The announcement of a Royal Commission into Banking & Financial Services today caught many commentators by surprise.
Far more expansive than first envisaged, the royal commission covers not just the four big banks, but regional banks, mutual banks and credit unions, along with superannuation funds and fund managers, insurers and all holders of Financial Services Licenses as well as Authorised Representatives.
It is not clear if FinTechs will be included in the Royal Commission unless they hold an AFSL or are an Authorised Representative.
The Commission’s draft Terms of Reference are focused on conduct and consumers. This will put further focus on culture, and more specifically risk culture within financial services.
Globally, the issue of corporate culture is receiving increased regulatory attention as a foundation of good governance. Locally the Australian Prudential Regulatory Authority (APRA) has mandated board responsibility for risk culture, and The Australian Securities and Investments Commission (ASIC) has also called for greater civil penalties for executives responsible for poor culture, as discussed in our recent report The Building Blocks of Corporate Culture.
With this regulatory focus combined with recent high profile financial institutions suffering in terms of reputation, lawsuits, regulatory fines & penalties – NAB’s foreign currency trading losses in 2004; the sacrifice of sound processes in terms of residential mortgages over preserving market share by several major lenders; and most recently, the money laundering accusations at Commbank deposit taking ATMs, it can be understood why the government has announced the royal commission.
Grant Thornton supports government and regulatory reforms designed to promote genuine ethical conduct in the best interests of consumers in the financial services industry. However the inclusion of the smallest ADIs, insurers and AFSL holders will create significant burden on these institutions who have delivered exemplary service to their customers and members.
The government may believe this is a “level playing field,” but it risks diluting the impact of the Commission with a remit that is overly wide and imposes an unnecessary burden on small and medium sized financial institutions.
Grant Thornton will continue to update you on the implications of the Commission as more details and findings become clear.