Financial services: Royal Commission Interim Report Part I
On Friday 28 September 2018 the Interim Report of the Financial Services Royal Commission was tabled in Parliament and released to the general public.
This post is the first in a series breaking down the Interim Report and what it may mean going forward.
However, before we move onto the findings and their ramifications I’ll review the overall status of the Royal Commission thus far.
I believe we were all aware prior to the commencement of the Royal Commission that there would be some discussion about the conduct of our financial institutions that would demonstrate conduct that did not meet community expectations. As the Commissioner, Justice Hayne, says in his Executive Summary:
Some conduct was already known to regulators and the public generally; some was not.
It is indeed the ‘some was not’ that has generated the headlines and controversy over the course of the Royal Commission. The impact is already being felt across the industry. There have been resignations from high profile executives and rushed moves by financial institutions to repair their public images.
The Commissioner appears to consider that the underlying issue is something that won’t be fixed by some quick reforms and smart public relations announcements. That underlying issue is cultural, more specifically, a culture of greed. Again, the Executive Summary points out:
Too often, the answer seems to be greed - the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained?
That culture of greed appears to be the driving force behind much of the conduct that has come to light. Pointedly, the day after the release of the Interim Report Macquarie Bank was in the headlines regarding a share dividend scheme in Germany that has resulted in its outgoing and incoming CEOs respectively likely to be interviewed by the Cologne Prosector’s Office. This wasn’t even within the scope of the Royal Commission but only serves to pile on the bad news for the sector.
So, based on the Interim Report what can we expect. Well, the Commissioner’s starting point is promising enough:
The law already requires entities to ‘do all things necessary to ensure’ that the services they are licensed to provide are provided ‘efficiently, honestly and fairly’. Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, ‘Do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?
That said, the temptation for politicians to respond to the findings with increased regulation will presumably be hard to resist. There’s already been significant announcements by the Government that increase the remit of ASIC’s powers.
I’ll break down the Interim Report over a series of a few more posts. Feel free to get in touch if you have any comments or would like to discuss the Interim Report.