Since the financial services royal commission kicked off in early 2018, it consistently told the public it was on the hunt not only for criminal misconduct but also behaviour that falls “below community expectations”.
But in its curtain call, the royal commission itself has let Australian consumers down.
The inquiry’s final report, handed to government on Friday and released publicly on Monday, made 76 recommendations for reform. But few of them are an accurate reflection of the serious evidence uncovered over the past 12 months.
In his interim report, Royal Commissioner Kenneth Hayne correctly identified the underlying causes of bad banking: a lack of competition and culture of “greed, avarice and pursuit of profit”.
And yet, inexplicably, in his final report Hayne has recommended policy responses that do not address those deep concerns.
In fact, in a number of ways, the recommendations will only entrench power among the big end of town and reduce the likelihood of good consumer outcomes.
1. Tough on intermediaries, soft on banks
One of the biggest casualties of the report is the mortgage broking industry. It recommends that the “borrower, not the lender, should pay the mortgage broker a fee for acting in connection with home lending”. Or in other words, that commissions should be banned and brokers should move to a fee-for-service model.
The finding comes despite research released this week which indicated upwards of 96 per cent of mortgage broker customers are satisfied or very satisfied with the status quo and would not be willing to pay upfront for credit advice.
The report also targeted financial advisers, recommending similar changes to the way they get paid, including repealing loopholes for “conflicted remuneration” and reviewing whether life insurance commissions should be dialled down to zero.
Now, it is true that both mortgage broking and financial advice have faced a lot of criticism and that previous inquiries have found conflicts of interest in their business models.
But switching off commissions simply blocks people from lower incomes from receiving quality advice and robs consumers of a service research shows many of them find value in. Many of those consumers will invariably end up getting a home loan from a bank branch broker who will not have the independence of a third-party intermediary.
More importantly though, the focus on these professionals goes against the very point of the royal commission.
Most of the advisers and brokers in Australia are not boardroom bigwigs. They are small businesspeople in suburban shopping centres servicing regular folks.
Yes, they are sometimes guilty of receiving a conflicted payment and in some cases have engaged in misconduct. But they didn’t set those incentives and KPIs or design the conflicted system.
For that you need to look a few floors up at the CEOs and lawyers and board directors. That is what the royal commission was meant to do.
2. Props up lobbyists for the big end of town
Speaking of being soft on the big end of town, this is also true of the recommendations around industry codes of practice.
These are the ethical guidelines set by the financial services industry itself to “self-regulate” conduct. The report has recommended that these codes of conduct should be “mandatory” and enforceable”.
If you read them, these codes make some good suggestions and are carefully crafted in pro-consumer language. If they were implemented it wouldn’t necessarily be a bad thing.
But, the recommendation also hands over greater power to these lobbying organisations such as the Financial Services Council, Australian Banking Association and Financial Planning Association, which faced intense questioning during the inquiry itself over conflicts of interest.
They also opposed the establishment of the royal commission in the first place, so it’s ironic (and a little counter-intuitive) that the Royal Commissioner thinks they should play an important role on the road ahead.
3. No individual accountability
Finally, the report fails to identify a single individual executive or professional working in financial services who should be prosecuted for civil or criminal misconduct.
This comes despite mountains of evidence during the public hearings which laid blame for misconduct at the hands of individual execs, and the many individual stories and case studies we heard.
There have been so many political inquiries, reviews and reports over the years into problems in the financial system. All of them made generalised findings about the sector needing to do better or recommended technical changes affecting low-hanging fruit, rather than holding powerful individuals responsible.
This inquiry was meant to be different. Consumers are right to be disappointed that, in the end, it wasn’t.
While the final report is arguably soft on the big end of town, and a poor reflection on the painstaking and traumatic evidence uncovered, there are some positives to be taken away.
The report correctly pulls the banks up for providing poor services to regional, rural and Indigenous communities, and instructs them to do better. It proposes reform of the murky default superannuation system which will hopefully result in fewer Australians losing billions in unclaimed super. It recommends a number of transparency measures which will see more sharing of information in the financial sector, which will benefit consumers.
But more importantly, the inquiry that preceded the report resulted in a shift in Australia’s consumer culture.
The evidence uncovered by the royal commission saw complex and difficult discussions about our financial system move from the boardroom to the loungeroom.
More and more Aussies are looking under the hood of the financial system and seeking trustworthy information about how they can achieve financial wellbeing.
Whether we see a similar shift in corporate culture remains to be seen.
Your Money will be watching closely to ensure the spirit of the royal commission is upheld, despite its underwhelming final report.
Watch the panel of Your Money presenters debating the royal commission final report in the video above.