How Bad Behavior Caught Up With Australia’s Big Banks

A yearlong inquiry into misconduct in Australia’s financial industry uncovered a litany of scandals, including charging for services that were never provided, forging loan documents, lying to regulators and pushing customers into bad investments to meet bonus targets. The Royal Commission also described regulators as ineffective and urged them to toughen enforcement and curb the bonus culture that fueled decades of wrongdoing. It recommended the abolition of “money for nothing” commissions on loans and referred 24 cases of alleged bad behavior for possible legal action. However, it stopped short of mandating that “one-stop-shop” financial firms be broken up or that lending rules be tightened, actions that could have threatened bank profits.

Not really. While the industry’s worst fears didn’t materialize in Commissioner Kenneth Hayne’s final report, released Feb. 4, banks had already made some sweeping changes. Most are seeking to sell their financial advice and wealth management units, where many of the problems occurred. Pay and bonuses have been overhauled to focus more on customer satisfaction than sales targets. The regulator has curbed some risky (and more lucrative) home lending, while banks are spending hundreds of millions of dollars upgrading outdated IT systems and forking out hundreds of millions more to compensate ripped-off customers. A few heads have rolled -- most prominently the CEOs and chairmen of National Australia Bank Ltd. and 170-year-old wealth manager AMP Ltd. The government also took advantage of public anger at the industry to pass a bank levy in 2017 that will cost the big four lenders and Macquarie Group Ltd. A$6.2 billion ($4.4 billion) over four years.