Australia Pledges to Shake Up Financial Sector

Australia’s corporate regulators will be subjected to a new oversight body in a cleaning of the banking sector. The shake-up was recommended by a high-powered independent inquiry into financial sector greed and malpractice.

The Royal Commission, which is the government-backed inquiry into the sector, recommended prosecutors for 24 cases of wrongdoing and advised that remuneration structures across the industry be overhauled in order to get rid of conflict of interest.

The authorities were encouraged to consider slapping charges over behavior like the charging of fees for services that have not been rendered, including instances at major lenders Commonwealth Bank of Australia, National Australia Bank Ltd, and Australia and New Zealand Banking Group. 

The commission’s recommendations were released by the government on Monday following the public inquiry which unveiled 11 months of shocking revelations of wrongdoing that wiped out A$60 billion ($43.5 billion) from the country’s top finance stocks.

The misconduct reached into the sector’s higher profiles, with top wealth manager AMP Ltd engaging in board-level deception of a regulator over the intentional charging of customers for financial services that it never gave.

Companies were found to prey on some of society’s most vulnerable customers, emphasized by the case of an insurer who used aggressive sales techniques to sell an opaque product to a young man who has Down Syndrome.

“The price paid by our community has been immense and goes beyond just the financial,” Australian Treasurer Josh Frydenberg said while the government promised to take action on all 76 recommendations. “Businesses have been broken, and the emotional stress and personal pain have broken lives.”

The recommendations also include banning trail commissions for third-party mortgage brokers, requiring financial planners to disclose any fees they receive for selling products, and banning banks from charging default interest for farm businesses impacted by drought.

Regulators were also in need of greater oversight after they were accused of working too closely with the banks. When the misconduct was discovered, it either went unpunished or the consequences did not reflect the seriousness of what had been done, the inquiry revealed. 

Australia’s corporate regulator responded to the report by saying that it would prioritize serious matters referred to it by the Royal Commission for possible prosecutions.

Before the report was released, which was after the close of market trading Sydney, shares in the “Big Four” banks finished higher about one percent as investors looked forward to some certainty around the new regulatory framework.

On the other hand, wealth managers, whose reputations were shredded in the inquiry, were punished with IOOF Holdings Ltd stock closing down 4.5 percent and AMP sliding to a record low. Overall, the broader market finished 0.5 percent higher.

“They key macro issue we have been interested in is if this was going to further reduce the banks’ willingness to lend, which  would be a further headwind to the economy which is already under some pressure,” said Nomura strategist Andrew Ticehurst. “At this stage, it does not appear to be the case. It would be a bit milder than expected.”

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