To lose one is unfortunate, to lose two… well… Tough times for certain senior bankers!
In an ASX statement NAB said that CEO Andrew Thorburn will finish at NAB on 28 February, while Dr Ken Henry indicated that he would retire from the board once a new permanent chief executive had been appointed.
The NAB board said it will
initiate a global search process for the chief executive role while
actively considering a range of internal candidates.
In addition, it has asked
director Philip Chronican to serve as acting chief executive effective 1
March until an appointment is made.
Mr Thorburn said it has been an honour to be the chief executive of NAB, and to have been part of NAB since 2005.
“I acknowledge that the bank has
sustained damage as a result of its past practices and comments in the
royal commission’s final report about them,” Mr Thorburn said.
“I have always sought to act in the best interests of the bank and customers and I know that I have always acted with integrity.
“However, I recognise there is a
desire for change. As a result, I spoke with the board and offered to
step down as CEO, and they have accepted my offer.”
Dr Henry said the board had recognised that change was necessary.
“The timing of my departure will minimise disruption for customers, employees and shareholders,” he said.
“This is naturally a difficult
decision but I believe the board should have the opportunity to appoint a
new chair for the next period as NAB seeks to reset its culture and
ensure all decisions are made on behalf of customers.”
Mr Chronican said he was
privileged to have been asked to step in as acting chief executive while
the board selected a new chief executive.
“I recognise the important responsibility in stepping into this role at a difficult time for NAB,” he said.
“I am confident in our existing
strategy to transform the bank to be better for customers and will work
with everyone at NAB to earn the trust and respect of the community.”
The royal commission may be over but Canberra’s scrutiny of Australia’s four major banks is still underway with another round of hearings planned for March; via InvestorDaily.
The House of Representatives Standing Committee on Economics will conduct public hearings in March as part of its ongoing investigation into the banks.
The committee has already held four rounds of hearings as part of its review and has made a suite of recommendations for reform.
Some of the recommendations have been adopted by the government, like the set up of AFCA and the BEAR regime as well as increased resources for the ACCC.
The committee also recommended the establish of the open banking regime, which will come into force later this year, that will make it easier for bank start-ups to enter the sector.
The committee is led by chairman Tim Wilson who said the hearings were important in the wake of the royal commission.
“These hearings provide an important mechanism to hold the four major banks to account before the Parliament.
“These hearings will, in particular, provide an opportunity to scrutinise the banks on the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry,” he said.
Mr Wilson is currently under fire from the Labor party for his position as chairman of the committee due to his franking credit investigation.
Mr Wilson has been accused by Labor MP Matt Thistlethwaite of using the hearings to lobby and recruit for the liberal party.
“It’s unethical and an improper use of taxpayer funds.
“They were handing out fliers and encouraging members of the audience at the Sunshine Coast based forum to join the national Liberal Party,” said Mr Thistlethwaite.
Mr Thistlethwaite in the past has called the inquiry an abuse of the committee process.
“Liberal MPs are using taxpayer dollars to run around the country encouraging people to do their part and undermine Labor policy,” he said.
Tim Wilson has also been accused of unethical behaviour by Labor after a leaked audio tape allegedly had fund manager Geoff Wilson of Wilson Asset Management boasting about speaking to Mr Wilson MP.
The leaked audio had Mr Wilson telling investors that it would be nice if one of the hearings was on the same day as his own upcoming franking credit roadshow where he dismissed labor policy.
“I was saying it would be nice if one of the hearings could be on a day, we are doing a roadshow. Then we could do a little protest, we could have our placards and we could walk down there.”
There was indeed a parliamentary hearing at the same time as the roadshow; however, the audio as revealed by the Sydney Morning Herald did not include any indication that this was due to any conversation between Geoff Wilson and Tim Wilson.
Further there was alleged indiscretion because of Mr Wilson’s investments in a Wilson Asset fund; however, this is listed on Mr Wilson’s register of parliamentary interests.
Mr Wilson said the work of the inquiry was for the people of Australia and was necessary in assessing the impact what a franking credit regime change could have.
“There’s a material impact on their quality of life as a result of a change of law.
“What we’ve heard across the country is people will lose 20–30 per cent of their income regardless of who they are.”
Ever since financial deregulation in the 1980s we’ve had a finance industry scandal followed by an inquiry, a quick fix, and a declaration that it shouldn’t happen again.
In the early 1990s there were royal commissions into the A$1.7 billion Tri-continental/ State Bank Victoria collapse, the A$3.1 billion State Bank of South Australia collapse and the WA Inc
collapse which explored the interrelated activities at Rothwells bank,
the A$1.8 billion collapse of Bond Corporation and the A$1.2 billion
siphoned from Bell Resources.
And now, bang on schedule, we have Kenneth Hayne delivering the final report
of a royal commission into systemic misconduct in banking,
superannuation and financial services industry to a government that
voted 26 times against holding it.
There are two particularly striking things about the 10-15 year cycle.
One is the rhythm of public inquiries followed by reports, then
(sometimes) trials, then books, then almost everyone forgetting (except
for those personally scarred) only for problems to resurface later.
The other is that the times between have been punctuated by
government-commissioned banking and financial system reviews: the 1991 Campbell Inauiry, the 1996 Wallis Inquiry, the 2010 Cooper superannuation review and the 2012 Murray Review .
Each either missed or downplayed the links between poor governance,
industry structure, systemic misconduct and prudential risk.
Has Kenneth got the frequency right this time?
Commissioner Kenneth Hayne’s 1000-page final report hasn’t gone far enough to end this cycle.
While his referral of 24 misdeeds for possible criminal and civil
prosecution will help in righting past wrongs and perhaps focus the
minds of directors and executives, the impact will be generational
rather than permanent.
The flurry of prosecutions and actions will again reveal problems with the law – gaps in coverage, inadequate penalties and cases the law won’t allow to stand up.
Taken together the recommendations are a patchwork of measures that
if implemented will over time be eaten away – and at some point will be
dismantled – because the rationale for their adoption will be forgotten.
Even before they are implemented they will have to run the gauntlet
of a massive subterranean lobbying effort from industry to water them
down, something Hayne indicated he expected.
The deepest flaw lies unaddressed…
Even though Hayne emphasises the link between systemic misconduct,
governance, structure and prudential (system-wide) risk, something that
Treasury, the RBA and Australia’s three business regulator amigos, APRA,
ASIC and the ACCC, have long rejected, he makes no concrete suggestions to tackle it.
As we have written previously, research tells us big systemically
important shareholder-focused universal for-profit banks that cross-sell
products are more profitable than smaller banks in the good times but
are more prone to misconduct and to failure in the worse times.
Australia’s big four fit the bill – they’re big, they have been
vertically integrated one-stop shops, they are very, very profitable and
they are very focused on shareholder returns.
While the banks, apart from Westpac, have divested themselves of
wealth management and insurance arms for now there is nothing stopping
them reacquiring them in the future.
This means we are once again 10 or 15 years away from systemic
misconduct resurfacing as big banks seek to become more profitable.
…and putting the onus on directors won’t much help
While heads might roll in yet another round of internal investigations to fix bank culture, it is wise to remember that as Adele Ferguson observed ANZ’s internal investigation of the Opes Prime collapse left the bigger governance lessons “unlearned”.
Directors and senior executives of failed companies continue to live charmed lives.
The directors of Babcock and Brown were cheered as they left the building, while friends and family of the disgraced One.Tel director Jodee Rich have resurfaced at Hayne and other public inquiries.
Some of the One.Tel directors have had long corporate careers. The former chair at of the collapsed Allco Finance Group Bob Mansfield went on to review the ABC.
Without them we could very easily have another crisis and another royal commission in 15 to 15 years time.
Ireland has taken a been prepared to change corporate structures.
After the meltdown of its financial system triggered by the end of a
“classic vanilla property boom” its parliament legislated to appoint public interest directors to the boards of its failed banks.
These changes were designed to ensure banks directors put the public
interest first, ahead of shareholders interests and even customers
interests.
It’s beyond time we did it here.
Authors: Andrew Linden, Sessional Lecturer, PhD (Management) Candidate, School of Management, RMIT University; Warren Staples,
As the dust settles following the final Royal Commission Report, its clear that the recommendations have carefully avoided the root cause of the wells of pain which the hearings revealed. In fact the force of evidence from those hearings will be what sits in the memory, not the final report. Perhaps some of this was created by the carefully crafted terms of reference, which made it hard for the Commission to get to root causes; perhaps deliberately?
The report puts the onus on financial institutions and boards to change the culture. Good luck with that, on past experience. Especially if bonus payments are a critical part of remuneration.
Criminal proceedings may follow, and more than 20 institutions are there, but these now are referred back to the very regulators who were found wanting in the first place. And cases though the courts will take years. Will any bankers actually cope it for their illegal behaviour – we doubt it. NAB appears to have been called out for special mention.
ASIC and APRA clearly failed in their respective (if confused) roles and getting greater clarity via a super-regulator may help. But I am not sure the twin peaks model works nor are the regulators sufficiently resourced; and the big missing in action figure is the RBA, who leads the Council of Financial Regulators, along side the Treasury. They drove the debt bubble, and the banks responded. This whole structure is complex, opaque and can be gamed. In the new world, ASIC it seems will have clearer leadership in terms of legal compliance; good luck with that!
Removing commissions from Mortgage Brokers (over time) makes sense as it is clearly a case of conflicted remuneration. And pushing towards a unified best interests duty across mortgage and financial advice makes sense. I still do not know why we have put up with two regimes for so long, it was an accident of history which ASIC should have addressed.
Anti-hawking rules for insurance and superannuation makes sense and should always have been there. SME’s need more protection than they have, but this was not recommended.
The BEAR regime, is centred around compliance, and its extension to insurance and wealth management helps, a little. But the basis of assessment remains narrow and is thus incomplete.
And the big question, which was hooked into the long grass, was structural separation, between product sales and manufacturer; and advice. This to me is a root cause of the conflicts and bad behaviour. Hayne says:
Enforced separation of product and advice would be a very large step to take. It would be both costly and disruptive. I cannot say that the benefits of requiring separation would outweigh the costs, and the Productivity Commission concluded that ‘forced structural separation is not likely to prove an effective regulatory response to competition concerns in the financial system’.
I observe, however, that the Productivity Commission recommended, and I agree, that commencing in 2019, the Australian Competition and Consumer Commission (the ACCC) ‘should undertake 5 yearly market studies on the effect of vertical and horizontal integration in the financial system’.
I am not persuaded that it is necessary to mandate structural separation between product and advice.
Now some entities have already jettisoned wealth management businesses for example, but consumers may well still face inherent and undisclosed conflicts. Our large opaque integrated financial services players remain just that.
Thus bankers can issue a sigh with relief, despite the estimated $6 billion + and counting remediation bill. And I do not see anything here to reverse the tighter lending standards which are now rightly in force, so expect mortgage growth, and home prices to slide further.
But the once in a generation opportunity to fundamentally reform the financial system has been missed, I am afraid, and as a result consumers will continue to pay more than they should for their financial services, big players will still dominate, and regulators will remain pussycats. Not a good outcome in my view.
We will see the Polys mouth words about “consumer trust and protection”, yet in practice do very little. I have a diary card for 5 years from now, for the next review, and one 5 years after that.
At the high level, the greed driven attitudes of the industry are highlighted as leading to the poor practice and illegal behaviour. This was driven by high pressure sales tactics. As a result the community trust in the financial sector has been lost. Change is needed – and culture of the entities and their boards are at the heart of it.
Consumers must be treated honestly and fairly.
The Treasurer says it was a scathing assessment driven by greed and poor behaviour. The price paid was financial, but also hitting people directly. Trust needs to be restored, whilst keeping competition, and the flow of credit.
Consumers will benefit from better protection. It will raise accountability and governance, enhance regulation, and provide for effective remediation.
It does not remove the twin peaks model, (APRA and ASIC).
More than 20 referrals to the regulators for criminal charges. No individuals were named.
The report has 76 Recommendations covering a wide range of issues. The Government says its will “take action” on them all. (Does not mean full implementation).
Of note is the establishment of a new super regulator to sit across APRA and ASIC to gauge their effectiveness and clarify roles and responsibilities. The Federal Court will have extra responses to progress the referrals.
Mortgage brokers will have a best interests duty and trailing commission will be banned in due course (July 2020). In addition there is a recommendation to move to fee for service paid by customers though the Government is slowing any such change (a 3 year review in the view of the impact of competition).
There will be one account for new superannuation savers and fees to be banned from My Super accounts. Changes to the add on to insurance via a cooling off period.
A Compensation scheme of last resort.
Expansion of the BEAR cultural framework.
No changes to responsible lending – its all about policing and compliance.
Nothing on structural separation, or horizontal or vertical integration. So the industry structure remains untouched.
The legislative response seems muted, and delayed to kick the burden down the track, after the election.
So my take is some progress, but not as much as perhaps many will wish for….
In a research note published on Thursday, Morningstar analyst Chanaka Gunasekera said the most immediate near-term risk for AMP will be the royal commission’s final report, which the government will release after the market closes on Monday, 4 February; via InvestorDaily.
“We expect the report to be highly critical of AMP’s governance and conduct,” the analyst said.
“However, the key risk remains the potential for the royal commission
to recommend the dismantling of the company’s vertically integrated
wealth management business mode.
“While we think the most likely outcome is that a wholesale
separation of its advice, platform, product manufacturing and other
businesses will not be recommended, we nevertheless expect the
recommendations will lead to a reduction in the competitive advantage of
operating this vertically integrated model.”
In his interim report to the Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry, Commissioner
Hayne questioned vertical integration as it relates to financial advice.
“The one-stop shop has an incentive to promote the owner’s products
above others, even where they may not be ideal for the consumer,” Mr
Hayne said.
Morningstar also flagged the uncertainty around the strategy of AMP’s
new chief executive Francesco De Ferrari, who has just taken up the
reins and has been tasked with being a change agent for the group.
While the new CEO’s strategy will largely depend on Hayne’s final report, there are other risks at play.
“The political risks are heightened by the fact that a pseudo federal
election campaign has commended, with the poll expected by the middle
of May 2019,” Mr Gunasekera said.
Morningstar will review the outlook for Aussie wealth managers following the publication of the royal commission final report.
“From the perspective of banks, vertical integration always promised
the benefit of cross-selling opportunities (the opportunities for
cross-selling financial products to existing and new customers).
Evidence about platform fees and the provision of financial advice at
the royal commission posed significant questions about the aspects of
‘one-stop shop’ models in advice industry.
In particular, it invited attention to how the vertical integration
of the industry may harm clients by protecting platform entities
associated with advice licensees from competitive pressures.
The commissioner claimed that clients end up paying more for platform
services than other providers would charge for the same service.
In their response to the interim report, Australia’s largest
financial institutions acknowledged that conflicts of interest exist but
stressed that they can be managed effectively.
AMP’s submission argued that “there are many advantages of vertically
integrated structures and that no recommendation should be made by the
commission which would limit an entity’s commercial flexibility to adopt
a vertically integrated model, as and when it considers it appropriate
to do so.”
In an earlier submission to the royal commission, AMP outlined the
following benefits to consumers of a vertically integrated model:
– economies of scale which benefit consumers;
– potentially lowering the cost of advice;
– convenience of a relationship with a single financial institution;
– perceived safety in dealing with a large institution;
– having access to different forms of advice (e.g. phone, on-line, face to face);
– having trust in the institution; and
– that large institutions
stand behind the advice that authorised representatives provide to
customers and have the capacity to do so
The office of the Treasurer has revealed that the final report will not be released on Friday.
According to the release, the Australian Government will still
receive the final report of the Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry on Friday 1
February 2019.
However, it will not be released publicly until 4.10pm on Monday, 4
February. Following its release, the Treasurer will hold a press
conference at Parliament House.
The interim report was released in September, when Treasurer Josh Frydenberg released the report the same day.
During his speech at the time he called the report “frank and scathing” and thanked the commissioner for his work.
He said the Royal Commission was announced last year because “the culture, conduct and the compliance of the sector is well below the standard the Australian people expect and deserve”.
The final report from the
financial services royal commission could be released later than
expected, after Treasurer Josh Frydenberg said government will “take
into account” its potential market impacts when determining when to
release it.
While Commissioner Hayne is
said to be “on track” to deliver the final report of the Royal
Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry to the Governor-General by the agreed deadline of 1
February, there is still uncertainty as to whether the government will
release the final report next Friday.
Writing to the Treasurer, Chris Bowen MP said: “It
is in the national interest for the Australian people and victims of
banking scandals to be able to access the Hayne banking royal
commission’s final report and form their own views, at the earliest
opportunity, and that means on Friday, 1 February.
“I have written to the Treasurer
requesting the release of the final report and related documents of the
banking royal commission as soon as practicable after it is received by
the government.”
He continued: “The Liberal Party has
no excuses not to release the final report of the Hayne royal commission
when they receive it on 1 February.
“Josh Frydenberg released the royal commission’s interim report on the day they received it – and that was appropriate,” he noted.
“Refusing
to release the royal commission’s final report immediately would
unnecessarily politicise the handling of the report and give rise to
potential material market risks around leaks of all or part of the
report,” the Shadow Treasurer added.
The
Adviser asked the federal Treasurer when the final report from the
financial services royal commission would be publicly released.
In a statement, Mr Frydenberg said
that any public release of the report and its recommendations would
“take into account” its potential market ramifications.
Treasurer Josh Frydenberg said: “The
government looks forward to receiving Commissioner Hayne’s final report
by 1 February and considering its recommendations as we continue to
reform the financial sector.
“The government recognises the
potential market sensitivity of the final report and will take this into
account in considering the timing of its release.”
This could suggest that the
report may be released when the Australian Securities Exchange is
closed, for example, in order to protect the stock market.
If the report is released after
ASX trading hours, this would make the earliest release of the final
report approximately 4pm Sydney time on 1 February, if not later.
However, no particulars have been disclosed by government.
The federal Treasurer added: “One
wonders why Chris Bowen is so focused on the timing of the release of
the report given last time we released a major report, with the
Productivity Commission’s thousand page study into superannuation, he
effectively ruled out one of their key recommendations to reform the
default system 15 minutes after it was tabled and clearly before he had
even read it.”
Further, the Treasurer told an audience at The Sydney Institute on Tuesday (22 January) that the central tenet of the government’s eventual response to the final report would be “restoring trust in the financial system by delivering better consumer outcomes”.
He continued: “This
requires a culture of compliance and accountability, regulators that
are fit for purpose and an acknowledgement by the sector that people
must be put before profits. All of this must be achieved without
inadvertently strengthening the position of incumbents or unduly
restricting the flow of credit or other vital financial services that
Australians need and the economy relies on.
“In his interim report, Commissioner Hayne makes the telling
observation that “much more often than not, the conduct now condemned
was contrary to the law”. He makes clear that while behaviour was poor,
misconduct when revealed was insufficiently punished or not punished at
all.
“This raises the issue as to whether new laws are required or whether
existing laws simply need to be better enforced. Simplification may be,
according to the commissioner, a better route rather than adding ‘an
extra layer of legal complexity to an already complex regulatory
regime’,” Mr Frydenberg concluded.
