    The 0.08% of people that are foreclosed upon have usually been given numerous opportunities to get back on track. Usually they are also the 0.08% of society that refuse to take responsibility for their own actions. They squeal blue murder because "Their luck was just about to change" or "They were gonna do this, or gonna do that" they were "just about to win a big contract" or "get a new job", not educated enough "So I didn't read the contract or understand what I was signing" but they knew how to spend the money. The fact is that there will always be some people in society that have victim complexes. They will always blame someone else for their problems.

    If you want to live a be free in life you must take 100% responsibility for yourself. If you don't you are giving someone else power over your life.

    100% means 100%.

    Edward the Broker

  • by Ray Weir 1/12/2017 11:44:02 AM

    Lets hope the Royal Commission investigates the various bank formulas for calculating economic break costs on fixed rate loans, and why banks charge higher "interest only" interest rates on housing construction loans when such loans automatically revert to P & I, usually within 12 months, and why banks stop paying trail commission when a loan goes into default, despite the banks charging the borrower a 2%-3% higher default interest rate at that time.