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March 9th 2019


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Articles from this issue:

COVER STORY Commissioner Hayne offers banking stimulus

EDITORIAL Beijing's warning shot hits our soft economic underbelly

CANBERRA OBSERVED Coal ban just one front in Beijing's war on everyone

RURAL AFFAIRS Activist groups harass farmers while claiming tax-exempt status

BANKING ROYAL COMMISSION Dealing with disaster back into the too-hard basket

FOREIGN AFFAIRS Why Hungary and Poland rile the EU

RELIGION AND POLITICS Christians resolve to raise their voices in the public square

GENDER POLITICS Another freedom bites the dust under Daniel Andrews

FAMILY AND SOCIETY The end of 'Liberalism'

CHINA Thank you for your service, soft power; sharp power will take it from here

SCIENCE AND PHILOSOPHY Fermi's Paradox: Is Big Alien watching you?

MUSIC Perpetual vibe: From medium to media

CINEMA At Eternity's Gate: Impressions of Vincent

BOOK REVIEW Balanced account after the hysteria

BOOK REVIEW Golden Age for workers and its end

LETTERS

POETRY

SPECIAL EDITORIAL Has Cardinal George Pell been wrongly convicted?

THE CARDINAL PELL CASE: Triumphalism over Pell verdict shows civilisation just a veneer

THE CARDINAL PELL FILE

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COVER STORY Commissioner Hayne offers banking stimulus

by Peter Westmore

News Weekly, March 9, 2019

In his three-volume report on misconduct in the financial services industry, Royal Commissioner Kenneth Hayne repeatedly pointed to a failure in the banks’ culture as a reason for misconduct that included premature bank foreclosures, selling financial services that were clearly unnecessary, taking money from the accounts of deceased customers, and not providing financial services for which customers had paid.

In his examination of the scandal of banks charging customers for financial services that were not provided, Commissioner Hayne said: “In the Interim Report, I identified several considerations that pointed towards the conclusion that the root cause of the fees for no service conduct was greed: greed by licensees, and greed by advisers.

“The evidence that emerged in later rounds of the commission’s hearings only served to reinforce that conclusion.”

He pointed out that both the banks and the regulators had claimed that the problem arose because of poor administrative systems, rather than dishonesty.

“There began to emerge a narrative, ref­lected even in the evidence of Mr Wayne Byres, chair of the Australian Prudential Regulation Authority (APRA), that fees for no service was all just a series of careless mistakes capable of being swept aside as ‘processing errors’.

“This explanation was advanced by Mr Andrew Thorburn, CEO of NAB. He sought to portray the charging of fees for no service as a product of poor systems and carelessness. It was, in his words, ‘just professional negligence’.

“And Mr Byres said, in his statement, that ‘in many cases the fees for no service issue was in large part a product of poor IT infrastructure … [and] legacy system issues’.”

Commissioner Hayne said: “I cannot and do not accept this.

“As I put to Mr Thorburn, his proposition was that ‘this money fell into the pocket of NAB accidentally’. Mr Thorburn’s frank, and inevitable, response was: ‘I can’t disagree with that … it wasn’t intended to be ours but it became ours’.”

Incompetence?

Commissioner Hayne commented: “The amounts of money that just ‘fell into the pocket’ of so many large and sophisticated financial entities, the number of times it happened, and the many years over which it happened, show that it cannot be swept aside as no more than bumbling incompetence or the product of poor computer systems.”

The amount of money involved in this aspect of the commission’s work is staggering.

The Final Report of the commission said: “Between them, AMP, ANZ, CBA, NAB and Westpac will pay customers of their advice licensees or their superannuation funds compensation totalling $850 million, or more, for taking money as payment for services that were not provided.

“Each of those entities will pay its own amount of compensation, and none of them is responsible for what the others did. It is neither right nor useful to seek to impose collective responsibility.

“But, in judging the adequacy of the responses made by the entities and by the regulators, it is necessary to recognise that the conduct ran through the whole industry.

“Until this commission was established, ASIC [the Australian Securities and Investments Commission] and the relevant entities approached the fees-for-no-service conduct as if it called, at most, for the entity to repay what it had taken, together with some compensation for the client not having had the use of the money. That is, the conduct was treated as if it was no more than a series of inadvertent slips brought about by some want of care in record keeping.

“It is necessary to keep steadily in mind that entities took money (a lot of money) from their customers for nothing. The conduct was so widespread that seeing it as no more than carelessness must be challenged.”

The royal commission pointed out that this conduct likely amounted to criminal conduct under the Corporations Act, but added: “ASIC appears not to have considered the application of the criminal law in connection with fees for no service until a witness giving evidence to the commission was asked whether she had thought that taking money to which there was no entitlement raised a question of the criminal law.”

Commissioner Hayne recommended that criminal sanctions apply to these cases.

While public comment on the royal commission has understandably focused on National Australia Bank former chairman Dr Ken Henry and chief exec­utive Rick Thorburn, who were the subject of particular criticism for their refusal to accept responsibility for the failures that occurred on their watch, there is a deeper question.

To what extent were these systematic failures, which the commission attributed to greed, the result of an economic ideology that elevated self-interest – or the “invisible hand”, in the words of Adam Smith – to the status of the guiding principle of the free market?

If an ideology enabled these failures, the solution lies in a different financial system, one that emphasises cooperation and mutual benefit for lenders and borrowers, not merely the maximisation of profit.




























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