ABA Banking Review – Page 2 – Digital Finance Analytics (DFA) Blog

Aggregator slams ABA Review’s “ludicrous” broker findings

There is a “significant risk” that the Australian Bankers’ Association (ABA) Retail Banking Remuneration Review will draw “false conclusions” on broker remuneration, according to the Australian Finance Group (AFG).

Managing director of AFG, Brett McKeon, said the review does not have the information gathering powers or resources required to include broker remuneration within its scope. Instead, it should cede this responsibility to the review currently being conducted by the Australian Securities & Investments Commission (ASIC).

The ABA “should not risk reducing confidence in its findings by referring to, or basing recommendations on, isolated anecdotal statements,” he said in a letter to Stephen Sedgwick AO, who is heading up the review.

An example of how the Sedgwick review misses the point can be found in its recently released Issues Paper which highlighted the banking industry practice of increasing the commission rate of a mortgage product to increase its sales, he said.

McKeon added that this emphasis failed to consider the combination of incentives that a bank may offer brokers, the consumer benefits of brokers fulfilling their responsible lending obligations under the National Consumer Credit Protection Act 2009 (NCCP Act), and negative factors such as increased processing delays caused by these types of promotions.

“The suggestion that a broker will chase higher commission at the risk of recommending something unsuitable or risk clawback and damage their reputation and therefore their business for a few dollars more is ludicrous.”

“In fact, AFG has provided extensive empirical information to ASIC for the purposes of the ASIC Remuneration Review that indicates that there is no real correlation between the commission rate offered and the market share of a lender.”

McKeon also slammed the Sedgwick Issues Paper for alleging that “third-party mortgages are likely to be larger, paid off more slowly, and more likely to be interest only loans than those provided to equivalent customers who dealt directly with bank staff”.

“It is extremely disappointing that the above statement was included in the Issues Paper, albeit with the final acknowledge that the information that was considered is not conclusive,” he said.

Instead, it was important to note that the attributes of loans introduced to the banks through the broker channel directly relate to the attributes of customers who sought out the broker in the first place.

“For example, consumers seeking larger loans may seek the assistance of a broker in order to maximise potential savings.”

Finally, McKeon said there was a danger that the Sedgwick review could treat the roles, responsibilities and risks associated with mortgage brokers as equivalent to financial planners.

“It is important to remember that the government intentionally excluded mortgage brokers from the Future of Financial Advice reforms (FOFA),” he said.

“This approach recognises that the regulatory failures that the government sought to address with FOFA did not include residential mortgages and that mortgage brokers were already subject to an appropriate protective regulatory regime under the NCCP Act, including the responsible lending obligations.”

ABA Responds To SME Banking Report

The ABA has responded to the Kate Carnell SME Banking Review, and rightly highlights the importance of the SME sector to the economic future of Australia. They said they would respond to the findings in the report later.

Of course, talk is cheap, but if it leads to real change that benefits small business it would be a good outcome.

Among the items I think they need to address are:

High prices for loans to SME’s – rates have not fallen in line with cuts in the RBA cash rate
Insistence on SME’s providing collateral even for relatively small loan amounts, and the fees involved in these transactions
Heavy handed dealing with small business owners who get into difficulty, not just in the agricultural sector
Lack of transparency in loan agreements

This is what the ABA has said:

The Australian Bankers’ Association has welcomed the report into small business lending practices released today by the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP.

“Small businesses drive economic growth and jobs, and having access to finance is key to their success,” ABA Chief Economist Tony Pearson said.

“Banks have heard the problems raised by small businesses and farmers and are focused on making banking better for them.

“This includes being more transparent and flexible in loan arrangements, and setting new standards on appointing receivers and valuation practices.

“The ABA is also working with small business organisations to make sure they have the information they need to manage and grow their businesses, including revamping the existing Financing Your Small Business website,” he said.

“The issues raised by Australian Small Business and Family Enterprise Ombudsman Kate Carnell in this report are important. Alongside this, the Code of Banking Practice is currently being independently reviewed (Khoury Review).

“We expect the report of the Khoury Review to be published shortly, and we aim to respond to the recommendations, as well as those from the Carnell Review, by the end of this month.

“The ABA will make changes to the Code to make sure our commitments to small businesses are clearer. We’re looking at having a separate section for small business lending and how we can improve the transparency of loan terms and conditions.”

Mr Pearson said the industry supported giving more help to customers when things go wrong.

“The ABA supports simplifying the current external dispute resolution system, creating an easier ‘one-stop-shop’ model and expanding the scheme so more small businesses can have complaints heard without needing to use the courts.

“At the same time, banks are improving their own complaints handling processes and appointing new dedicated customer advocates. Six banks have already appointed their customer advocate, with the other banks committed to have theirs in place by April,” he said.

“The ABA is pleased the report recommends a national approach to farm debt mediation. We have been advocating for some time to have a nationally consistent and mandatory approach to mediation that helps farmers in financial difficulty, which is modelled on the existing NSW and Victorian schemes.

“This would make it simpler and fairer for farmers to get help when they need it most,” Mr Pearson said.

This week Australia’s leading banks launched a Better Banking program to deliver better products and services to customers, building on last year’s reforms that address concerns with the culture in banks.

Former Auditor-General, Mr Ian McPhee AO PSM, is overseeing the implementation of some of these reforms in his role as independent expert. He has been providing detailed quarterly reports to the public on where the industry is up to, including how individual banks are progressing.

“The ABA recognises the importance of customers and stakeholders having confidence in the changes the industry is making. We will ask for more detailed information in the next report about individual banks’ progress,” Mr Pearson said.

ASIC is letting the banks write their own rules

From The New Daily.

The big banks are being given a free hand to reshape the industry after years of scandals, a senior banking expert has warned.

In recent days, the Australian Bankers Association has embarked on a high-profile campaign, complete with full-page newspaper ads, to market its proposed changes to its own sector.

These proposals are the culmination of several months of internal reviews, and are the industry’s response to countless reports of misconduct that sparked calls for a royal commission.

“We have heard the concerns of Australians and we are committed to taking action so that banking with all of us is a better experience,” Andrew Thorburn, chairman of the Australian Bankers Association and CEO of the National Australia Bank, said in a statement.

As proof of their commitment, the banks pointed to their $1 billion investment in Australia’s new super-fast payments system (despite the fact work on this system started back in 2014).

The ABA also promised: to employ customer advocates; more whistleblower protections; public naming and shaming of dodgy financial advisers; a simpler, better-explained complaints system; and a new industry-funded compensation scheme for victims of poor financial advice.

Dr Patrick McConnell at Macquarie University — a banking regulation expert who advised firms in the US, Europe and Australia for 30 years — said the industry is trying to “get control of the levers of power” so it can rewrite the rules to favour its members.

“The ABA are addressing some of the major issues, but from the perspective of what’s best for the banks to cover their arses, not what’s best for the consumer, the banking environment and the economy,” he told The New Daily.

“They’ve got a very vested interest and they’re pushing it. I don’t criticise them for doing it – I criticise ASIC for letting them.”

ASIC, the corporate and financial regulator, has ceded the field to the banking lobby because it is “spread too thin”, he said. “They’ve handed over the agenda lock, stock and barrel to the ABA.”

‘Treat the cause not the symptoms’

Dr McConnell took particular issue with the new consumer advocates, who will “prioritise and escalate complaints”, according to the banking lobby.

He feared these new bank employees would be used to keep complaints internal, away from the eyes of regulators and the media, rather than having them dealt with externally by an independent body.

Dr McConnell gave the example of the PPI scandal in the UK, where thousands of complaints about improperly sold insurance were dealt with internally and separately. As a result, the underlying cause did not come to light for many years.

“The customer advocate should be much more proactive in looking to head off problems to start with. They should take a look at a new product and say, ‘It’s going to give you problems here, here and here for customers’. If the product is designed well, the number of complaints will be lower.”

In the PPI scandal, British banks pressured customers to buy insurance to cover their mortgage or credit card payments if they fell ill or lost their jobs. The insurance was highly lucrative for the banks and a bad deal for customers. It was even sold to thousands of the self-employed and those with pre-existing medical conditions, despite the fact that neither could claim.

The Australian Banking Association did not respond to a request for comment.

Its members are supporting the Turnbull government’s proposal of a ‘one-stop shop’ external dispute resolution system, which is expected to combine several existing complaints bodies into a single scheme.

There are currently four complaints forums: the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO), the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), and the Superannuation Complaints Tribunal.

Four major banks face further parliamentary scrutiny

According to a media release today, the House of Representatives Standing Committee on Economics will conduct further public hearings with Australia’s four major banks in March as part of its review of the performance of Australia’s banking and financial system.

The Chair of the committee, Mr David Coleman, MP, stated that ‘these hearings provide an important mechanism to hold the banking sector to account before the Parliament.’

The committee will continue to hold public hearings with the four major banks focusing on:

domestic and international financial market developments as they relate to the Australian banking sector and how these are affecting Australia
developments in prudential regulation, including capital requirements, and how these are affecting the policies of Australian banks
the costs of funds, impacts on margins and the basis for bank pricing decisions, and
how individual banks and the banking industry as a whole are responding to issues previously raised in Parliamentary and other inquiries, including through the Australian Bankers’ Association’s April 2016 six point plan to enhance consumer protections and in response to Government reforms and actions by regulators.

“We’re making banking better for Australia”

The Australian Bankers’ Association has launched an advertising campaign “We’re making banking better for Australia” today as well as three extensions to their better banking programme. Here is the advert released today:

Australia’s leading banks have announced new initiatives to deliver better products and services to customers, building on last year’s reforms that address concerns with the culture in banks.

The Better Banking program has been launched to build on the initiatives announced last year and introduce new initiatives reflecting research conducted in 2016 into what customers like and don’t like about banking, and what is needed to make banking better.

The new initiatives include:

A renewed commitment to support customers in financial difficulty, including making our financial hardship support programs more accessible and working with financial counsellors to support the setup of a new debt repayment service to help people manage multiple debts.

Providing more support to farmers and small businesses by introducing new best practice standards on valuation practices and how banks appoint receivers. We will also work on developing financial literacy resources and tools for small businesses and farmers to help them maintain and grow their business.

Helping customers better understand how they can switch accounts and banks by holding a roundtable in March with banks, consumer groups, and government representatives to identify customers’ underlying concerns about switching and how we can make it easier.

Chairman of the ABA and CEO of National Australia Bank Andrew Thorburn said: “Our focus is on our customers and ensuring as an industry we provide the right service and right products to meet their needs.

“We have heard the concerns of Australians and we are committed to taking action so that banking with all of us is a better experience.

“This program of initiatives is our commitment to continue to raise the standards, service and trust in our industry,” he said.

Deputy Chairman of the ABA and CEO of Bendigo and Adelaide Bank Mike Hirst said: “All of these initiatives are designed to make it easier for customers to do business with banks and to ensure that, when things go wrong, banks will do the right thing and work with the customer to fix the problem.”

ABA Chief Executive Steven Münchenberg said this was a long-term commitment by the industry that started with listening to customer concerns and taking action.

“It includes the initiatives announced in April 2016 which banks are currently implementing, as well as products and services already offered by banks which we want to raise awareness of.

“For example, banks have a range of low cost and fee-free products and services to suit low income earners and retirees. Banks offer financial hardship support programs to help their customers through tough times. Banks also provide protection for customers who are the innocent victims of fraud. Many customers don’t know about these products and services, and we want to change that.

“Banks are also making a $1 billion investment in a new payments system to allow payments and transfers to happen in ‘real time’, overcoming the current delays when money is transferred from one bank account to another,” Mr Münchenberg said.

Other initiatives in the Better Banking program include:

The appointment of customer advocates in each bank, to prioritise and escalate complaints. Major banks have appointed their advocates and other banks will have theirs in place before the end of March, ahead of the original bank commitment by June.

Improved protections for whistleblowers, which will be in place from July.

An independent review of the Code of Banking Practice (‘Khoury Review’), which will assess the existing Code and identify areas where banks’ standards could be improved. The findings of the independent review are expected in early February.

Banks have agreed to identify and share information about financial advisers with a history of poor conduct, to help stop these advisers moving around the industry. The ABA’s Reference Checking & Information Sharing Protocol has been published and will be operational by the end of February.

Banks are also expanding the protocol to apply to bank employees. This will build on banks’ existing recruitment practices by adding standardised questions on conduct background checks for prospective employees, and will be published in March.

An independent review of product-sales commissions and product-based payments in retail banking (‘Sedgwick Review’) is moving into its final stages with a call for public submissions on the Issues Paper. The findings of the review on how banks pay and reward their staff are expected in early April.

New resources about banking, including a list of the most common types of bank fees and how to avoid them, and a step-by-step guide on how to make a complaint with your bank.

Support for the Federal Government’s financial adviser professional standards legislation currently before Parliament, and funding to establish the new professional standards body to help fast-track the adoption of the new standards across the financial services industry. The legislation will impose higher minimum education and entry qualifications, ongoing professional development obligations, and a mandatory code of ethics.

Advocating for the introduction of a new compensation scheme for consumers who have received poor advice from a financial adviser so they aren’t left out of pocket if that adviser goes out of business. This will help rebuild trust and confidence in financial advice, not just financial advice provided by banks.

Banks are backing a new ‘one-stop-shop’ external dispute resolution system to make sure disputes are resolved faster, easier and cheaper for customers. Professor Ian Ramsay is currently conducting a review of the system for the Federal Government.

Banks are also supporting the introduction of a new industry funding model for ASIC and improvements to the breach reporting framework to strengthen regulation of the financial services industry.

An advertising campaign began today to inform the community about the Better Banking program.

“We’ve heard our customers, and we’re taking action,” Mr Münchenberg said.

Further details are available at betterbanking.net.au.

ANZ dumps accelerator payments

From Australian Broker.

Sales staff at ANZ have been told of a new bonus overhaul in an announcement that follows the release of the Sedgwick review’s Issues Paper on banking remuneration.

Speaking to the Australian Financial Review, Catriona Noble, managing director of retail distribution Australia at ANZ, said that satisfaction would be deemed a more important metric than sales targets when calculating staff bonuses.

She also confirmed the dumping of accelerator payments which reward staff with a higher rate of commission as sales volumes increase.

The overhaul will also eliminate financial gateways which incentivise cross-selling targets through pre-defined conditions.

The risks of both forms of payment were highlighted in the Issues Paper on Remuneration in Retail Banking released on Tuesday (17 January).

ANZ’s new incentive plan will come into force on 1 April and use a “balanced scorecard” approach, the AFR reports. This system will give a 70% weighting to customer and teamwork metrics and a 30% weighting to sales targets.

“Discretionary incentive payments will be based on a Banker’s whole-of-role performance relative to their peers (i.e customer, people, financial, risk/process measures, and our ANZ Values),” an ANZ spokesperson told Australian Broker.

“This new way of determining incentive payments will better recognise those who are performing strongly across all aspects of their role, with emphasis on both objectives (what is achieved) and values (how it is achieved). This will increase the focus and weighting on the customer as an important measure.”

The bank decided to keep a certain levels of sales targets after conducting a trial over 10 branches in which sales targets were eliminated entirely. End results found that sales numbers declined across deposit products, home loans, wealth management and business products.

With this information, ANZ decided to combine both customer outcomes and staff financial performance in its new scorecard.

“We felt it was important for our staff to have a strong desire to compete to have a customer choose us for a home loan,” Noble told the AFR. “This is not about creating a need to make a sale. But for a customer that has a need [for a mortgage], it is about making sure ANZ is their number one choice.”

To assess customer satisfaction, ANZ will conduct “A to Z reviews” with customers – an interview that assesses individual goals and needs to match the customer with the right products.

“We recognise the need to improve our ability to look after customers and meet their expectations, so customers can trust the bank, and [know] the solutions we recommend to them are appropriate and in their best interest and not just in the best interest of the bank,” Noble said.

She acknowledged that to implement these changes, ANZ leaders would have to be competent and capable as both coaches and evaluators of more subjective measurements such as customer satisfaction.

Latest Banking Report Card Shows Some Progress

The third quarterly report on the progress of the Australian banking
industry in implementing its package of initiatives to better protect consumer interests was released today.

The six initiatives, announced by the Australian Bankers’ Association (ABA) on 21 April 2016, were:

1. Reviewing product sales commissions and product based payments;
2. Making it easier for customers when things go wrong;
3. Reaffirming support for employees who ‘blow the whistle’ on inappropriate
conduct;
4. Removing individuals from the industry for poor conduct;
5. Strengthening the commitment to customers in the Code of Banking
Practice; and
6. Supporting ASIC as a strong regulator.

The report says it is encouraging to see that the banks are continuing to take steps, including through the use of pilot studies, which are consistent with the objectives of the industry initiatives and overall purpose of the reform program.

Examples of such measures brought to the attention of this review include:

Westpac has elected to remove all product related incentives, including any incentives for referrals, for the 2,000 tellers in theWestpac branch
network. From 1 October 2016, incentives for tellers are now based entirely on customer feedback.

ANZ has conducted a ‘test and learn’ pilot in one of its Retail Banking districts over the past 15 months to trial a different approach to front line
incentives and measuring performance. During the trial staff performance measures and objectives were changed, with sales targets removed from incentive plans and replaced with customer-based metrics. ANZ has advised that the results, while not conclusive, lend support to the view that incentive plans may be best where they are based around whole of role performance.

CBA is establishing a process to proactively identify when customers are in vulnerable circumstances to tailor its processes based on their needs. The
goal is to allow the bank to identify multiple areas across the organisation where those customers may need special attention, either in the processes they go through or in the outcomes they receive.

NAB has established a Voice of the Customer review to allow the bank to improve its own processes and make things easier for the customer going forward. This is a retrospective review, undertaken on resolved complaints, specifically so that the true voice of the customer is considered in the root cause analysis of customer complaints.

These case studies demonstrate in a very tangible way a commitment by individual banks to improve performance by varying existing policies and/or piloting new approaches, consistent with the industry objectives.

They also demonstrate the multi-faceted nature of some of the challenges facing the industry, and how pilot approaches can inform longer-term solutions and encourage banks more broadly to review opportunities for improvement consistent with the industry objectives.

The extent of changes required by individual banks is likely to vary significantly, but will not be known until after the industry policy positions have been settled.

It is increasingly apparent, however, that banks will need to reassess the clarity of their service commitment to customers in the light of the industry’s initiatives, with revisions reflected in bank policies, training and behaviours at all levels, if the desired outcomes of the industry reforms are to be achieved.

This year will be critical to the industry and individual banks in:

making the decisions and policy changes required;

instituting the arrangements necessary for implementing, and embedding the new approaches to achieve the industry objectives; and

reporting on progress so that customers, stakeholders and the wider community can be better informed about the impact of the industry’s initiatives.

The report says there remains a significant body of work to be completed, including:

to settle industry policy positions and staged approaches toimplementation;

for individual banks to review and, as appropriate, revise their policies andprocesses;

for such policies to be embedded successfully into banking practices; and

for sufficient information to be reported periodically on industryperformance, to build confidence that the initiatives are having the desiredeffects on institutional behaviour and customer outcomes.

The next report (Report 4) is scheduled to be delivered by 21 April 2017, 12 months following the industry announcement.

The ABA commenting on the report said:

The Australian Bankers’ Association has welcomed today’s release of Mr Ian McPhee’s progress report which showed banks are delivering meaningful change in order to rebuild community trust.

Mr McPhee has recognised good progress has been made by the industry, but also acknowledged there are a range of complexities with the initiatives and multiple stakeholders involved. The completion of some reforms is dependent on third party and government input.

The report also provides examples of how banks have taken early steps to improve practices, in areas such as how they pay staff and handle customer complaints.

ABA Executive Director – Retail Policy Diane Tate said it was encouraging that Mr McPhee had recognised banks’ efforts to make banking better.

“The industry is working hard to deliver on our commitments in the reform package. We have allocated additional resources where needed in order to maintain momentum.

“During the past quarter, a number of milestones have been achieved. For example, the industry released new guiding principles for banks to ensure their whistleblower protections meet the highest standard,” she said.

“Banks are improving the way they handle complaints with the appointment of customer advocates. The industry will also continue to support a new and improved external dispute resolution system, to simplify the current process and make it available to more consumers and small businesses.”

Ms Tate said the industry looked forward to receiving the final report from the independent reviews into retail bank staff pay and incentives, and bank conduct standards in the Code of Banking Practice.

“The findings of these reviews will be an important impetus for change. But we are not sitting on our hands. Banks are working on how they can improve their commitments to customers, including small businesses, and promote ethical behaviour of staff.

“We are also continuing to work on the best way to measure the success of our reforms,” she said.

Bank risk strategies not sufficient, says Sedgwick

From InvestorDaily.

Strategies used by Australian banks to minimise the number of poor customer outcomes as a consequence of remuneration structures are in some cases not effective, the latest Sedgwick report has found.

The Sedgwick Retail Banking Remuneration Review, released this week, looked at the current systems, processes and features that banks report they have in place, which are intended to reduce any risk of poor customer outcomes inherent in the design of bank remuneration structures.

The report found important issues “that may warrant further investigation” and illustrated particular examples of banks’ practices.

For example, non-financial staff performance measures used by banks to “mitigate the risk of inappropriate behaviour or mis-selling”, can actually “incentivise activities that are not necessarily in the best interests of customers”.

The report found that some banks measure tellers and managers on the number of customers who are told to complete a transaction via self-service channels rather than via the teller.

“Part of my behaviour metric in my scorecard is that 60 per cent of my customers need to walk out working (leaving branch with work to do). If they don’t, I am not giving the customer the tools to use digital banking – my behaviour has not given customer service,” one survey participant said.

The report, however, states that for some customers, such an approach may not be in their best interests.

“Indeed, one teller described this as a ‘self service industry’ not a customer service one.” the report said.

Another survey participant said, “One teller encouraged a customer to open nine separate accounts, which helped the branch meet its target for new accounts opened.

“Subsequently, after discussions with another teller, the customer closed the unnecessary 8 accounts. The second teller was reprimanded.”

The report raised further concerns with other current performance measures implemented by banks in order to mitigate the risk of poor customer outcomes.

“A strong and deeply embedded sales culture … is difficult to change quickly. Attempts to do so need to be sustained, credible and possibly dramatic to have an ongoing effect,” the report said.

The review encourages submissions, which can be lodged by 10 February.

Shocking claims aired in new bank report

From The New Daily.

A new report has exposed serious flaws in the way bankers are paid to sell financial products, but it stopped short of calling for an outright ban, prompting fears the bank-funded review will not go far enough to prevent dodgy sales and alleviate pressure on staff.

Perhaps more revealing than the conclusions of the issues paper, released on Tuesday, were the shocking whistleblower reports it contained.

One teller reportedly encouraged a customer to open nine separate bank accounts to help the branch meet a sales target. A second teller was then “reprimanded” for helping the customer close the other eight “unnecessary” accounts, according to the issues paper.

A bank employee confided that: “If I am not on my numbers by 2.00pm I know I will have to have a performance conversation.”

Another said: “I know that if it is Thursday and I haven’t made my target by Friday I will be performance managed on Monday.”

A third said they feared for their job because they were not selling enough products. “If I do not meet my daily sales target I have to explain how I will catch up at morning meetings of the team. I am behind in sales of wealth and insurance products and need to catch up to keep my job.”

Another bank employee criticised the weasel words used to disguise sales tactics. “It’s no longer called ‘sales’ but ‘helping customers’. But everybody knows it is about selling. For example, the bank wants more accounts opened because it makes it harder for customers to leave.”

One whistleblower alleged that managers were put under even more intense pressure.

“Bank managers get ten times the pressure of the sales force. The manager has no power at all,” the informant said. “They receive multiple emails and teleconferences to talk about ‘the [sales] stats’.”

Another said some branches were “renowned for problem selling”, while others acted as “clean-up” branches that specialise in rectifying the problems caused by the “selling branches”.

Despite these claims, former public service boss Stephen Sedgwick, who is heading the review, found no clear evidence that sales commissions were creating “such significant systemic risks of poor outcomes for retail banking customers as would warrant the outright banning of product-based payments”.

His “tentative” finding, pending further investigation, was that “some banks should re-examine elements of their present practices, and I concur with those who believe it is appropriate to reduce the emphasis on product-based payments whenever possible”.

The review is one of three commissioned by the Australian Bankers Association in a seeming effort to fend off popular calls from Labor, the Greens and One Nation for a royal commission into bank misconduct.

The big four banks – CBA, Westpac, NAB and ANZ – are all ‘vertically integrated’, which means they create many of the financial products they sell.

To drive sales, many bank tellers are paid bonuses based on how many loans, credit cards and bank accounts they sell. Third parties, such as mortgage and life insurance brokers, as well as bank managers and senior executives also receive ‘incentives’.

The report found the average bank teller was paid a fixed wage below the Australian average (which is roughly $79,000). This is topped up with “variable reward payments”, which can be as high as $10,000 a month.

Consumer groups say these payments are far too opaque (they are rarely disclosed when a customer signs up) and may result in customers being pressured to buy unsuitable financial products.

Erin Turner, head of campaigns at consumer group CHOICE, said “everything we see” confirms that conflicted remuneration is hurting bank customers.

“We know that people are getting a raw deal in banking, whether that’s paying too much for a credit card to being mis-sold complex financial products that have a devastating impact on their lives,” she told The New Daily.

“We need more transparency, at a minimum.”

Ms Turner praised the Sedgwick report for providing more detail than she expected, but urged the review to release specifics, rather than broad overviews, of risky practices at particular banks.

“It’s really important for customers to know if they are going into a bank with a hard-sell sales culture or if they are walking into somewhere that’s going to treat them well as a customer and look after their needs first.”

Finance Sector Union national secretary Julia Angrisano echoed this concern, saying it was proof of the need for a royal commission with the power to subpoena documents.

“We’re pleased with the engagement so far with Stephen Sedgwick, but I am somewhat cautious that after almost six months there’s this idea that Sedgwick doesn’t have all the information he needs,” Ms Angrisano told The New Daily.

“There is an ongoing need for a royal commission to really dig deeply, with all the powers to compel all the information that’s needed, so we can properly examine the problems across the banking sector.”

Professor Peter Swan at the University of New South Wales, an expert in corporate governance, warned that incentives were inherently dangerous because they were “very effective”.

“Misapplied they can often lead to horrendously poor outcomes from the point of view of the consumer,” he told The New Daily.

“If you incentivise people, chances are they will devote all their efforts to those activities, and neglect other matters of importance.”

Professor Swan’s preferred fix was to align incentives closer with the interests of consumers, rather than ban them outright. An example might be a requirement for bank executives and tellers to sign up for the credit cards and home loans they sell.

Failing this, an outright ban might be preferable, he said. “I am sympathetic to the view that having no incentives at all may be better than having poorly-designed incentives.”

“Cosy” Terms of Reference For Big Four Banks Hearings

The Government has released the terms of reference which will govern the appearance of the big four banks before the Standing Committee On Economics.

The Treasurer has asked the committee to hold public hearings at least annually with the four major banks focusing on:

domestic and international financial market developments as they relate to the Australian banking sector and how these are affecting Australia

developments in prudential regulation, including capital requirements, and how these are affecting the policies of Australian banks

the costs of funds, impacts on margins and the basis for bank pricing decisions, and

how individual banks and the banking industry as a whole are responding to issues previously raised in Parliamentary and other inquiries, including through the Australian Bankers’ Association’s April 2016 six point plan to enhance consumer protections and in response to Government reforms and actions by regulators.

Given the aim of the appearances was to counter calls for a Royal Commission on the finance sector, they do appear very gentle. Whilst there are some culture-related issues being handled by the ABA’s internal processes, sharper question about remuneration practices, complaints as well as structural and organisational issues should be on the agenda, if the sessions are to have teeth. For example:

How does the vertically integrated business structures, across banking, wealth and insurance, and from advice through to sales and service (both via internal and third party channels) impact consumer outcomes?
Do commission arrangements degrade the quality of advice, product fit and price consumers receive?
What are the root causes of the recent raft of poor practice and complaints. What is being done to address them?

The committee does include cross-party representation, but with a noticeable bias towards the current governing parties!

The voice of smaller competitors and consumers of bank services will not be heard though this process.

It all feels rather cosy!