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Truth and Reconciliation Commission in Australia's banking sector

BIScom Subsection: 
Nigel Morris-Cotterill

When Barnaby Joyce admits he was wrong, as he has done recently over his previous comments that a Royal Commission was appropriate to inquire into the management and practices of Australia's banks, it's obvious how things are going. It's starting to look as if the sector is going to get a huge shake-up - and the removal of many senior officers. One hopes they are replaced with competent bankers, not more recruits from consulting companies - or from the revolving door with government and quasi-government jobs.

https://financialservices.roya... was not responding mid-morning on Saturday 21 April. Perhaps it was taking a well earned rest or, maybe, it was overwhelmed. We cannot know. But we can know this: ASIC, the regulator, has failed. Peter Kell, the director of the flagship Australian Securities and Investments Commission (a semi-autonomous government department, not a "commission" in the sense of the Royal Commission on Misconduct in Banking, Superannuation and Financial Services Commission) told the Royal Commission that financial advisers could not consider themselves to be in a profession and that "90% ignore their clients' best interests."

That, in and of itself, demonstrates that ASIC, which as regulators go isn't bad, has knowingly allowed the financial sector to follow unacceptable and arguably illegal practices to continue. The next question is this: how long has ASIC, known or suspected this to be the state of affairs?

Of far greater concern is this: while the rest of the world watched its finances collapse and the reputation of financial advisers suffered long-term harm, Australia, for reasons no one has yet been able to satisfactorily explain, not only did not suffer the pains of sustained recession and sluggish economy, it saw rises in property prices more akin to Hong Kong and Singapore than to "western" countries.

That, it is reasonable to assume, is one of the factors behind the extraordinary growth in the number of financial advisers. Rowena Orr, counsel assisting the Commission, said that the number of financial advisers had increased from about 18,000 in 2009 to 25,386 registered now. Falling into the trap of assuming higher education means improved performance and integrity, Orr also told the commission that only 35% of financial advisers held first degrees or higher. This, Kell said, is part of the reason why financial advisers cannot consider themselves a "profession" - it's because they have not reached the standards of profession. While the second part of that statement is demonstrably true, it is a non-sequiter to suggest that it follows from a shortage of degree holders.

“In Asic’s view, we would say that the standards around competency (sic) and the qualifications you have to have to be participant in the financial advice sector, the ways in which advisers have been remunerated in many cases, and the conflicts of interest that that remuneration has generated between advisers and licensees and the clients ... [and] some of the conduct and consumer outcomes, that have been very poor on a widespread scale, indicate that we’re not yet at a position where we have a profession.”

-- Peter Kell, ASIC, before the Royal Commission on Misconduct in Banking, etc.