Restoring public trust in scandal-ridden financial institutions and restoring the free flow of credit will headline the Federal Government’s response to the final report of the banking royal commission.
Treasurer Josh Frydenberg will receive the report today, after it is delivered to Governor-General Sir Peter Cosgrove, and will have the weekend to study the recommendations before they are publicly revealed after the share market closes on Monday.
But as anticipation mounts — with a federal election set to be announced for May — Mr Frydenberg is preparing a response in the hope of calming financial markets, while also reassuring businesses and consumers that they should have confidence in the banking system despite shocking evidence of misconduct revealed during Kenneth Hayne’s inquiry.
“Trust is at the core of our financial system and, as we’ve seen, once it’s lost, it’s not easily regained,” Mr Frydenberg said.
“Consumers need to be able to trust that the individual or the institution they are dealing with is putting their interests first, second and third.
“The royal commission has shown that too often this has not been the case.”
While Kenneth Hayne’s recommendations are a tightly held secret, speculation has grown in recent months that civil and criminal matters could be referred to Commonwealth prosecutors after the “fees for no service” scandal and that, in some cases, even dead people continued to be charged fees.
Late last year, an additional $55.5 million was provided to Commonwealth prosecutors and the Federal Court to expedite potential prosecutions.
Government wants to restore flow of funds
After the commission’s interim report observed a “culture of greed” where banks put profits before people, institutions have implemented tighter credit controls on residential borrowers and businesses prompting warnings of a credit squeeze that could damage the broader economy.
Mr Frydenberg has indicated the Government’s response to the royal commission will consider the implications for the provision of credit, with total bank credit growing modestly at 4.5 per cent in December, compared to a previous annual average of 10 per cent.
“We must ensure affordable and accessible access to finance for households and businesses,” Mr Frydenberg said.
“The free flow of credit is critical to the health of the Australian economy.”
Late last year, the Reserve Bank urged commercial banks to improve the flow of credit and said even risky propositions should be properly assessed and considered for loans, even if there is a possibility of a default in repayments.
The royal commission was stubbornly resisted by then-prime-minister Malcolm Turnbull and then-treasurer Scott Morrison, despite rolling scandals such as the Commonwealth Bank’s 53,700 anti-money-laundering breaches and earlier misconduct at CBA’s insurance arm, CommInsure, where claims were wrongly denied.
As part of the ultimately doomed effort to forestall a royal commission, the Government introduced the Bank Executive Accountability Regime (BEAR) and the Australian Financial Complaints Authority, while also allocating more resources to the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
Under the BEAR, which came into effect on July 1 2018, executives could face personal responsibility for misconduct and the possibility of bonuses being clawed back.
Mr Frydenberg also said the Financial System Inquiry established under the Coalition had led to significant reforms aimed at building resilience in the system and strengthening consumer protections.
Over 68 days, the royal commission heard from 134 witnesses — although fewer than 30 were aggrieved customers — and received 10,100 public submissions in hearings that exposed the depth of cultural problems in major institutions such as AMP, the National Australia Bank and the Commonwealth Bank.