Banking royal commission: ‘Fee-for-no-service’ criminal, civil investigation referrals part of recommendations for sweeping bank reforms

The banking sector’s $850 million “fee-for-no-service” scandal is among referrals for at least 25 new criminal and civil investigations on the back of the delivery of the banking royal commission’s final report.

And Commissioner Kenneth Hayne has delivered a clear message that he believes the buck should stop at the very top, telling the Government — and the regulators to whom be has referred the investigations — to press home the blame for misconduct in the sector to the very top.

“There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management,” he said, in his final report.

“Everything that is said in this report is to be understood in the light of that one undeniable fact: it is those who engaged in misconduct who are responsible for what they did and for the consequences that followed.”

The centrepiece of Commissioner Hayne’s referrals is the $850 million “fee-for-no-service” scandal, in which AMP, ANZ, Commonwealth Bank, NAB and Westpac, along with others — admitted collecting fees from dead clients, or live clients that received no services.

While most of those entities — in some cases only under protest and after pressure from regulators — have begun repaying those fees, Commissioner Hayne’s report revealed he has asked ASIC to up its examination of the scandal to include potential criminal charges carrying jail terms, and corporate fines that could top 10 per cent of the monthly turnover of massive financial organisations.

There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management.

Commissioner Hayne said it was not appropriate to reveal the targets of the investigations — the most serious initiated by his review — but said he had recommended ASIC upgrade its examination of the scandal to include more serious criminal breaches of the Corporations Act, including carrying on “dishonest conduct in relation to a financial product or financial service”.

The admission, by some of the most senior and highly paid banking executives in the country, at hearings in November, that their organisations had failed to stop millions being ripped from customer accounts for services that would never be delivered, caused visible shock at the royal commission, as did the revelation that the corporate watchdog had never considered that theft.

But Commissioner Hayne is of a different view, saying in his final report “there is no doubt that money was taken from clients. Nor is there any basis for doubting that, when taken, the taker did not intend to return it to the client”.

“I consider that it is open to a jury to conclude, beyond reasonable doubt, that, in either of the cases described, the taker, in the course of its carrying on a financial services business in this jurisdiction engaged in conduct in relation to a financial service that was dishonest according to the standards of ordinary people and that the conduct was known by the taker to be dishonest according to the standards of ordinary people,” he said.

In addition to referring new investigations into the sector to regulators, Commissioner Hayne’s report recommends sweeping changes to the way it operates, including banning ongoing fees that are invisible to the consumer, ensuring consumers pay fees direct to mortgage brokers and other financial advisers, rather than the companies whose products they sell, and bans on hawking superannuation products and insurance policies to consumers.

Treasurer Josh Frydenberg said the Federal Government would “take action” on all 76 recommendations from the report.

“The Government’s principal focus is on restoring trust in our financial system and delivering better consumer outcomes, while maintaining the flow of credit and continuing to promote competition,” he said.

“These objectives are vitally important to the health of the economy and therefore to the health of our community.

“My message to the financial sector is that misconduct must end and the interests of consumers must now come first. From today the sector must change, and change for ever.”