The decision by the federal government to reject a bipartisan call for a royal commission into the Commonwealth Bank was always on the cards, but its reasoning was both disappointing and shallow.
Its response to a landmark Senate inquiry into the performance of the Australian Securities and Investments Commission, outlined in a press release on Friday, essentially says CBA’s revised compensation scheme, a so-called “open advice review”, is enough.
This glib response fails to take into account the Senate’s original call for a royal commission; that it was “unable to get answers from the regulator or the bank”. “We tried and failed and decided it is important that this is cleared up,” it said. What it did was take a dissenting report by one of its own, Liberal senator David Bushy, and embrace it.
The compensation scheme requires customers to apply for a review of their advice. Unfortunately many have not seen advertisements in the newspapers so do not know the program is under way. It goes some way to explaining why less than 5000 people have come forward. There are tens of thousands of victims who might miss out. In sharp contrast, Macquarie Bank is writing to 160,000 victims to alert them to their compensation scheme.
A royal commission would have examined the role of management in the CBA’s financial planning scandal. All got off scot-free. Some are still with CBA while others were parachuted into other organisations, taking with them an aggressive sales culture and addiction to bonuses that was driven by advisers selling more products to consumers, oftentimes not in their best interests. They need to be held to account.
The government has also fobbed off further investigations into Macquarie, which is currently in the last few months of an enforceable undertaking with ASIC. BusinessDay recently exposed that its financial advisers had engaged in widespread cheating in exams, circulating a so-called “Penske File” loaded up with cheat sheets.
The government felt CBA’s compensation scheme – which is far from bulletproof – and the green light for a national register would be a stopgap until the findings of David Murray’s Financial System Inquiry, which looked at ASIC and its structure, are released.
The problem with this is while there are some financial planners who do the right thing by their customers, many do not. The introduction of a national register should be applauded, but unfortunately it does not go to the heart of the matter, which is conflicted remuneration. A transparent register would include how financial planners are paid.
The register includes the names of advisers, status and work history, qualifications, membership of a professional body and any previous sanctions or bans, as well as details that highlight vertical integration – who ultimately owns the licensee.
Given the systemic problems that have been uncovered in this industry, it beggars belief that it did not mention the how financial planners are paid.
Remember the damning report by ASIC into the life insurance industry released two weeks ago, which found that more than 37 per cent of advice was in breach of the law.
It prompted the whistleblower Jeff Morris to ask whether these corporations have simply become too powerful. Mr Morris triggered the Senate inquiry after he blew the lid on CBA’s financial planning scandal, but the corporate regulator did not launch an official investigation for another 16 months.
“The chairman of ASIC, Greg Medcraft, himself, in a moment of candour, admitted this week that Australia is a paradise for white-collar crime,” Mr Morris said. “A telling comment and a surreal backdrop to the Finance Minister’s announcement that there will be no royal commission. No wonder Greg Medcraft had to rush to ‘correct’ this statement.”
The big end of town will be very happy with this decision. Pity about the little people.
This story Administrator ready to work first appeared on Nanjing Night Net.