While Prime Minister Malcolm Turnbull has long resisted Labor’s calls for a Royal Commission into misconduct in the banking sector, saying it would be a waste of money, mounting political pressure and growing public anger have forced his hand.
“The government has decided to establish this Royal Commission to further ensure our financial system is working efficiently and effectively,” Turnbull said. “It will not put capitalism on trial ... and we’ll give it a reporting date of 12 months.”
The Royal Commission will focus on the nature and extent of misconduct among banks, insurers, financial services providers, and superannuation funds. It will also investigate any conduct or business activity by a financial services entity that falls below community standards and expectations.
Paul Marshall, CEO of comparison website RateCity, welcomed the Turnbull government’s decision, saying it was the only way to restore public trust in a financial sector that has been rocked by recent scandals.
“We all agree banks are fundamental to our economy but they are also fundamental to our society. We expect our banks to lend responsibility and help us manage our finances,” Marshall said. “Every Australian is entitled to financial products that are honest and fair. The government is right to focus on this point.
“Australia’s big banks have been at the forefront of a long list of scandals and wrongdoings for too long. We’re well past the mea cupla stage. It’s time to look at the culture inside our banks and make sure it is in line with community values.”
Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, also welcomed Turnbull’s decision to launch a Royal Commission. Carnell said her Small Business Loans inquiry earlier this year had uncovered numerous cases of small businesses suffering at the hands of banks.
“The asymmetry in power between the banks and small businesses, together with the conduct of banks particularly since the global financial crisis in 2008, has left many small businesses in a devastating financial position,” she said.
“Many have lost their businesses as well as their family homes, with no prospect until now of obtaining access to justice. I’ve been concerned that in some cases there may have been unconscionable behaviour by the banks and this should be examined in the Royal Commission.”
Carnell said there has been significant progress over the past few years towards changing the behaviour of banks, including Unfair Contract Terms legislation and the establishment of the Australian Financial Complaints Authority.
“What’s been missing is the capacity to review past disputes and award compensation,” she said. “It’s not acceptable that banks called in loans where repayments were up to date. Businesses were forced to close, people lost their jobs and entire communities suffered adverse impacts. The contract clauses were so one sided there was no constraint on the banks to stop them foreclosing on loans that didn’t fit their risk profile.”
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