Misconduct in the insurance and financial services sectors seems to have stemmed from greed - the pursuit of short term profit at the expense of basic standards of honesty, says the Interim Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The report, issued last Friday, says that it is necessary to go behind particular events and ask how and why the cases of misconduct came about.
“Banks, and all financial services entities recognised that they sold services and products. Selling became their focus of attention. Too often it became the sole focus of attention. Products and services multiplied. Banks searched for their ‘share of the customer’s wallet’. From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales.
When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done.
Misconduct left unpunished
The report added that conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court.
Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct.
Infringement notices imposed penalties that were immaterial for the large banks. Enforceable undertakings might require a ‘community benefit payment’, but the amount was far less than the penalty that ASIC could properly have asked a court to impose.
As the Commission’s work has gone on, entities and regulators have increasingly sought to anticipate what will come out, or respond to what has been revealed, with a range of announcements.
These include announcements about new programs for refunds to and remediation for consumers affected by the entity’s conduct, about the abandonment of products or practices, about the sale of whole divisions of the business, about new and more intense regulatory focus on particular activities, and even about the institution of enforcement proceedings of a kind seldom previously brought. There have been changes in industry structure and industry remuneration.
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.
There will be a further round of public hearings to consider these and other questions that must be dealt with in the Commission’s Final Report scheduled to be submitted next February.
Since the Commission started its hearings in March, it has unearthed a number of scandals, including wealth advisers charging dead people for services and insurers engaging in aggressive tactics to sell products.