The Banking Royal Commission
Kenneth Hayne QC is a model public servant: acute, diligent and efficient with a brilliant judicial mind but he’s not a superior forensic investigator.
His royal commission has not uncovered material that had not already been disclosed.
It is investigating matters that the financial bodies had already acknowledged.
So when Minister for Financial Affairs Kelly O’Dwyer refused to concede that the government should have established the royal commission earlier she wasn’t entirely wrong.
The truth is that it would probably have been in the public interest to hold the commission as early as possible but, from a policy point of view, it probably won’t make any difference.
As John Howard observes, it’s probably better to wait and see what Kenneth Hayne’s conclusions about the banks’ conduct are before making precipitate judgements about remedies.
In this light Kelly O’Dwyer was right to reject independent Senator Derryn Hinch’s proposals that the banks be excluded from any prospective corporate tax cuts as punishment for their bad behaviour.
There were a number of instances of bad behaviour examined in the royal commission last week.
The most egregious was probably that of AMP where management discovered that clients had been charged fees for services they hadn’t received.
They decided to refund the fees without telling the clients the reason.
When an independent report was prepared for ASIC by Clayton Utz, AMP’s Chairwoman Catherine Brenner amended the draft in order to exclude a reference to the chief executive Craig Mellor and replace it with a note that said that Mellor was unaware of any illegal activity which, on the evidence, is true.
Nevertheless he has now resigned and it’s likely that Catherine Brenner will also fall on her sword.
In the case of the Commonwealth Bank, its representatives admitted to the royal commission that they had paid $150 million compensation to clients who had been charged fees for no service, in some cases continuing to charge such fees after clients were dead.
The details of these cases are not clear but one would assume that the executors of the deceased estates had a duty of care to ensure that payments were not continued after death.
Notwithstanding this, the commission was told that, in one case, the commissions were deducted for ten years after the death of the client.
In terms of the transaction value of the banks over the course of four years, these defalcations are small beer.
On the other hand, to the extent that they involve fraud, deception or malpractice, they deserve to be punished provided the regulatory authorities, who are already in possession of the facts, can establish a case.
However, when it comes to making policy for the financial sector, it’s a case of reconciling tensions between the transactional perspective and the equity perspective.
The first of these says that it’s in the public’s economic interest that the banks operate as efficiently as possible and that individuals should take adequate precautions when entering into complex transactions.
The second approach maintains that the banks hold disproportionate power and that the market should be regulated to protect weaker parties.
The fundamental question is how far these parties should be protected from their own poor decisions at the expense of the economy as a whole.
If, as a consequence of this royal commission, we end up with a regulatory regime that imposes additional costs on every transaction conducted within the economy then this will permeate every aspect of economic activity.
Kenneth Hayne will weigh these matters carefully.
To date we have only heard from counsel assisting who have related defalcations that the banks have already admitted and, in many cases, compensated.
The commissioner’s job is not to pursue wrongdoers but to recommend changes to the regulatory environment.
In the end we shouldn’t be surprised if these are not as draconian as the public and the media expect.