Banking Royal Commission Announced 30/11/17

With the Federal Government making the announcement Thursday the 30th November it’s worthwhile firstly making some factual statements surrounding what it is, the cost, its aim and then importantly, to look at the draft terms of reference. In order to discuss this, I’ve utilised information derived from articles written in the Australian Financial Review & ABC online. It’s still early days following the announcement so obviously changes to the terms of reference may quite likely occur post the date of this article.

Aim: To investigate misconduct in the ‘Financial Services’ industry.

Term: 12 months in duration & due to commence early 2018 with findings to be handed down by 01/02/2019.

Regulator: Former High Court Judge ‘Kenneth Hayne’ appointed to run it.

Cost: Starting at say 75 million and of course, at a cost to the Australian tax payer.

Powers: Doesn’t have powers to compensate victims of misconduct for a financial services entity (FSE). Can make recommendations for changes to the industry which can have impact on laws & regulations.

So here are the draft terms of reference. To look at :-​

1. the nature, extent & effect of misconduct by a FSE.

2. any conduct by a FSE that falls below community expectations.

3. the use by a FSE of superannuation members retirement savings & if it falls below community expectations and/or not in the members best interests.

4. whether any findings in respect to 1, 2, & 3 above are a result of systemic cultural & governance shortfalls by FSE’s, within the industry or subsector. Or whether a FSE’s practices including their risk management, recruitment & remuneration have impacted detrimentally on consumer & member outcomes.

5. the effectiveness for redress for consumers of FSE’s who suffer detriment/loss.

6. the adequacy of existing laws & government policies relating to the provision of financial services, their internal systems & forms of self-regulation.

7. the effectiveness of FSE’s to identify & address misconduct by themselves.

8. whether any further changes to legal frameworks & practices within FSE’s , & regulators are necessary to minimise the likelihood of future misconduct

The ‘Royal Commission’ in pursuing the enquiry must have regard to the fact that if changes were recommended, what impact that would have on the broader economy, competition in the ‘Financial Services’ industry, & the financial system stability. It also needs to take care that’s it’s enquiry doesn’t compromise other current & ongoing criminal and/or civil proceedings & investigations. In regard to the former point, it’s worthwhile noting that the overseas ratings agencies like ‘Standard & Poors’ will be carefully scrutinising the unfolding of developments with this enquiry. Any drain on management & resources of financials service entities can have negative impact on their perceived future financial performance? That in turn could place pressure on their ability to borrow funds at current relatively low cost of funds levels, which in turn means they can then be passed on to consumers through higher end costs of financial products & services, particularly in respect to mortgage lending rates. To maintain profit margins, banks will pass any higher funding costs straight through to consumers. Through the commission enquiry process, the strength of the Australian banking system in respect to integrity needs to be perceived to be maintained . Australian banks are recognised worldwide for high prudential standards . It does not serve the Australian public or our economy any good, for that to be called into question. This is why the enquiry needs to be handled with some delicacy.