Daniel Ziffer’s rollicking account of Australia’s Royal Commission into banking is a jaw-dropping laundry list of scandals, heartbreaking stories, and ‘gotcha’ moments.
The Hayne Commission was set up in 2017 to inquire into and report on misconduct in the Australian banking and financial services industry.
The result was a litany of shocking revelations including charging fees to dead people, ignoring blatant conflicts of interest, and taking $1 billion from customers in fees that banks were never entitled to.
Longtime journalist, radio producer and editor Daniel Ziffer spent a year covering the commission, and subsequently wrote A Wunch of Bankers – a book that covers not just the big shocks, but the small moments that reveal how companies used the law, limp enforcement, and basic human behaviour to take advantage of customers.
The following is an extract from the book.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had everything people like. Money. Power. Rich, powerful people being exposed for doing bad things. Honestly, if there was any credible suggestion of sex being involved, I’d have already sold the movie rights to this book.
But how did we even get to here? Australia’s economy hasn’t had a recession in over 27 years. We’ve been a safe, if not particularly dynamic, place for money to live in. Much of that has been due to the stability and power of our Big Four banks, backed by government guarantees and prevented from eating one another up.
As a share of gross domestic product, Australia’s banks are the most profitable in the world: 2.9 percent of everything the nation produces. Only China (2.8 per cent) and Sweden (2.6 per cent) come close. Australia might only have 25 million people and be the 13th-largest economy in the world, but for pre-tax profit our banks rank sixth in the world. Forget winning more medals at the Winter Olympics — we’re already achieving at a level no one thought possible!
Realistically, these whacking sums should add up to sunny days for bankers. But if you’ve made it this far, you’ve read lowlights from a sorry saga of greed, flagrant law-breaking, and contempt for customers. I mean, not even death could stop the Commonwealth Bank from taking fees from former customers — charges it wasn’t entitled to even if they’d been alive. Deceased customers were charged fees for personal adviser services, in one case for more than a decade. The bank received complaints for four years, then sat on internal and external reports about the practice for two more years, before finally informing the regulator of its wrongdoing. What can I possibly say to add to that? Except that this wasn’t due to algorithms or errors on forms. People made these decisions.
The problem wasn’t ‘bad apples’ — or ‘pockets of poor culture ’, as the Commonwealth Bank’s initial submission said. The issue was systemic across the big banks — all of which had excellent systems to check that the fees were being taken for ‘services’, but little concern for checking if any service was actually provided.
If you’re still wondering why I’ve been banging on about fees for no service, when most of the sums were — per person — small, I’ll tell you.
Imagine if doctors were charging you for blood tests. They pretend to examine them now, and promise to examine them into the future. They are lying about determining your current condition and giving you a false sense of security about your health as the years roll on. It’s actually much worse than just doing nothing, and it’s something systemic across all the large institutions. They’re still searching records — trying to find the damn records — so they can put a string around the neck of an elephant that’s ambled away.
The royal commission did amazing work, covering a wide spectrum of problems within a tiny timeframe. And even they were working it out as they went along. After a while, counsel stopped asking for the addresses of witnesses when they were sworn in, because so many didn’t give a business address or their lawyers’, but their home address — which then required a suppression order. I’ve only consumed the 6,500 exhibits they tendered: the number the commission would have examined and rejected is truly mind-boggling.
I followed the hearings for a year. The shock hasn’t been just in hearing the traumatic stories from aggrieved customers, but from reading the chillingly calm emails, meeting notes, and evidence from bank executives waving through behaviour that took money systematically, illegitimately, and unconscionably from customers — not all of them alive — in order to enrich themselves.
These were processes that focused on getting a sale at all costs. These were cultures that demanded financial results, and that rewarded them at the highest levels with substantial remuneration. These were major financial institutions led by senior executives who viewed every identified problem of customer exploitation not as an indictment of the company, but through the prism of their capacity to harm short-term profitability.
Even occasional financial penalties imposed by the regulators were regarded as an acceptable cost of doing business. The fines were always a tiny fraction of the profits being generated, and the regulators — who showed no real stomach for enforcement anyway — were continually being defied and delayed.
Post the royal commission, an aggressive ‘back to basics’ campaign is going on at ANZ, as it is the other big banks. It has sold off its insurance arm, and is getting out of car loans and superannuation.
‘Many of those were profitable, perfectly decent businesses, but we decided we can’t do everything well,’ chief executive Shayne Elliott said. If you walked into an ANZ branch in 2016, there would have been around 370 products on offer — credit cards, mortgages, and the like. More than 130 have now been decommissioned, with more to go. There’s a good reason for that: they’re complicated, and the staff need to know them intimately to stop customers getting in trouble with them. As he lamented:
ELLIOTT: So applying for a mortgage and processing that through sounds reasonably simple. There are 408 steps in that process at ANZ. A large number of those steps are manual. That’s why things go wrong in the first place.
My slogan is simple: ‘Make Banking Boring Again.’
Much of the profit came from remuneration where the interests of the customers were in conflict with that of the broker or the organisation, and in payments hidden through opaque fees, impenetrable documents, or obscured by relationships.
And profit was driving the bus. Look at consumer-credit junk insurance. We didn’t need to be told it was bad: you only had to glance at the business pages about the scandals in the UK or read NAB’s balance sheet. But the Commonwealth Bank delayed changes for two years to stop the rot. No one was fired over it.
When the bank scrapped the products in 2018, it said it was refunding $45 million to 150,000 customers, with a further 375,000 customers who may have been ripped off, too.
The then boss, Ian Narev, told his underling, fighting to kill off a worthless product reaping millions, to ‘temper your sense of justice’ in fighting for the interests of customers. Not that the bank needed much help there.
All its research told them that paying mortgage brokers on a commission model was bad for customers, with the perverse impact of encouraging brokers to write longer, more expensive loans than were necessary. The bank knew it was the right thing to do to drop it, but also that it might lose money if it went first in changing the model. So they did nothing.
It’s not just the banks. Money wants money, as Commonwealth Bank chief executive Matt Comyn explained. Those most violently against the removal of financial-performance targets in remuneration are large institutional investors. They don’t mind the greed of individual bankers, so long as it results in profits that boost the banks’ share prices. Many of these investors don’t care about the larger, longer cost of failing to comply with the law — that’s for another financial year to worry about.
COMYN: And, of course, the structure in — in the Australian context is shareholders effectively vote on that remuneration report, and if they’re not happy with it they can strike and spill a board.
ROWENA ORR QC: Yes?
COMYN: So — and generally, shareholders are, at least in my experience to date, very reluctant to remove financial performance from executives of any listed company.
COMMISSIONER HAYNE: Well, shareholders or institutional shareholders?
COMYN: Good — that’s a very important distinction. Institutional shareholders, commissioner.
The banks are now spending billions on creating systems for compliance, training staff, and empowering them to speak up. They’ll need them.
Commonwealth Bank chair Catherine Livingstone wants staff to think beyond targets, to understand their purpose and to think beyond what’s in front of them: like a canny waiter detecting a thirsty patron on the other side of the restaurant floor.
LIVINGSTONE: You don’t sort of think, ‘I don’t understand, but I won’t worry about it’, or, ‘It’s someone else ’s problem’ because it’s that situational awareness which actually identifies issues right at their inception and that is for everyone in the organisation … it could be in a branch with a teller, it could be identifying that a particular customer is distressed. So why are they distressed? Perhaps it’s a complaint and they haven’t been able to articulate the complaint … Or if someone sees something going wrong in a — in a system, something they didn’t expect, that they raise it straightaway, because their situational awareness says, ‘That’s just not right.’
(This ambition is somewhat undercut by the legion of junior staff who raised their voices about problems — at considerable risk to their careers — and were greeted with a wall of silence or a thicket of entanglement.)
As NAB chair Ken Henry mumbled and fumbled through explaining NAB’s remuneration system, Rowena Orr made a point about the Commonwealth Bank chair, Catherine Livingstone.
ORR: And you might have heard that I asked Ms Livingstone last week for her views about NAB’s change to a single form of variable remuneration?
ORR: And she said that it had the risk of rewarding short-term performance and distracting from focus on the longer term. What do you say to that?
HENRY: Well, obviously, I disagree. I think I might have to have lunch with her and explain how it works.
He was probably kidding. But ‘the club’ is real. The board system, especially, is a closed loop. The nominations committee seeks out new members, and large institutional investors, with their hefty voting power, essentially hire and fire directors behind closed doors. It’s hard to see how this promotes adequate scrutiny of poor decision-making or calls out problems to do with anything but one issue: immediate financial performance.
The regulators got a hiding from the commission, too. And deserved it. Their timidity was the key to lax standards, and to companies walking down paths they knew were legally fraught. Australia’s competition regulator escaped largely unscathed. But the conduct watchdog, the Australian Securities and Investment Commission (ASIC), and the Australian Prudential Regulation Authority (APRA) which focuses on the overall stability of the financial system, were savaged for their weak enforcement, paltry fines, and preference for negotiating settlements rather than prosecuting them in public view.
Both have since vowed to ‘muscle up’, with ASIC’s chair James Shipton noting that its starting position on enforcement is now: Prepare to fight in court. This will mean changing the habits of a lifetime. ASIC and APRA — who’ve barely seen the inside of a courtroom in a decade — have just received referrals for civil and criminal prosecution for 24 institutions and unnamed individuals exposed at the royal commission.
Too often, selling became the focus of institutions’ attention. From the top floor to the shop floor, everyone was being measured and incentivised to sell without considering how appropriate or useful a product was to the person paying for it. The commission’s recommendations were focused on ending that: it’s good news for customers; bitter medicine for the banks.
Commissions will effectively be killed off in financial services. Mortgage brokers — who arrange more than half the home loans in Australia — will be forced to accept a ‘best interests’ obligation: they’ll have to do the right thing for the customer, all the time. Car dealers will be subject to the same responsible lending laws as all other credit providers, killing off a ‘point of sale’ loophole that has trapped thousands in bad loans. And financial planners will have to contact clients annually and get their continuing agreement about the fees they charge.
Institutions and individuals have been referred to regulators to prepare cases for criminal charges. While the regulators have a limp record of taking matters to court, even a few prosecutions will have an immediate and chilling effect on borderline conduct at big institutions. And such long overdue action might just help rebuild faith in our financial sector.
As booted NAB boss Andrew Thorburn noted, we can’t ‘go back’ to a different time. With the pace of technological innovation and new competitors, banks will have to change. But they can do better.
THORBURN: So I’m not harking to the past for, you know, anything other than getting the basics right, but it should be service-based. It should be relationship-based. It should be stewardship-based. It should not be sales-based. And I think … if we don’t do that inside our company and in the sector, we will continue to make mistakes and be exposed because it’s not really sustainable. Now, I’m not saying that, you know, growing your business isn’t important, but your motivation must be to look after your client. That’s the primary objective.
And he was the one that the royal commission thought didn’t understand the seriousness of the issues.
The final report prescribed a cure for the heart of Australian banking. But the year-long probe did as much good in just diagnosing the sickness. Huge profit-fuelled complacency, supercharged by weak enforcement — even of admitted misconduct — fed an atmosphere of bulletproof risk-taking and wilful blindness to the interests of customers.
The system wasn’t broken. For the banks, it was working perfectly.
‘Wunch of Bankers’ by Daniel Ziffer is published by Scribe.