Over the past 6 months the Australian banking system has come under increasing scrutiny with calls from politicians from both major political parties for a royal commission in to the banking industry.  This follows a series of financial scandals where all the major banks and some of their smaller peers have been implicated in poor lending practices and the sale of inappropriate financial investment products to financially vulnerable consumers.

Not surprisingly the Australian Bankers Association (ABA) is resisting these calls and to date they have been supported by the Prime Minister and the Treasurer.  The fear is that a royal commission will undermine Australians’ confidence in an industry that is a “key pillar” of the Australian economy.  

The great majority of staff at banks are honest, ethical hard working Australians.  I deal with them every day in my role as a credit adviser.  For example, credit managers generally take very seriously their duty of care to their prospective customers in helping to ensure that they can afford to repay their mortgages. 

On the other hand a recent survey by the Finance Sector Union (FSU) shone the spotlight on a workforce that is “stressed, overworked, under-trained and ethically conflicted”.  Bank employees have highlighted the pressure within the banking system to meet sales targets, effectively forcing them to sell products that are against the interests of customers.  One survey respondent wrote:

Frequent contacting of customers to quiz them on their banking is harassment. Many get accounts they don’t want. Sometimes, they don’t realise they’ve bought them. The elderly are often victims.
Case Study 1. I was recently asked to assist a 19 year old woman whose bank savings account was $150 overdrawn. Impossible I thought: she did not have a credit card and had not borrowed any money. Read more

Another employee described sales targets as being more important than compliance and the customer.

Case Study 2.
I was asked to assist an 85 year old family member to set up a recurring payment from her deeming account to her daily transaction account with another bank. I enquired with the Information Desk at a local branch and was ushered into the office of the branch based financial planner. Read more...

This is borne out by my own experience in being called upon to help family members or friends who have been targets or victims of aggressive, unethical cross-selling by bank staff.  Two of these experiences are summarised in Case Studies (see boxes at right)

The New Daily quotes financial sector regulation expert Dr Andy Schmulow of University of WA who describes the problem as being the consequence of the “trickle-down effect” of a “wider incentive culture”.

“the wider incentive culture puts profits first, second and third and where banks are measured only on profit and face no real sanctions, which is why compliance is dispensed with or ignored.”

Defendants of the banks are proposing either a tribunal to deal with customer complaints while the government has tried to divert the push for a royal commission by requiring the banks to appear annually (my stress) before the Standing Committee on Economics. 

This week the terms of reference were released and these have been described by Martin North of Digital Finance Analytics as “cosy” and “very gentle”.  There is no attempt to address concerns about remuneration practices, or the vertical integration business model which sees the advisers and the product providers under the one roof.  The overall impression is of a friendly “boys club” having an annual chat about macro-economic factors affecting the industry with very little focus on issues affecting consumer outcomes.  This is simply not good enough.

Senator Elizabeth Warren grilled John Stumpf about Wells Fargo's cross selling practices and calls for the CEO to be criminally prosecuted.

If we are going to have a Senate inquiry hopefully we will see some Australian senators with the courage and capacity of US Senator Elizabeth Warren who recently took the CEO of Wells Fargo to task for his lack of integrity and accountability for cross-selling scams perpetrated by his staff under his leadership.  

"This is about accountability. You should resign. You should give back the money that you took while this scam was going on."



It is easy to understand why the ABA is cautious and is lobbying hard to divert calls for a Royal Commission.  We have recently seen the power of Royal Commissions in exposing deeply entrenched poor, secretive and immoral cultural practices in other pillars of our society; hitherto “well respected” institutions.  In the case of the banks they are loath to expose the inner workings of their businesses to the forensic public scrutiny that will surely be a consequence.

But that is precisely the reason why a royal commission is needed.  What is needed is a complete cultural change.  This will not come about if the scale and scope of bad practices is kept hidden from view, or dealt with as responses to individual issues raised by consumers who have the knowledge, courage and resources to take on the industry which will be represented by dedicated business managers, PR teams and their well-paid legal representatives.