With Labor vowing to go ahead with an inquiry if it wins government this year, Big bank chief executives say a wide-ranging royal commission into the financial services sector is not necessary and risks damaging the sector’s strong international reputation.
Opposition leader Bill Shorten picked a fight with the banks on the cusp of the federal election campaign, promising a two-year, $53 million (£37.54 million) probe. The move was termed “reckless” by the government, despite some in its own ranks supporting the inquiry.
ANZ chief executive Shayne Elliott told AFR Weekend, “I understand the politics and that attraction for many people to think that such a commission or investigation is a good idea, but I feel that we’ve been through the financial systems inquiry, we have had all sorts of investigations, we have high-quality regulators whose day jobs it is to enforce existing legislation and rules about unethical behaviour and illegal behaviour”.
“It has the potential to harm Australia’s reputation because international investors will be thinking where there is smoke there is fire and what exactly are we investigating here?”
The move was termed “serious distraction” by NAB chief executive Andrew Thorburn, who said there had been about 10 parliamentary and other inquiries into the sector since the 2008 global financial crisis and David Murray’s financial systems inquiry found no systemic issues.
He said, “However, our democratic processes are paramount, and if the government of the day decides that a royal commission is needed, then it will have our full co-operation”.
Commonwealth Bank chief executive Ian Narev was sceptical as well, but promised to co-operate.
“The banking system is demonstrably succeeding and it has been shown by the financial systems inquiry to be succeeding, yet there are people who want to take that and have a royal commission,” he said.
“On the other hand, I do believe we all need to be held accountable for making sure that the standards of the institutions are contemporary for the times, and we all need to accept and I certainly do as a CEO of a big institution, that to some extent you are defined by your weakest links.”
A Westpac spokesman said “the community rightly expects high standards from banks and all banking executives. However, we don’t believe a $50 million (£35.42 million) royal commission is necessary”.
In promising the commission, Mr Shorten cited 13 serious incidents of financial services misconduct in the past two years alone.
“Australia has one of the strongest banking sectors in the world and we want to keep it strong, but public confidence in the banking and financial services industry has taken hit after hit over the previous few years,” he said.
“Many Australians have suffered through the decisions of banks and financial institutions. Retirees who have lost their retirement savings, small businesses who have lost their livelihood, Australian families who have lost hundreds of thousands of dollars, life insurance beneficiaries, denied justice and legitimate claims.
“There are literally tens of thousands of victims if not more. And today I say enough is enough. This string of scandals has to stop.”
Labor had been discussing the idea at senior levels before this week’s latest controversy in which the Australian Securities and Investments Commission accused Westpac of manipulating the bank bill swap rate.
This prompted Prime Minister Malcolm Turnbull to use a speech at Westpac’s launch of its bicentennial year to tell the sector that its pattern of behaviour, which included financial advice and insurance scandals that have ripped off customers, could no longer be ignored and that it risked losing its social licence if it did not clean itself up.
Shadow treasurer Chris Bowen said Labor’s commission would investigate banks, superannuation funds, insurance companies and credit unions. It would examine how widespread instances of illegal and unethical behaviour were in the financial services industry and how the industry understood and gave effect to its duty of care, its customers, and “how the culture, ethical standards and business structures of Australia’s financial institutions affect their behaviour of their employees and their operation in financial markets”.
It would also look at whether Australia’s regulators were adequately equipped to identify and prove illegal and unethical behaviour in the financial services sector.
Treasurer Scott Morrison restated that the sector was already adequately regulated and termed Labor as hypocrites because Labor voted against a royal commission in the Senate last year when proposed by the Greens.
“I’m not saying for a second there aren’t issues to be addressed – and they are being addressed and we have a tough cop on the beat in this area,” he said of ASIC.
Mr Morrison insisted Mr Shorten was seeking a distraction ahead of a special sitting of Parliament starting on April 18 during which the Senate will have three weeks to reject or pass two bills to establish regulators to clamp down on trade union misbehaviour in the building industry.
Mr Morrison said the royal commission was “reckless” because “what he is suggesting is widespread corruption in the banking industry” and it would rattle rock international confidence in the banks.
Royal commission is supported by two Coalition MPs, Senator John Williams and Queensland Liberal MP Warren Entsch.
Senator Williams said support in the Coalition was growing.