Apr 17, 2018

Banks’ business model burns to the ground at royal commission

What's left of the vertically integrated wealth management model, under which big banks and AMP ripped off consumers for years, was destroyed at the banking royal commission yesterday. And there's more to come.

Bernard Keane ā€” Politics editor

Bernard Keane

Politics editor

Less than four years ago, on July 15, 2014, the model of "vertically integrated wealth management" created by our major financial institutions was triumphant.

Finance Minister Mathias Cormann had engineered a Senate triumph, talking around Clive Palmer to support his repeal of the Labor-era Future of Financial Advice (FOFA) reforms.

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19 thoughts on “Banks’ business model burns to the ground at royal commission

  1. bref

    Yeah well, we’ve been moaning about banks for decades and nothing has come of it. Now we’re having yet another inquiry, a royal commission no less, I’m soooo impressed.
    We’ve had inquiries into all sorts of important matters over the years, petrol prices, treatment of aboriginal children, hospitals, housing. You name it, we’ve had inquiries. And yet hardly anything changes.
    We already know how this will turn out, the Libs will make a lot of noise over some effete new regulations, Labor will shout ‘its not enough!’, the banks will squeal like mad pretending to be pissed off, but its all a game and they will go on as usual making obscene profits ripped out of the pockets of their ‘customers’.

  2. Mr Denmore

    Good summary, Bernard. The other point worth noting that it was the banks’ dominance of all aspects of wealth management that made them so politically powerful in the first place so that they were within a whisker of completely dismantling FOFA. The end of vertical integration returns them to their core businesses, removes fingers from pies and reduces the virtual veto that had over the implementation of publicly minded policy. That it was ever otherwise is (another) stain on Australia’s recent record of governance.

    1. bref

      Good luck with that Mr Denmore, banking corporations will just own other businesses that will continue their ‘wealth management’ endeavours. It was never their business practices that were in doubt ā€“ corporations by their very nature are amoral and don’t give a bugger about the societies they reside in.
      Its the Labor and Lib govts who slavishly follow the American practise of allowing corporations to operate with minimal regulation thats the problem. Maybe they should look to northern Europe to see how it could be done. If they really had balls they could set up a new bank ‘of the people, for the people’ to give banks real competition.

  3. MJM

    “Counsel assisting provided evidence from the Commonwealth, NAB, Westpac and AMP that remuneration outlawed under FOFA had continued to be paid.”

    I was watching snippets of this on TV and thought how good was Rowena Orr, Senior Counsel Assisting. This RC is turning out to be right on to the problems, rather in contrast to what I was expecting. If they did have much say in setting the parameters of this inquiry the banks did a lousy job of it. Too stupid to help themselves?

    1. Arky

      There’s a few different factors here.

      I’m sure the banks and Turnbull tried to limit the damage, but Turnbull couldn’t nobble the either the terms of reference or the commissioner too hard for a number of reasons including placating the nats and appointing anyone who looked like they could be Dyson heydon mark 2.

      The reality is that the banks have such a history of serious, major, ethical and legal scandals to which they respond by saying they’ve now fixed the culture, which has been a lie every time. It’s not hard to drag out all these stories out, there’s plenty more where those came from.

      I’m pretty hopeful that this will lead to big changes.

  4. old greybearded one

    Surely ASIC must be smashed as well? They knew, but did not act. Then, let’s consider some jail time. All ASIC odes is issue fines to the institutions. The executives swap shops and we all go again.

    1. Wayne Cusick

      Yes, ASIC issues fines, but not very large ones.

      I also think that criminal charges should be investigated. Especially for things such as the CBA’s money laundering reporting issues.

      1. Bobby

        Criminal penalties are the only thing white collar criminals respect and fear. Fines are just a cost of doing business. See the continuing disgrace that is wide spread underpayment of wages and superannuation in Australia.
        Until governments start making these crimes punishable by real prison time it will never be stopped.
        Stick a couple of bank executives in a proper prison with violent felons for a few years and watch the industry clean itself up overnight

        1. bref

          You’re assuming our govt has an appetite for jailing corporate CEOs ā€“ not happening. Bond was an exception not the rule.

        2. AR

          It would be in their long term self interests, a bit of porridge now or lamp posts later.

  5. zut alors

    Despite his flaws, Sam Dastyari is responsible for saving FOFA & is one of the few politicians who can claim to have actually achieved something significant during their political career. Ditto Ricky Muir who proved to be nobody’s fool.

    1. DF

      Agree with you. I’d swap most of the seat-warming galahs in the Senate for Ricky Muir and others like him, any day.

      1. Sailor

        +1 Zut Alors & DF, precisely correct. I was really disappointed when Ricky Muir & Glenn Lazarus were not re-elected in Turnbull’s self-immolation election of 2016. They actually worked hard to find out the facts of any matter before they voted on it, and were a shining example (like ex-Senator Lambie) of what a parliamentary representative of the people should be, and act.

  6. Mark out West

    Hey Bernard don’t worry as you pointed out the Reserve Bank said everything is fine, don’t fret if our house values are propped up by shoddy bank valuations. Anyway no shareholder will take a haircut cause the banks are Gov. guaranteed, What Could Possibly GO Wrong, hey Bernard.

  7. AR

    I am so glad to have been so wrong about this enquiry which I presumed would be nobbled before the start.
    I am thoroughly impressed so far by its actions and look forward to more.
    Whether government, of “either” ‘side’, T1 or T2, would dare to do anything about its findings is moot.

    1. bref

      Trouble is, I seem to remember previous enquiries, remember the Sacred Children enquiry which produced many recommendations from many well meaning experts, only to have virtually every one of them ignored by govt. I don’t doubt this commission will also produce a wonderful, detailed report with many recommendations. But with govts inclined to favour corporates rather than people I don’t hold out much hope for change.

  8. DF

    If I were Shorten, I’d get Bowen or Leigh to ask this question when Parliament next sits: “Prime Minister, given your support for tax cuts for large corporations and given the revelations emanating from the Banking Royal Commission, was your strident opposition to the Royal Commission based on your fear of that might emerge would undermine your case for trusting in the good faith of large corporations to employ more people and pay higher wages?”

  9. CML

    Hey Bernard…still think the Cormannator is the best politician in this current parliament? You did used to go on about him quite a bit in this vein.
    So… maybe he’s just a crook…like the rest of these bank heavies, and all of them should be in jail.
    But then, of course, there is the ‘one law for the rich, another for the poor’ problem…….

  10. Ruv Draba

    I haven’t been tracking the proceedings of the Royal Commission closely. Thank you for an interesting, credible and thoughtful summary, Bernard.

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