As it happened – Banking royal commission report: fallout engulfs Canberra

So that’s it. The banking royal commission wraps up in time for the next election and both the banks, and regulators can breath a sigh of relief, because no individuals have been named for criminal or civil charges, and the regulator can stay, largely as it is.

But that is not where this story ends, and I think we all know that.

The government now has to deal with the fallout – from the sector, from those disappointed with where the recommendations stopped, and from its own 16-month denial of the need for the commission itself.

“Labor failed to do it when it was in power” is already running out of steam. People are going to expect that to be addressed, and addressed soon.

Scott Morrison hasn’t been heard on the report as yet. That will probably change tomorrow. Given the flooding situation in Queensland, and his appearance in Tasmania today, after that state’s bushfires, he is going to be busy.

Parliament resumes for the first time this year next week. None of these issues are going away soon.

Thank you so much for joining us for this special edition of politics live, and for sticking with us as I wrestled with the internet connection immediately after the lock-up. If it helps, I have aged about 10 years in that delay getting the first posts up.

A massive thank you to Katharine Murphy who is still toiling away at her keyboard and to Chris Knaus for stepping in today to help and the rest of the Guardian brains trust for keeping it all ticking over and cleaning up my typos, of which, as you can all attest, there are many.

Check back over the next couple of days for more news on this, and everything else Australian politics, and Mike Bowers and I, along with the whole team, will be back with you bright and early on the blog, on 11 February.

As always, take care of you.

The rest of the interview are things we have already heard.

The recommendations will be looked at, and “acted” on.

Asic knows it needs to pick up its enforcement game and has acknowledged that already.

Economy is strong, yadda, yadda, yadda.

Is a snap election an option?

No, says Josh Frydenberg.

Straight off the bat – should the Coalition apologise for opposing the royal commission for so long?

Look, we can debate for hours, Leigh, about what Labor failed to do when they were in [power]”

But what about the Coalition?

When we first came into office we initiated David Murray’s financial systems inquiry – a very significant inquiry that looked at the financial system and the recommendations of which we’ve been implementing since. We’ve adopted a number of important reforms that have been endorsed, not just by Commissioner Hayne today, but by previous reports including by the Productivity Commission into centre superannuation.

But what about the government’s opposition to the royal commission?

Well, we did call the royal commission and today we’ve responded to it.

Yes, but you were dragged to it.

And today we have said we’re taking action on all 76 recommendations. These are recommendations that will have far-reaching consequences across the financial system, including putting in place the banking executive accountability regime, not just within banks which we initiated, but with an insurance and superannuation companies, ensuring trustees of superannuation funds actually face penalties for breaching of their duties.

Putting in place a new disciplinary body that deals with financial advisers. There’s a whole series of recommendations that Commissioner Hayne has handed down which we have adopted today.

SIIIIGGGGHHHHHHH

We are just waiting for the Treasurer to appear on 7.30.

That should be happening very soon

Wayne Swan is another who thinks the report could have gone further:

The transcript from the Chris Bowen presser has landed – it was in Sydney, so I didn’t get to hear all of it in the madness of that first couple of hours outside the report embargo lifting, but the main takeaways seem to be:

The Labor party accepts in principle all the recommendations in Commissioner Hayne’s report. We would have a Treasury taskforce to work with a Shorten Labor government on implementing the recommendations. We would consult broadly on implementation details with all affected parties; the financial sector, the victims groups and consumer groups. We would consult widely about implementing the report’s recommendations but we accept in principle each and different recommendation in Commissioner Hayne’s report.

In fact we regard this report as being the minimum of action that should be taken to improve Australia’s banking and financial services sector.

On the recommendation the government has given a “maybe” to (user pays in terms of mortgage broking):

Well they haven’t adopted the recommendation. I mean they’ve got weasel words in there. We adopt the full recommendations in principle. We’ll sit down with all affected parties and talk about the implementation details, timeline et cetera but we accept the recommendations. The government simply cannot say that they’ve accepted the recommendations. They simply cannot. I mean they resisted this royal commission every step of the way and now we have the royal commission report and they’ve got weasel words in there about various recommendations including that one.

And on bipartisanship for legislation:

Well clearly there is legislation – clearly some of this legislation could and should be implemented as a matter of urgency. If it’s not we’ll have to wait for an election and all the relevant post-election processes which are inevitable and would lead to delay. If the parliament was sitting more between now and May we might get more passed.

Josh Frydenberg is the 7.30 guest this evening.

Anyone want to take bets on how often “Labor’s failures” gets trotted out?

The Commonwealth Bank of Australia chief executive, Matt Comyn, has also released a statement:

We are working through the royal commission’s final report and the 76 recommendations. Commissioner Hayne has called out the clear need for change.

The government has announced a comprehensive set of measures in response and we will work through the impact of these over the next few days.

We note that the commissioner has concluded that a number of matters regarding the group’s conduct, including in relation to superannuation, warrant further investigation by relevant regulators and we will cooperate fully with these investigations.

We will update the market as appropriate, noting that we will release our half year results on Wednesday.

The royal commission has been a thorough and valuable process for everyone – bank customers, financial services institutions, regulators and policy makers. It has highlighted failings both in our business and across the wider financial services industry.

As challenging as the royal commission process has been, CBA will be a better bank as a result.

We are addressing past failings, implementing important changes and improving our processes to ensure we remain focused on what is best for our customers.

We are implementing stronger policies and processes, including a new code of conduct.

There is still much work ahead to earn back trust, but we are determined to restore broad respect and support for the important role that a major financial institution like CBA has to play in our economy and community.

Over the coming months, we will accelerate our work towards becoming a simpler, better bank. It is our No 1 priority.

The Financial Services Union though, is not impressed:

The FSC does have some other thoughts, which doesn’t quite embrace all the recommendations though:

There are number of recommendations and Government proposals which require further consideration and discussion with government and regulators.

These include:

• An industry funded Compensation Scheme of Last Resort (Rec 7.1)

This will only work if the underlying licensing system is strengthened to ensure licensees meet their obligations.

It is critical that priority be given to addressing these issues before setting up a compensation scheme of last resort; We support stronger professional indemnity and capital requirements for licensees.

These should be in place before any further consideration of a compensation scheme of last resort. If this is not done it may even encourage inadequate products and services coming into the market that lead to poor consumer outcomes.

• Extension of the Bear regime to all Apra regulated financial services institutions and extending it to non-prudentially regulated financial services firms (rec 6.6).

While we agree with the Commission that there should be appropriate consultation, we would like to see how Beat works for ADIs in practice before we consider any extension to the existing regime.

“The FSC will continue to consider the report in the coming days.”

The Financial Services Council is the latest to respond:

“Financial services is Australia’s largest industry sector, employing 450,000 people and managing almost $3 trillion of consumers’ savings.

“It must be free of misaligned incentives, mismanagement and poor governance, and focused solely on protecting the savings and growing the wealth of all Australians. Our financial services system must also be efficient and competitive.

“With the release of the final report and the Government’s response, we can now move even faster to repair the sector’s damaged reputation and ensure that consumers are able to trust each and every one of the people, products and services in our sector.

“Today all of us have an opportunity to rebuild the trusted relationship and the ties between financial services and the community that were once a bedrock of Australian life.

“We acknowledge it will take significant time and effort, and cultural change to effect thorough reform.

“Now we need to get on with the task of strengthening Australia’s financial services industry for the future so that we never end up in this situation again.”

The FSC strongly endorses the following recommendations, including:

• A person should be defaulted once into a superannuation account (rec 3.5)

• Retention of the twin peaks regulatory model (rec 6.1)

• Greater clarity around the co-regulation of superannuation by APRA and ASIC (rec 6.3)

• Industry wide reference checking of financial advisers (recs 2.7); and

• Regular reporting of serious compliance concerns to ASIC.

• Entities having a stronger focus on culture and governance (recs 5.6, 5.7)

And, finally, Apra acknowledges it too needs to do better in terms of enforcement:

The royal commission also concluded that Apra needs to adopt a stronger stance in relation to its enforcement activities. As previously announced, Apra is reviewing its enforcement strategy with the assistance of an independent expert panel. This review has a wide scope that includes consideration of when to hold individuals to account (including under the BEAR), when it would be appropriate to take enforcement action to achieve general and specific deterrence in appropriate cases, and Apra’s governance and other related arrangements in relation to enforcement decisions. The report will be completed at the end of March 2019 and published shortly thereafter.

Mr Byres also said: “Although the commission has assigned some important new responsibilities to Apra, our primary responsibility remains the safety and stability of the financial system, to protect the financial well-being of the Australian community. Apra is the only regulator with a primary focus on ensuring the safety and soundness of the financial system.

“It is therefore important to reiterate that Australia’s financial system remains fundamentally sound. While there are areas where the financial sector clearly needs to make significant changes and improvements, the soundness and stability of the financial system has never been called into question by the royal commission.”

More from Apra:

The commission highlighted, in particular, the central role that Apra’s work on governance, culture and remuneration will play in underpinning better behavioural standards and stronger accountability in the financial system, and recommends Apra do more in this area. Apra has acknowledged the importance of this, and will continue to build expertise and capacity devoted to these issues.

More broadly, the commission’s full suite of recommendations provide a significant opportunity to substantially improve the financial system in Australia. Apra looks forward to working with the government, Treasury, Asic and other relevant parties on the many recommendations that will require legislative change and cross-agency coordination to implement. In particular, Apra is committed to ensuring the shared responsibilities between Apra and Asic work effectively and efficiently, for the benefit of the community.

The commission made comments and observations on the conduct of a number of Apra regulated entities, including specific matters that have been referred for possible enforcement action. After the commission’s interim report, Apra established a royal commission enforcement cases steering committee, which has been reviewing evidence as it has come to light and, where necessary, undertaking additional enquiries and investigations. Apra will consider whether this work needs to be broadened in light of the final report, and continue to liaise with Asic, and other relevant agencies, to address promptly the matters identified.

Apra chairman Wayne Byres said:

The commission’s final report is a considered and fair assessment of failings in the financial system and a helpful roadmap for reform. The commission’s recommendations are wide-ranging; within them, the commission has identified a number of areas where Apra’s prudential and supervisory framework can and should be strengthened.

Many of these improvements are already in train, and Apra is committed to delivering on them. Apra appreciates the commission’s acknowledgment that increasing the intensity of supervision will require additional resources.

Apra welcomes the government’s recognition that the recommendations and referrals will require Apra to increase the breadth and depth of its supervision, and that Apra will need to be appropriately resourced to do so. In that regard, the upcoming capability review will be important to ensure Apra is well equipped and resourced into the future to both balance a number of priorities and address the full range of issues within its mandate.

Apra has also responded:

The Australian Prudential Regulation Authority (Apra) acknowledges the release today of the final report of the royal commission into misconduct in the banking, superannuation and financial services industry.

The royal commission has identified significant failings in the manner in which the financial system treats consumers. The commission emphasised that ‘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’. However, the commission has also identified a range of areas where the regulation and supervision of financial institutions must be strengthened. Apra will review the recommendations in the Report in the coming days and issue a more detailed response to those recommendations relevant to Apra shortly.

Overall, Apra is pleased that many of the recommendations made within the report, and supported by the government, are consistent with submissions Apra made to the commission. This includes:

• the preservation of the ‘twin peaks’ regulatory architecture, and Apra’s current mandate;
• a broadening of the Bank Executive Accountability Regime (BEAR) to other industries; and
• a strengthening and realignment of regulatory powers by the Parliament to provide a greater role for Asic in superannuation.

Now that it’s a little less insane, if you haven’t found the whole report as yet, you can find it here

The Business Council of Australia have also responded:

“Commissioner Hayne’s common-sense but far reaching recommendations deal with the core issues of misconduct. Commissioner Hayne has done an excellent job and has recognised the many changes our financial services sector and regulators have already made ahead of this final report,” Jennifer Westacott said in a statement. “Our financial services sector is incredibly important to our way of life. Australians cannot be subjected to a system where they cannot access a loan to buy a new home or set-up or expand businesses that provide jobs. Millions of Australians also have their retirement savings invested in banks.

“We look forward to working with political leaders and the community to ensure Australia’s financial system is stronger and restoring trust in a sector which has helped to deliver a record 27 years of economic growth.

“It is time to rule a line in the sand and start fixing the real problems and poor behaviour that have been identified by the royal commission.

“The business community is ready to work to effectively develop and implement necessary changes in the direction recommended by Commissioner Hayne.”

But the BCA also wants to make sure that loans are not overly impacted:

“As the government has done in its response, it is important to make sure any changes are carefully considered in order to ensure credit remains available to Australians and competition is strengthened to ensure consumers get the best deal.

“This means changes should be staged with appropriate consultation and reviewed to make sure consumers are better off.

“We welcome Commissioner Hayne’s recommendation on business culture and governance and believe every business should take his advice to implement the proper steps to assess, identify and deal with any problems.

“Effective regulation and well-resourced regulators are critical to the financial sector and Commissioner Hayne identifies some important improvements, in particular simplifying existing laws, clarifying the responsibilities of Asic and Apra and strengthening their accountability.

“We look forward to working closely with government and regulators to ensure that Australia’s financial system emerges from the royal commission not just better regulated and recommitted to cultural change but that it remains a strong part of the Australian economy and serves the interests of every Australian.”

Chris Bowen (shorter):

This is the royal commission that Scott Morrison did not want you to see. This is the report that Scott Morrison never wanted delivered. Today is the day that Scott Morrison and his entire government should hang their head in shame that they voted 26 times to avoid this report ever seeing the light of day. This is a dark day for Australia’s banks and financial institutions. Banks and financial institutions should work on an ethical basis. They should be strong. They should be profitable. They should be robust. They should be, above all, ethical. This is a sobering report. It’s a report that is long overdue.

The Labor party accepts, in principle, all the recommendations in Commissioner Hayne’s report.

As some of you have pointed out, there is not a lot of time for the government to legislate any changes before the next election.

The first sitting fortnight begins next week. Then there are no sittings until early April, when the budget will be called, after which, Scott Morrison will call the election. And then, it is caretaker mode and well, nothing happens then.

The ABC tracked down Shayne Elliott, the boss of ANZ – selling copies of the Big Issue on the streets of Melbourne. That’s the magazine which aims to support those who are homeless, or disadvantaged.

So there is Elliott, with his yellow vest and Big Issue hat on, telling the cameras he is just there to sell copies of the magazine.

I‘m actually here selling he Big Issue. That’s why I’m out here today. We’re going to try and sell a record. Last year, we sold 55 copies. I think we’ll try for a bigger number today.”

He doesn’t take any questions on the commission’s final report.

Further to those conflict of interests, it doesn’t make sense to Kenneth Hayne that so much of the finance industry relies on commissions that are based on a pretty easily identified conflict - are you acting for the client – you and me and our financial needs, or the banking industry – ie, yourself and whether or not you get paid for delivering a client.

That’s been one of the major issues Hayne identified, that so much of the industry was based on people getting paid, or bonuses, to provide clients to a certain service, rather than serve the client.

Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards. Incentives have been offered, and rewards have been paid, regardless of whether the sale was made, or profit derived, in accordance with law. Rewards have been paid regardless of whether the person rewarded should have done what they did.

Second, entities and individuals acted in the ways they did because they could. Entities set the terms on which they would deal, consumers often had little detailed knowledge or understanding of the transaction and consumers had next to no power to negotiate the terms. At most, a consumer could choose from an array of products offered by an entity, or by that entity and others, and the consumer was often not able to make a well-informed choice between them. There was a marked imbalance of power and knowledge between those providing the product or service and those acquiring it.

Third, consumers often dealt with a financial services entity through an intermediary. The client might assume that the person standing between the client and the entity that would provide a financial service or product acted for the client and in the client’s interests. But, in many cases, the intermediary is paid by, and may act in the interests of, the provider
of the service or product. Or, if the intermediary does not act for the provider, the intermediary may act only in the interests of the intermediary.

That includes mortgage brokers, which the government has says it will look at:

The Government agrees to address conflicted remuneration for mortgage brokers. The Government recognises the importance of competition in the home lending sector and will proceed carefully and in stages, consistent with the recommendation, with reforms to ensure that the changes do not adversely impact consumers’ access to lenders and competition in the home lending market.

The next biggest take away – Hayne thinks the industry needs a complete overhaul.

No surprise there – the interim report pointed to that late last year.

He has identified “six norms of conduct”

• The law must be applied and its application enforced
  
• Industry codes should be approved under statute and breach of key promises made to customers in the codes should be a breach of statute
  
• No financial product should be ‘hawked’ to retail clients
  
• Intermediaries should act only on behalf of, and in the interests of, the party who pays the intermediary
  
• Exceptions to the ban on conflicted renumeration should be eliminated
  
• Culture and government practices (including renumeration arrangements both in the industry generally and in individuals entities, must focus on non-financial risk, as well as financial risk
  

He recommends an overhaul of corporate governance and culture as well:

All financial services entities should, as often as reasonably possible, take proper steps to:

• assess the entity’s culture and its governance;
  
• identify any problems with that culture and governance;
  
• deal with those problems; and
  
• determine whether the changes it has made have been effective.

Tl;dr stop being so greedy and do your job.

What now for Asic?

The Australian Securities and Investment Commission gets a particularly strong knuckle rap, for its enforcement activities. Or, more accurately, its reluctance in using its enforcement powers.

Hayne rules out transferring Asic’s powers to the ACCC. But he doesn’t rule out turning Asic into a purely investigative body if it doesn’t get its act together.

That would work in much the same way as the relationship between the police and the department of public prosecutions. Police gather a brief of evidence, and the DPP decides whether or not to prosecute.

Hayne doesn’t say that needs to happen for Asic, but he makes his “yet” very loud and clear, if Asic doesn’t follow through in changing the culture around its enforcement activities.

“Although I do not now recommend the establishment of a specialist civil enforcement agency, Asic’s progress in reforming its enforcement function should be closely monitored. If, over the coming years, it becomes apparent that Asic is not sufficiently enforcing the laws within its remit, or if the size of its remit comes at the expense of its litigation capability, further consideration should be given to developing a specialist agency of the type I have described.”

Hayne has written to Asic about entities he believes may have contravened section 1041G of the corporations act. He says Asic is still looking at the issues he has raised, and he doesn’t name the entities he pointed to as examples.

But he says:

Section 1041G prohibits engaging in dishonest conduct in relation to a financial product or financial service. On its face, taking money for nothing is dishonest conduct. If the conduct in issue was a contravention of section 1041G, it is that section that best captures and conveys the criminality.

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. If there was no adviser linked to the client, the money taken was applied by the taker to its own use.

If the client had died, and the taker had been told and had recorded that the client had died, there could be no ongoing service given and the taker’s records showed that there could be none given.

I consider that it is open to the 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.

Hayne’s recommendations are that Asic:

• takes, as its starting point, the question of whether a court should determine the consequences of a contravention;
  
• recognises that infringement notices should principally be used
  in respect of administrative failings by entities, will rarely be appropriate for provisions that require an evaluative judgment and, beyond purely administrative failings, will rarely be an appropriate enforcement tool where the infringing party is a large corporation;
  
• recognises the relevance and importance of general and specific deterrence in deciding whether to accept an enforceable undertaking and the utility in obtaining admissions in enforceable undertakings; and
  
• separates, as much as possible, enforcement staff from non-enforcement related contact with regulated entities.
  

So it is a yes to the 76 recommendations, or at least 75.5 – there is a maybe over the user pays recommendation for mortgage brokers

For those who haven’t seen it, Katharine Murphy has filed her first take analysis of the report:

Yes, the Morrison government has said meekly, to everything the banking royal commissioner, Kenneth Hayne, has recommended.

In political terms, it’s blindingly obvious why. A federal election is in sight. The Coalition is vulnerable on this issue, having spent years obstructing a deeply necessary inquiry that unearthed a trove of malfeasance – case studies that still beggar belief. Scott Morrison at one point opined rashly that calls for a royal commission into the banking sector (after a string of scandals that, in the end, proved the tip of the iceberg) were a “populist whinge”.

Clare O’Neil, Chris Bowen and Bill Shorten have also issued Labor’s official joint statement:

The final report of the banking royal commission uncovers unconscionable, corrupt and potentially criminal behaviour in the banking and financial services sector.

This is a dark day for Australian banking, and a terrible indictment on the greed in the industry.

We pay tribute to the victims of banking misconduct, the whistleblowers and the advocates for making this day happen.

We acknowledge it has been a long journey for individuals, families, small businesses and farmers.

The Royal Commission would not have happened without you. We will have a better, stronger and fairer banking system for all Australians because of you.

The final report is a comprehensive blueprint to clean up the industry, restore Australians’ trust in their banks, and put the interests of consumers first.

The Royal Commission’s report shows that on too many occasions, the pursuit of profit was put ahead of people, ethics and the law.

Scott Morrison and the Liberals should be condemned for voting against the Banking Royal Commission 26 times.

Mr Morrison called the Royal Commission “regrettable”, a “populist whinge”, delayed action for more than 600 days, and wants to give the big banks a $17 billion handout.

The Liberals have shown they cannot be trusted to clean up the banks. They are too out of touch and only stand up for the top end of town.

Unlike the government, the opposition accepts in-principle all of the recommendations in the report.

We will now give full and proper consideration to all the findings and recommendations through our usual processes.

On our initial reading of the government’s response, we are concerned that on too many issues, the government does not accept the royal commission’s recommendation, does not propose adequate action, or delays action.

There are several recommendations that require legislation to improve our banking system and ensure Australians aren’t ripped off, but Scott Morrison’s part-time parliament makes it very difficult to take immediate action to clean up the banks.

The Liberals tried to stop this royal commission from happening. They cannot be allowed to go soft on the banks, or go slow on implementing the reforms.

As Commissioner Hayne says in his final report: The financial services industry is too important to the economy of the nation to allow what has happened in the past to continue or to happen again.

As well as giving in-principle support to the recommendations of the royal commission, a Shorten Labor government will:

• Crack down on corporate crime by increasing jail terms and financial penalties;
• Protect and reward whistleblowers through a Whistleblower Protection Authority and a Whistleblower Rewards Scheme; and
• Fund a dedicated special prosecutor to bring corporate criminals to justice.

Labor offers its sincere thanks to Commissioner Hayne and his dedicated team for their extraordinary efforts over the last 12 months.

John Williams, the Nationals senator who was instrumental in getting the government to change its mind on a banking royal commission, tells Sky he is surprised there is no criminal charges. As yet.

“I think Asic has no excuse for not doing their job better,” Wacka says. “I am a bit surprised they weren’t called out [more].”

Just to recap:

No charges have been recommended but the commission has recommended the regulator look at at least 24 cases through the prism of legislation, including criminal legislation, particularly around fees for no service.

Which isn’t to say criminal charges aren’t coming, they just aren’t coming yet.

Apra and Asic remain intact – for now.

The government says it is taking “action” on the 76 recommendations – but that doesn’t mean that everything Kenneth Hayne says is necessary will occur. And we don’t know yet how far the government will go, what the timing is, or whether it will agree with all of the points.

The treasurer and prime minister have issued their official joint statement:

Today, the government releases its response to the landmark Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The government has agreed to take action on all 76 recommendations contained in the royal commission’s Final Report and, in a number of important areas, is going further.

Commissioner Hayne’s recommendations and the Government’s response advance the interests of consumers in four key ways:

· Strengthen and expand protections for consumers, small business, rural and remote communities.

· Raise accountability and governance standards.

· Enhance the effectiveness of regulators.

· Provide for remediation for those harmed by misconduct.

In outlining its response to the royal commission, 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.

Today, the government is announcing it is taking further action by:

· Establishing for the first time a compensation scheme of last resort and expanding the remit of the Australian Financial Complaints Authority (AFCA) so that they can award compensation for successful claims going back 10 years, consistent with the period examined by the Royal Commission.

· Compensating those individuals who had a prior unpaid determination in their favour by the predecessor bodies of Afca, which will see almost 300 consumers finally receive compensation totalling around $30 million as a consequence of prior misconduct.

· Extending the jurisdiction of the federal court to cover corporate criminal misconduct, which will expedite cases that are considered by state courts and commonly take over two years to be heard.

· Commencing a capability review of the Australian Prudential Regulatory Authority (Apra) to be led by Graeme Samuel AC and conducting further capability reviews every four years.

The government is confident that the actions announced today will put in place the necessary legislative framework, providing regulators with the power and resources to hold those who abuse our trust to account.

The Coalition government, through both its actions to date and its response today, is demonstrating its commitment to ensuring a financial system that is working for all Australians and is one they can trust.

The government would like to thank Commissioner Hayne for the outstanding manner in which he has conducted the royal commission and express its gratitude for the tireless work of those involved. We also wish to acknowledge all of those individuals who provided submissions and came forward to give evidence.

While Anna Bligh works through the “banks are really sorry” statement, let’s head back to what Kenneth Hayne had to say about the evidence he heard from the banking executives.

As would be expected, each of these witnesses gave evidence suggesting that their respective entities or agencies had its own distinctive understanding of, and response to, the events considered in and issues raised by the commission.

Most professed to having learned from what had happened and proffered their ideas about causes and responses.

But the nature and extent of their engagement with the issues differed rather more markedly than I had expected. It seemed to me that there remain elements of unwillingness to recognise, and to accept responsibility for, poor conduct of the kinds examined in this inquiry.

Unwillingness to recognise and to accept responsibility for misconduct explains the prolonged and repeated failures by large entities to make breach reports required by the law. That same unwillingness explains the prolonged negotiation with the regulator about what should be done in response to misconduct, whether by compensating affected customers or altering defective practices and processes.”

He was particularly unimpressed with the National Australia Bank:

NAB also stands apart from the other three major banks. Having heard from both the CEO, Mr [Andrew] Thorburn, and the chair, Dr [Ken] Henry, I am not as confident as I would wish to be that the lessons of the past have been learned.

More particularly, I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly. I thought it telling that Dr Henry seemed unwilling to accept any criticism of how the board had dealt with some issues. I thought it telling that Mr Thorburn treated all issues of fees for no service as nothing more than carelessness combined with system deficiencies when the total amount to be repaid by NAB and NULIS on this account is likely to be more than $100 million. I thought it telling that in the very week that NAB’s CEO and chair were to give evidence before the commission, one of its staff should be emailing bankers urging them to sell at least five mortgages each before Christmas. Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains.

Not exactly a ringing endorsement.

The Consumer Action Law Centre, which has represented vulnerable banking victims, said it is disappointed the royal commission didn’t do more to clamp down on irresponsible lending.

Chief executive Gerard Brody said no real improvements were suggested to consumer remedies for irresponsible lending.

“There has been very poor compliance with responsible lending laws, and a failure of lenders to assess an applicant’s financial position to ensure repayments don’t cause hardship,” Brody said. “Instead, many lenders use automated processes and rely on benchmarks of household expenditure, which may not accord with reality.

“If there were better remedies for consumers subject to irresponsible lending– including debt waiver – this would provide an important compliance incentive.”

Brody otherwise welcomes the government’s pledge to act on Hayne’s 76 recommendations.

“Extending these important new laws to credit and other financial products means there will be no loopholes – Asic will now have the power to act where financial products are designed to harm consumers,” he said. “There are too many exemptions and loopholes in our consumer protection laws – the harm uncovered over the last year by the royal commission vividly demonstrates why law reform is required.”

Asked again about putting off the royal commission for so long, Frydenberg says:

Like I said, when Labor was last in office, they did nothing when they had major financial collapses on their watch.

Asked again, and well, you get the idea:

We can debate for hours Labor’s failures when they were last in opposition. It has been the coalition, it has been the coalition that has commissioned the royal commission and the coalition today is announcing the recommendations.

Does Josh Frydenberg believe the government should have opposed the royal commission, 26 times, and for almost a year and a half, given what has come from it?

Well, we could debate for hours the failures when Labor was last in office, not forgetting that ... and I recall Bill Shorten saying how fantastic the sector was when he was the minister for the sector.

But he didn’t call a royal commission or take action to bring these big banks to account. He didn’t put in place new standards which we have announced today, and have been doing since the financial systems inquiry was initiated by this government when we first came into power in 2013.

I’m focused on the future, and the future is now going to be brighter for 25 million Australians when they’re dealing with their financial institutions. Because the set of recommendations from Commissioner Hayne will ensure a higher standard of conduct, will ensure better outcomes in superannuation, insurance, in financial advice and in banking. I think the regulators have also got the message and that termedity we may have seen in the past will be replaced with a front foot approach.

Choice also wants the superannuation recommends implemented pretty quickly, in particular:

• The end to duplicate superannuation accounts, which have taken $50,000 from the retirement savings of the average person (Rec 3.5)
• A civil penalty regime for funds that breach their best interest duty to members (Rec 3.7)
• Making it easier for consumers to understand the default life insurance that is provided in MySuper funds, through legislating definitions and terms that apply to all products life insurance products (Rec 4.13)

But it also doesn’t see it as the end on super issues. Xavier O’Halloran says:

“The Royal Commission report is not the final word on superannuation. With only one round of hearings, the Royal Commission could look at very few aspects of the system. The Productivity Commission’s three-year review went much deeper and wider. If we are going to address the biggest problem in superannuation, that of poor fund performance, we need to improve the default system as a whole.”

Consumer group Choice has weighed in with its response to the report.

From its statement:

“Commissioner Hayne makes it clear: the laws that govern the banking system have not been up to the job,” says Choice chief executive Alan Kirkland.

“Simple community expectations – that financial institutions should act honestly and in their customers best interests – have been undermined by decades of industry lobbying, resulting in laws that are riddled with carveouts and exceptions. This has to end.

“This represents a key turning point for the industry and its lobby groups: will they pretend to accept the recommendations then lobby to undermine them behind closed doors, as they have with every other major reform? Or will they realise that if they want to win back community trust, this time they need to act with integrity?

“The report is also a damning indictment of industry self-regulation. For too long, we have allowed banks to write and enforce their own rules. This means that the rules are weak and the consequences for breaking them are non-existent.”

Choice wants put in place:

• The end to weak self-regulation through industry codes that can be breached with no consequences (Rec 4.9)
• A ban on hawking financial products to unsuspecting consumers—especially insurance and superannuation (Recs 3.4 & 4.1)
• A ban on the payment of commissions to mortgage brokers and financial advisers—so it is clear that they act for the person seeking advice, and nobody else (Rec 1.3)
• An obligation that mortgage brokers act in the best interests of the person seeking a loan (Rec 1.2)
• An end to hidden fees for financial advice (Recs 2.1 & 2.4)
• A compensation scheme, funded by industry, to make sure that when consumers are found to deserve compensation it is paid (Rec 7.1)

And he reaches the final point – compensation:

For the first time, the government is establishing a compensation scheme of last resort. We will expand the remit of the Australian financial complaints authority, known as Afca, so they can award compensation for successful claims going back a decade.

And this is consistent with the period examined by the royal commission. Afca, which today can make binding determinations on industry, of up to $500,000 for individuals, $1m for small businesses and $2m for agribusinesses, will now administer this compensation scheme of last resort.

Let me be clear – personal responsibility for financial decisions rests with those who make them.

However, consumers and small businesses who suffer harm as a result of misconduct will now have access to redress.

The government will also compensate those individuals who had a prior unpaid determination in their favour by the predecessor bodies of Afca.

These people were never paid. Because the institutions responsible were unable to pay. This will see almost 300 consumers finally receive compensation totalling around $30m as a consequence of prior misconduct.

Compensating this cohort of people was supported by the Ramsey review and also endorsed by commissioner Hayne. Implementation of the government’s response will be led by a treasury financial services implementation taskforce.

Frydenberg moves on to the regulators, which commissioner Hayne found, in the treasurer’s words “wanting”:

But he has also recognised that they are taking action to change. The government has recently appointed a new chair and two deputy chairs of Asic. And we have committed $170m in additional funding for our regulators and our agencies, equipping them for the task ahead.

We will work with our regulators to ensure that they are appropriately resourced to meet all the challenges that they face. The government accepts Commissioner Hayne’s recommendation to establish a new 3-person oversight body for Asic and Apra, that will monitor their performance and effectiveness and report to government.

Capability reviews of our regulators are also be conducted every four years, with the government announcing today that Graham Samuel will lead a capability review of Apra and this will commence shortly.

With respect to superannuation, the regulatory roles and powers of Asic and Apra will be clarified with respect to Asic becoming the primary conduct regulator.

The government today is also announcing that we will extend the jurisdiction of the federal court to cover corporate criminal misconduct. This will expedite cases that are currently heard before state courts and commonly take over two years to be heard.

The treasurer continues:

Second, enhancing accountability.

Consumers rightly expect that they be treated fairly and, when they’re not, that the culprits are held to account.

This is why from the first of July last year the government put in place the bank executive accountability regime, otherwise known as Bear.

It holds executives personally responsible for conduct that occurs on their watch. And this includes sanctions, such as changes to remuneration, or even disqualification. Commissioner Hayne has recommended that Bear be extended to insurance and superannuation, and that Asic should have joint responsibility with Apra for the oversight of the Bear.

With respect to superannuation, Commissioner Hayne also recommends that both trustees and directors be subject to civil penalties for breaches of their duties.

The government currently has legislation before the parliament extending for the first time these penalties to directors, and we’ll now amend the legislation to include trustees.

A new system of discipline for financial advisors will also be put in place. With stronger industry reference checking, greater reporting of serious compliance concerns, and a new single disciplinary body, with which all advisors must be registered.

In his speech, Josh Frydenberg describes it as:

The government is taking action on all 76 of Commissioner Hayne’s recommendations.

First, in terms of enhancing consumer protections, we’re doing the following - with regards to mortgage brokers, we are putting in place a best interest duty, banning trailing commissions and volume based bonuses on new loans from the first of July 2020.

In terms of moving to a borrower pays remuneration structure, there will be a review in three years of the implications of doing so, bearing in mind that the Productivity Commission, the Murray and the Sedgwick reviews all raised concerns about the effects on competition of a change to a borrower pays model.

We are ending the grandfathering of conflicted remuneration for financial advisors, effective from the first of January2021.

In terms of superannuation, we will ensure fund members only have one account. For new members entering the system, a recommendation that mirrors the Productivity Commission’s report into superannuation.

We are prohibiting the deduction of advice fees from MySuper accounts. Hawking for superannuation and insurance will be prohibited.

Preventing some of the most disturbing stories the royal commission heard of vulnerable people being sold on an unsolicited basis policies that they didn’t need.

Changes will also be made to the sale of add-on insurance, so that their sale is separated by a period of time from the sale of the original product.

For example, today people are being sold a mobile phone and at the same time are being sold basic screen cover insurance which can cost more than the actual replacement of the screen itself.

There will also be major changes to how the banks deal with distressed agricultural loans. This will include a new national farm debt mediation scheme.

A requirement that banks do not charge default interest on agricultural loans where a drought or national disaster has been declared. The valuation of agricultural land will need to be independently determined from the lending processes.

Banks will be required to ensure distressed farm loans are managed by people experienced in agriculture. And receivers are only to be appointed as a remedy of last resort.

The treasurer is still talking, but let’s take a look at what else was in the report:

Basically, it all boils down to greed.

As Hayne says: “The conduct in issue was driven not only by the relevant entity’s pursuit of profit, but also by individuals’ pursuit of gain, whether in the form of remuneration for the individual or profit for the individual’s business. Providing a service to customers was relegated to second place. Sales became all important. Those who dealt with customers became sellers. And the confusion extended well beyond the frontline service staff. Advisers became sellers and sellers became advisers.”

Not only that, but Hayne found those who broke the law were not held to account.

“Misconduct will be deterred only if entities believe that misconduct will be detected, denounced and justly punished. Misconduct, especially misconduct that yields profit, is not deterred by requiring those who are found to have done wrong to do no more than pay compensation. And wrongdoing is not denounced by issuing a media release. The Australian community expects, and is entitled to expect, that if an entity breaks the law and causes damage to customers, it will compensate those affected customers. But the community also expects that financial entities that break the law be held to account.”

As an overview, on page 157 of the first volume of the report, Hayne says:

It would be for prosecuting authorities to determine how charges would be framed. One way may be to fix upon one or more events of ‘taking’ by the entity.

But however the charges are framed, it may be expected that the prosecution would seek to lead evidence that the particular takings charged were made as part of an established system and were not matters of accident. If the taking of fees was objectively dishonest, the question becomes as I have indicated: on what basis on the evidence would it be argued that a jury should entertain a reasonable doubt that the defendant knew that it was acting dishonestly by taking payment for a service that it did not provide?

Josh Frydenberg is making a statement:

Today the government is releasing the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. It’s a scathing assessment of conduct driven by greed and behaviour that was in breach of existing law and fell well below community expectations.

The price paid by our community for this misconduct is immense. And goes beyond just the financial. There have been broken businesses, and the emotional stress and personal pain has broken lives. In disbelief, the nation has heard evidence prepared, presented before the commission of hundreds of millions of dollars in fees for no service, companies misleading and obstructing regulators, the charging of dead people, the sale knowingly of worthless insurance policies, and who could forget the appalling audio recording of a young man with downs syndrome subject to high pressure sales tactics resulting in the purchase of a financial product that he clearly did not want, need, or understand.

This is why the community’s trust in our financial institutions has been lost and this is why it must be restored.

From today, the banking sector must change and change forever. In Commissioner Hayne’s own words, “There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and their boards and their senior management.”

The undeniable fact, Commissioner Hayne said, “is it is those that are engaged in misconduct that are responsible for what they did and the consequences that followed”. This has resulted in the commissioner making more than 20 referrals to Asic and Apra, covering a range of misconduct from fees for no service, to best interest duty breaches and misleading and deceptive conduct. My message to the financial sector today is that this misconduct must end. And you must put the interests of consumers first. Consumers must be treated fairly.”

Sorry – we had some technical problems. We are back.

The report, is, in a word, scathing. SCATHING. Of the industry, of the regulators, of the environment in which it was allowed to flourish. And it is not over yet.

I know you will have been sweating on this all day. So here is the very quick version of what is in those thousands of pages.

• Bankers are not named and shamed, but Kenneth Hayne lays out the potential for more than 20 prosecutions involving the major banks, at the discretion of the regulators, some which could be criminal, some civil, and some both.
  
• Of the 24 referrals for “further action”, all the major banks are listed, except Westpac.
  
• The regulators stay as they are, but are on notice to do better when it comes to enforcement. If Asic doesn’t pick up its game and prosecute more often, not just settle out of plain sight, there is room to make it just an investigative body and hand prosecuting powers to something else.
• The report points the way to an end to practices like conflicted renumeration – you can’t advise for a client and get rewarded by a bank/financial service for providing that client at the same time, for instance. That seems like a pretty big no brainer, but it has taken a royal commission to get here.
• There will be a compensation scheme of last resort, funded by the banks. The government is working up legislation on that now. All the banks will have to pay, because it is part of their licence. For those who belonged to entities that have gone belly up, you’ll also be covered.

That is the super short version of the 76 recommendations.

I know you want to know who will be prosecuted. We can’t say who, because we don’t know. We can just take from the case studies which were presented, where Hayne has outlined cases from what he heard during the commission:

We didn’t have access to the relevant laws in the lock-up and, honestly, it would take a lawyer to look at the acts and determine which were civil and which were criminal.

But Hayne has recommended the regulators look over at least 24 cases, including:

• Five involving the Commonwealth Bank of Australia
  
• Three involving Colonial First State
  
• Three involving Allianz
  
• Two involving ANZ
  
• Two involving National Australia Bank
  

For potential further action. The commissioner has recommended Asic look at least 10 case studies, and Apra, at least 12.

There is a lot more to go through, but that is the helicopter view of the three volumes and thousands of pages. But it’s not over yet – we are about to smack you in the face with three hours of intense study.

Just in case you haven’t watched this video today, here’s another moment to see Josh Frydenberg’s excruciating photo op with Kenneth Hayne on Friday. Ouch.

We’re waiting for trading on the ASX to be wound up for the day before releasing the details of the commission’s report. This is to make sure that Hayne’s findings do not have an instant and potentially explosive impact on the shares of our leading banks. We should be ready to go in about five minutes. The first opportunity for trading will now be at 10am tomorrow.

Bank shares have risen today, indicating that investors think that the worst is over for the big four banks and the market has already factored in the bad news into the price.

We are a few minutes out from being let out of this room and going live with the findings.

Reactions will come through thick and fast and we’ll bring you all of those as they come.

The government has had this report since Friday – you may remember the awkward photo opportunity between Josh Frydenberg and Kenneth Hayne – so we would expect to have seen some of the government’s immediate response as part of this report.

The banks have tried to get in early with their own mea culpa. From Katharine Murphy’s report:

“While we don’t know the recommendations in the report, we do know this is an opportunity to reset the industry and to make things better for our customers,” Anna Bligh said.

I don’t think that is going to cut it.

Part of the issue for the government is they stood against the royal commission for so long.

As Labor points out often, and accurately, Scott Morrison voted against the commission 26 times.

When the government, under the then leader, Malcolm Turnbull, finally announced a commission, following internal pressure from Nationals MPs, including John Williams, Morrison described it as “regrettable but necessary”.

The nature of political events means the national economic interest is now served by taking what I describe as a regrettable but necessary action.

Politics is doing damage to our banking and financial system, and we are taking control as a government to protect the strength of our banking system through a properly constituted inquiry on these terms of reference. Rather than the alternatives as presented in other’s commissions of inquiry proposals that would be subject to the vagaries of politics, which would do harm and already has to date.

Given what we already know from the inquiry, that reluctance to hold it, it is going to hurt.