ANU experts comment on banking royal commission

5 February 2019

Experts from The Australian National University (ANU) have shared their thoughts on the final report from the Royal Commission into the Misconduct in the Banking, Superannuation and Financial Services Industry. 

Dr John Hewson

Crawford School of Public Policy

"While the Royal Commission may shake up the banking sector for a while, seeing the termination of extreme abuses and other bad behaviour, perhaps with some significant civil and criminal penalties, it may do little to change the basic bank 'culture' that has been fundamental to this environment.

Bank boards are yet to recognise and accept full ultimate responsibility for setting a culture that focuses on the maximisation of profits and shareholder value at the expense of customers, and other stakeholders. Boards agree the strategy, appoint the CEO to deliver it, approve the related remuneration structures. A fish rots from the head.

Both sides of politics are "accepting" of all the recommendations, but this mostly pushes responses beyond the next election, where the final form of any legislative and regulatory changes will be determined through the Parliament. Without a fundamental change in bank culture, I suspect a drift back to their 'old ways'."

Tracey Mylecharane

ANU College of Law

"Since the Global Financial Crisis (GFC) Australia has seen more than 20 inquiries and reviews into various aspects of the financial system.  Little has changed.  For the first time, the Royal Commission has focused on the culture of the financial services industry and has identified regulatory, compliance and conduct risk as requiring necessary and urgent change.

There can be no doubt that for too long the regulators have failed, and accountability is an issue.  However, regulating the regulator is not necessarily the answer.  Until attention is given to understanding why the regulators have failed, why current powers are not utilised, and the extent to which funding constraints play a role in inadequate regulation, there is reason to be sceptical as to whether further powers will overcome regulatory failure, and whether regulating the regulator will help deliver regulatory objectives, or whether it will be another layer of complicated administrative procedures.

Ultimately, whether the Royal Commission proves to be as pivotal as it could be will depend on what the Government and industry do after the dust has settled.  Emotive headlines and apologies are one thing, however if the royal commission is treated as another 'show trial' rather than given the respect and attention it deserves, then it will be an unfortunate wasted exercise."

Associate Professor Alessandra Capezio

Research School of Management

"If we surface the assumptions underpinning the recommendations, there are problems. It is the absence of an evidence-based approach, and thus efficacious solutions, which really means misconduct and problematic behaviour will continue.

One recommendation is to fully implement the Sedgwick report; the problems of this report will flow on to practice, no doubt. For example, the report mentions unconscious bias. I would hate see banks invest copious amounts of money in unconscious bias training when there is no science supporting it.

Banks will scramble to action without thought and evidence and will achieve nothing other than wasting time and money, a lot of emphasize is put on management and evaluating organizational culture, changing remuneration and performance management systems. These are assumed solutions. In the organizational science there is little agreement on how to actually measure and manage culture.

What we really need to be talking about is measuring and managing ethical climate not culture for example. Also, unethical behaviour more broadly is complex and interventions need to deal with the bad apples, bad barrels, and bad decision-making contexts all at the same time."

Associate Professor Geoff Warren

Research School of Finance, Actuarial Studies and Statistics

"The report is considered and appears wary of limiting the scope for economic and market fall-out. A relief rally in the shares of the major banks and AMP would not surprise.

However, tightening up the rules can only go so far. The possibility of customer loss for those who fail to fall in line may be an important driver, as the banking sector will then see changing the way it operates as in its own interest. For instance, recent switching of superannuation fund members to industry funds from for-profit funds has sent a strong message.

There few recommendations of any major significance for the superannuationindustry in this Report. Perhaps the most notable are the enhanced Trustee obligations and responsibilities, and the request for a 'one default fund' mechanism - although the latter only reinforces the recommendations of the recent Productivity Commission review. Indeed, the response of the next elected Government to the Productivity Commission superannuation recommendations is far more important for this sector.

The Royal Commission has turned out to be a threshold event by galvanizing the Australian community around the need for change. The rarity of the Government saying it will adopt all recommendations from an inquiry without question stands as testimony."