Australia bows to years of pressure, announces inquiry
into finance sector
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[November 30, 2017]
By Byron Kaye and Paulina Duran
SYDNEY (Reuters) - The Australian
government said on Thursday it will hold a wide-ranging inquiry into a
scandal-hit finance sector, arguing one was needed to restore public
confidence as it reversed its long-held opposition amid mounting
The year-long Royal Commission, which will look at the conduct of banks,
pension funds, insurers and other financial services firms, will have
the power to compel witnesses and recommend criminal charges.
It has the potential to be far more embarrassing for the industry than
the regular parliamentary questioning of bank CEOs that Prime Minister
Malcolm Turnbull has instigated in response to public outrage over
scandals ranging from misleading financial advice to breaches of
anti-money laundering rules.
"Uncertainty ... over the potential for such an inquiry is starting to
undermine confidence in our financial system and, as a result, the
national economy," Turnbull told reporters.
"This is essentially a regrettable but necessary action. The political
environment has created a sense of inevitability."
The inquiry, which must report back by February 2019, will examine any
conduct which "falls below community standards and expectations" and
whether remuneration or governance practices have encouraged it,
according to draft terms of reference published by Turnbull's office.
"It's going to be costly and take up a lot of time of senior people,"
said Matthew Ryland, portfolio manager at Greencape Capital, which holds
"The cost-focus banks are probably in a better position to handle that
than the sales-focused banks," he added.
Other analysts noted it would become more challenging for the banks to
raise mortgage rates to meet regulatory requirements for higher levels
of reserve capital while the inquiry was being conducted.
Among Australia's "Big Four" banks, Commonwealth Bank of Australia <CBA.AX>
saw its shares fall the most on the news, losing 1.9 percent.
It is facing a civil lawsuit from the federal anti-money laundering
agency, which accuses it of enabling more than 50,000 payments of
criminal proceeds. The bank is defending the matter, saying the payments
occurred but blaming a computer glitch.
Australia and New Zealand Banking Group Ltd <ANZ.AX> and the country's
biggest investment bank Macquarie Group Ltd <MQG.AX> also lost ground,
ending down 1 percent and 1.5 percent respectively.
LAWYERS ALREADY APPOINTED
Two people at separate banks with knowledge of planning said lawyers had
already been appointed to deal with the Royal Commission.
The banks would likely create dedicated teams to lead their response
over the next 12 months, drawing on expertise in their legal, retail,
institutional, mortgage pricing and communications teams, said the
people who requested anonymity as they were not authorized to speak to
[to top of second column]
Australia's Prime Minister Malcolm Turnbull attends the APEC
Economic Leaders' Meeting in Danang, Vietnam November 11, 2017.
The commission, which will be headed by either a former or serving judge yet to
be named, will be able to make wide-ranging recommendations including changes to
legislation. A Royal Commission in 2001 that looked into the collapse of the
country's second-biggest insurer, HIH Insurance, led to criminal convictions and
It won't, however, have the power to order firms to pay compensation in relation
to individual cases.
The government had until now argued against an inquiry into the banks on the
grounds that existing regulation was working and it would be distracting and
undermining to an industry central to the world's 12th largest economy.
But Turnbull's political clout has weakened as questions over dual citizenship
caused elected members to quit and after his support for same-sex marriage
caused rancour within the conservative coalition. This month rural lawmakers in
the coalition circulated a bill demanding a commission, which already had the
support of opposition parties.
While the banks had vocally campaigned against a Royal Commission for years, the
heads of the major lenders on Thursday published a joint letter saying one was
now in the national interest.
"We now ask you and your government to act to ensure a properly constituted
inquiry into the financial services sector is established to put an end to the
uncertainty and restore trust, respect and confidence," said the letter,
addressed to Treasurer Scott Morrison.
Several of the banks later issued individual statements promising to cooperate
with the inquiry.
But the pension fund lobby, the Association of Superannuation Funds of
Australia, said it was disappointed its industry was included in the inquiry
since it had already faced a "plethora of never-ending inquiries, reviews and
The scandals that have hit Australia's big banks in recent years also include
accusations of using outdated medical definitions to avoid life insurance
payouts and rate rigging.
This month, ANZ and Macquarie also confirmed receiving complaints alleging
sexual misconduct by senior executives - potentially drawing the sector into the
same kind of scandals that have recently struck down the careers of more than a
dozen public figures, particularly in the United States.
($1 = 1.32 Australian dollars)
(Reporting by Byron Kaye and Paulina Duran; Additional reporting by Wayne Cole
and Tom Westbrook; Editing by Edwina Gibbs)
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