Aussie banks hit by revelations of misconduct

A Commonwealth Bank of Australia branch in Sydney. It has emerged that advisers at Australia's largest bank charged fees to customers who were dead.
A Commonwealth Bank of Australia branch in Sydney. It has emerged that advisers at Australia's largest bank charged fees to customers who were dead.PHOTO: REUTERS

A landmark royal commission in Australia has uncovered serious wrongdoing by some of the country's largest financial institutions that is undermining confidence in the financial sector.

The commission began hearings only last month but has already claimed several scalps and exposed widespread problems in the way banks and other financial institutions provide financial advice.

The latest revelations centred on practices at AMP, the country's largest listed wealth manager and one of its oldest and most trusted institutions.

The Royal Commission heard that AMP could face criminal charges after it repeatedly took fees from clients who were no longer receiving advice and then lied about its misconduct to the corporate regulator.

AMP chairman Catherine Brenner is under heavy pressure to resign over the scandal, which has already seen the resignation of Mr Craig Meller as chief executive last week.

AMP's shares have dropped almost 16 per cent in the past fortnight. Other scandals have also emerged, including misconduct involving Australia's big four banks.

It has emerged that advisers at Commonwealth Bank of Australia, the country's largest bank, charged fees to customers who were dead, including one case in which a financial adviser knew a client died in 2004 but charged fees of A$65 (S$65) a month until 2015.

At National Australia Bank, financial planners falsified witness signatures, and at Australia and New Zealand Banking Group, an adviser kept advising 700 clients for almost a year even after the bank decided to suspend him for failing its internal checks.


Meanwhile, Westpac Banking Corporation produced documents to the commission that raised doubts about its efforts to ensure the credit-worthiness of borrowers receiving home loans.

Prime Minister Malcolm Turnbull said last Saturday that banks and financial advisers would be held to account, including potentially requiring advisers to record discussions with clients.

"We are determined to do everything to ensure this does not happen again," he told reporters.

As these revelations began to emerge, the federal government earlier this month increased penalties for corporate criminals, including up to 10 years in prison for criminal misconduct. "These reforms... bring Australia's penalties into closer alignment with leading international jurisdictions and ensure our penalties are a credible deterrent to unacceptable misconduct," said Financial Services Minister Kelly O'Dwyer.

Australia survived the 2008 global financial crisis without a recession and has enjoyed 26 years of continuous economic growth.

This success was fuelled by a mining boom and some effective policymaking, but much of the credit has often gone to the country's strict regulations and financial oversight.

But deep cracks have emerged in the financial system and its oversight appears to be less effective than believed.

The commission has raised questions about the role of the corporate watchdog, the Australian Securities and Investments Commission (Asic), which admitted it had failed to curb misconduct in the financial services sector. It revealed last Friday it had probed just 40 per cent of reports of misconduct involving financial planners from the public.

Liberal MP Sarah Henderson on Saturday called for an overhaul of the watchdog, saying it had "profoundly failed".

"Everyone... has been shocked and disgusted by the revelations... Given the scale of fraud and misconduct, why was Asic not making Australians aware of what was going on?" she told The Australian.

There have also been calls for the big banks to be forced to sell their financial planning businesses.

Some observers said the banks have become wide-reaching institutions that do everything, while neglecting their core borrowing and lending functions.

"Banking is really just deposit-taking and making loans... This whole industry of providing advice to people about how best to use their money is something banks have never done," Mr Brett Le Mesurier, an analyst from stockbroking firm Shaw and Partners, told Fairfax Media.

The government is also facing criticism over the scandals because it had strongly resisted setting up the commission for years, and only buckled under public pressure late last year. Mr Turnbull admitted in the past week that "we would have been right to establish one earlier".

A version of this article appeared in the print edition of The Straits Times on April 30, 2018, with the headline 'Aussie banks hit by revelations of misconduct'. Subscribe