After a year of front pages filled with the evidence of scandalous wrong doing, rip-offs and greed in our banking and financial services institutions, we finally have a roadmap from Commissioner Kenneth Hayne on how to solve the finance sector’s ills. His report is bold, full of commonsense and clear solutions.
There is a lot for consumers to love including closing many regulatory gaps and loopholes, addressing conflicted remuneration, and putting culture, consumer protection and misconduct risk at the heart of both regulatory oversight and industry self regulation.
Commissioner Kenneth Hayne and treasurer Josh Frydenberg were asked by a photographer to shake hands, Hayne says a clear ‘no’ while Frydenberg smiles awkwardly.
Consumers who have been subject to the worst excesses of the financial services sector will also see a last-resort compensation scheme created that will provide the opportunity for much needed remediation.
Removing the ability for insurers to hawk their junk products, introducing a deferred sales regime for add-on products and capping commissions will rein in the worst excesses of the insurance sector.
Over the coming days we will hear a lot of responses from a lot of talking heads to these recommendations and others: from politicians, consumers who have been hurt by bad behaviour, and from the banks and insurers themselves, communicating their highly crafted, prepared-well-in-advance statements.
However, what we may not hear are the inevitable footsteps up and down the back corridors of parliament, of banking and insurance lobbyists seeking to water down, chip away at and wind back any meaningful reform.
The consumer movement has been here before. In fact, legislative watering down is the key reason the sector is in the mess that it is in. Time and time again effective reform is proposed and rendered ineffective, even useless through the well-resourced lobbying might of the financial services sector.
Before the release of the Hayne report, some self-interested Henny Pennies in the commentariat had already begun their squawking – laying the groundwork for the sector’s campaign in op-eds and editorials: “More regulation will have a chilling effect on the supply of credit.” “There is such a thing as regulatory overreach!” “The economy is teetering, house prices are falling and consumer spending is down. Now is not the time to change course or upset the markets!’ ‘What about the unintended consequences!’
In essence, the Henny Pennies believe that the concept of reining in the provision of high levels of credit to those who can’t afford to pay is a real problem. This is crazy. This is like arguing the best way to maintain a house of cards is to just keep building the house with more cards – not reinforcing the structure with a solid base and foundation.
What we have known from the royal commission is that the sky has long fallen in – on many of the most vulnerable and financially disadvantaged Australians. Ensuring that we have a strong economy based on the responsible provision of consumer credit should not be controversial. It is though to those who may just have a pecuniary interest in maintaining the status quo.
Just as we are rightly outraged by the bank and insurer’s profit-driven conflicts of interest exposed by the royal commission – the community will be similarly outraged if, as we expect, the financial services sector undertakes its usual conflicted, profit-driven lobbying effort to water down effective reform.
If we have any chance of avoiding being here again in 10 years time, the government, opposition and politicians of all stripes need to take a stand on behalf of all consumers against the banks.
It is time to stop listening to the banks and insurers and all those who have lost all credibility and trust and especially their lobbyists.
It is time to listen to consumers and the community that they have harmed.
Karen Cox is chief executive officer of the Financial Rights Legal Centre and was the first witness to appear in the Hayne royal commission.