It is clear now that Kenneth Hayne’s Financial Services Royal Commission will end up as the most influential financial services royal inquiry since the original Campbell Inquiry of the Fraser years, which gave us the current shape of the Australian financial system.
The changes that will flow from the commission will surpass anything from the Murray Inquiry commissioned by the Abbott government in 2014, and the Wallis Inquiry back in 1997. Indeed, it may well role back some of the more asinine neoliberal policies implemented in the wake of Wallis — particularly the neutering of the ACCC to regulate on behalf of financial consumers.
The Murray Inquiry began life as an idea of Joe Hockey’s in opposition — one he copped considerable heat from the banks for — and was watered down by the time the Liberals were in government. David Murray did a better job than might have been expected, albeit with some glaring omissions like vertical integration.
But like the Wallis Inquiry, it was an examination of what our economic goals around financial services should be — e.g. how to deal with too-big-to-fail — and how to maximise efficiency in that sector, rather than an examination of how regulators protected consumers. Indeed, its attempt to repeal FOFA showed the Abbott government was hell bent on stripping consumer protections away in banking, rather than investigating their failings.
We knew a decade ago, from scandals like Storm Financial, that there were serious flaws in consumer financial services regulation. The Mark Bishop-John Williams senate inquiry into ASIC in 2014 showed us how badly flawed, and inadequately funded, the regulator was. That inquiry recommended a judicial investigation of financial services, but only the Greens and Nick Xenophon backed the idea of a royal commission at the time — it wouldn’t be until 2015 that Labor backed one.
The Hayne commission is due to deliver an interim report by the end of this month and a final report by February. The government, while still insisting that the biggest threat to the economy is the CFMMEU and militant union leaders, is unlikely to be able to resist even the most draconian recommendations for regulation — if the Liberals object to anything, Labor will gleefully go to an election saying their opponents want the rorts to continue.
But even before politicians get around to regulating the results of the commission, it has had significant impacts. The financial advice industry has been turned over, with several firms closing and a clutch of charges awaiting individuals and groups, such as the AMP, CBA, NAB and perhaps Westpac and the ANZ.
Retail superannuation funds have been exposed a rampant gougers incapable of acting in the interests of their own customers ahead of their owners. The whole structure of incentives and rewards in the financial sector is now problematic, especially commissions of all types. Along the way there has been significant management change at the AMP and a board clean out, with more to come from legal action by regulators.
And that was before this week, which inflicted massive damage on the personal insurance industry. Cold calling is now dead as a business model for life insurance, and after learning of the techniques insurers like CommInsure use to block claims, consumers would be wary of touching any personal insurance with a bargepole. The very future of companies like ClearView Financial and Freedom Insurance may now be in question.
Also in question is the point of regulators ASIC and APRA, who have both adopted a regulatory approach that could be best summed up with the Apocalypse Now line about handing out speeding tickets at the Indy 500 — except that ASIC preferred to negotiate just how much the speeding fine would be with the perpetrator first. Kenneth Hayne has pointedly interjected a couple of times during hearings — most recently this week — to, in effect, express wonderment at ASIC’s lack of interest in enforcing the law.
It’s hard to see Hayne recommending anything short of a fundamental overhaul of both the regulatory framework and the regulators themselves to end the situation that has pertained since the late 1990s of financial institutions blithely ignoring the law without fear of consequences, and in the process immiserating tens of thousands of Australians. He will reshape financial services, likely for decades to come.
Will the Hayne royal commission change our financial industries? Write to [email protected] and let us know.