CBA under fire for handling of failings with insurance products, broker incentives
The hearing has adjourned for the day. The pace certainly quickened in the last few hours. Here’s what we learned:
- CBA wrongly sold credit card insurance to 64,000 unemployed people, largely because it abjectly failed to act on a 2011 report by Asic. It didn’t pick up on the problem until 2015, when an internal audit found the bank had failed to introduce Asic-recommended changes to its sales scripts.
- Comyn warned CBA chief executive Ian Narev three times in 2015 and 2016 of his concerns about the insurance products, but nothing was done. The inquiry heard they were a profitable part of the retail banking business.
- Comyn admitted there was little, if any, ongoing service provided by mortgage brokers to customers, despite them charging trail commissions.
- CBA baulked at removing perverse incentives for mortgage brokers to sell larger loans. The bank had come extremely close to introducing a flat-fee model for brokers, instead of commissions. This would have delinked payments to brokers from the size of the loans. CBA was a week out from announcing the change in 2017. But it suddenly decided that it couldn’t make the change without being certain the rest of the industry would follow suit.
- Comyn said the culture of the bank would be one of the hardest aspects of the business to change, because it was difficult to measure.
- Much of the morning session was used to consider the role bonuses played in misconduct. Comyn said he had considered removing bonuses, but decided against it. He said such a move would have significant impacts on parts of the business, particularly in home lending. Comyn said bonuses were needed to boost staff performance. He said recent examples of misconduct had shifted his thinking somewhat. Comyn said they were necessary to “uncover the unserved financial needs of our customers and ensure we always provide good customer outcomes”.
- The inquiry heard CBA removed bonuses for its teller staff last year. The change had no impact on their performance.
Thanks so much for joining me today. The commission will be back from 9.45am tomorrow.
Updated
Credit card insurance wrongly sold to 64,000 people due to CBA's failings
The royal commission hears that an audit report published in 2015 found CBA should not have sold its Creditcard Plus insurance to 64,000 customers, because they were ineligible.
The customers were not employed when they purchased the credit card insurance, despite that being a requirement of the eligibility criteria.
Orr:
All right. So the product should never have been sold to those people?
Comyn:
That’s right.
The failings were caused by CBA’s complete lack of response to the Asic report in 2011. You remember, the report that Comyn didn’t see for years after it was published?
Orr:
So a contributing factor to the mis-selling of the product to the 64,000 customers was that you had not implemented the changes to your sales scripts that had been recommended by Asic in 2011?
Comyn:
That’s right.
Updated
Asic met with Comyn in 2014 to again express its concern about consumer credit insurance products and the way they were being sold.
Comyn said he took Asic’s concerns to the CBA’s executive committee.
He also had a conversation with the head of CBA’s wealth division in late 2014 or early 2015. Comyn said he had assumed the product would be reviewed. Little else appears to have happened.
In March 2015, the head of wealth, Annabel Spring, wrote to Comyn expressing fears that CBA was going to discontinue the insurance products.
The products were highly profitable, the inquiry heard. They would have earned about $150m a year, Comyn says. That’s a significant chunk of the retail division’s $10bn revenue.
Comyn responded to Spring saying there was no intention to cease sale of the products.
CBA chief struggles to explain 'significant failings' on insurance products
Asic issued a report in 2011 on the same issues Comyn is raising about the insurance products. The report found, among other things, that credit card insurance claims were being denied at a vastly higher rate – 13%, compared with 2% for all other personal general insurance claims. Asic recommended changes to the scripts used by banks to sell the credit card insurance.
Comyn didn’t see the report until years later. He said it was never given to him when he took the helm of CBA’s retail banking division in 2012, despite CBA’s apparent participation in the Asic report, and the concurrent emergence of serious problems with similar products in the UK.
Comyn agrees CBA’s handling of the Asic report was flawed. He struggles to explain why.
Orr said:
Now, following [Asic] report 256 did CBA implement each of those 10 recommendations, including the scripting recommendation?
Comyn said:
No, we did not.
Orr:
Why not, Mr Comyn?
Comyn:
We – we did not, Ms Orr. We should have, and we did not.
Orr:
You can’t explain that failing?
Comyn:
Well, as – as I’ve made clear in the witness statement, it – as early as – which I had not seen the report until preparing for my appearance today, but it – it looked as if – you know, I think October 2012, a paper that I had not seen but had gone to the CMLA board. It was clear, at least from my reading of that report, that we knew or certainly had reason to suspect that we were not complying with all aspects of that – of the recommendations, specifically recommendation number one which deals with sales scripts.
Comyn came into the retail banking division in 2012. Two months later, an audit of the bank’s selling of consumer credit insurance was published. It found serious problems with the sales practices behind the insurance. It also found CBA was failing to comply with the 2011 Asic report, particularly in relation to the sales scripts.
Extraordinarily, Comyn had not seen the audit until last week.
Orr:
Do you have any explanation for that, given that these were products that you had direct responsibility for, Mr Comyn?
Comyn:
Yes. No, I do not have a – a good, if any, sort of explanation. It was provided to the CMLA management and board and was not shared with the distributors of that product.
Orr:
That’s a significant failing within your organisation. I want to put to you that a report that dealt with sales practices of the product was not provided to the business unit responsible for selling the product?
Comyn:
Yes, I agree.
Updated
CBA continued to sell insurance products, despite serious concerns
The royal commission is now examining CBA’s sale of three products: Creditcard Plus insurance, home loan protection insurance, and personal loan protection insurance.
Comyn, then head of CBA’s retail division, said he began to develop concerns about the value of the products to consumers from about 2014. He tells the inquiry:
My concerns varied from the value of the product, the eligibility criteria which, as I think you know, becomes an issue later, whether we were meeting a genuine need, the claim payout ratio, a number of elements of the product and whether they provide appropriate value and benefits for customers.
Comyn said he feared there were poor sales practices involving the products. He said those concerns were in part driven by the setting of targetes. Comyn says he feared the products were being sold to people who didn’t need them or couldn’t afford them.
I was concerned broadly about sales practices and targets around the sale of products, were often a driver of that, yes.
He raised his concerns with the then chief executive of CBA at least once in 2015, and twice in 2016.
Nothing happened.
I raised the concerns. He had a differing view.
Comyn said he suggested suspending the sales of the products. Nothing happened. CBA continued to sell the insurance products.
Comyn’s concerns stemmed from the experience in the United Kingdom, where the sale of similar products forced the banks to eventually pay compensation to customers.
Orr asks:
What happened with those products in the UK, Mr Comyn?
Comyn:
They led to billions and billions of dollars of remediation to customers. As I understand it, some were in the order of 25bn sterling.
Orr:
Because they were mis-sold?
Comyn:
Yes
Updated
We’re now moving on to trail commissions paid to mortgage brokers. We’re referring here to the fees paid by the customer in an ongoing fashion to mortgage brokers for, ahem, ongoing services.
The problem is, there is no real ongoing service.
Even Comyn admits that.
Commissioner Kenneth Hayne asks him:
Step one is to identify these ongoing services. Are there any ongoing services supplied by a mortgage broker, Mr Comyn?
Comyn:
I think they would be limited, Commissioner.
Hayne:
Well, limited or none?
Comyn:
Much closer to none.
Hayne:
I will take that as a “none”.
Comyn goes on to say that the abolition of trail commissions for mortgage brokers would require legislative change. He also agrees with a productivity commission recommendation that brokers be legally obliged to act in the best interests of their customers.
Updated
CBA is 'waiting for the royal commission' before acting on broker incentives
The inquiry hears that a previous inquiry, known as the Sedgwick review, recommended that banks delink payments to brokers from the size of loans. The Sedgwick review was commissioned by the banking industry itself. The findings were made last year.
Comyn said there was currently no plan to meet that recommendation.
Why is that, asks Orr. Comyn responds:
Well, we’re wondering what might be recommended from the commission.
Orr suppresses a laugh. She asks:
You’re waiting for us?
Comyn:
You seem to be probing in the – in the right areas, yes.
Orr:
You have this obligation to report to Asic about this, though, and you haven’t done so?
Comyn:
Not that I’m – I personally have not. Not that I’m aware of on behalf of the institution but I – I would have to follow up.
Updated
CBA baulked at removing commission payments to brokers
So, things are getting interesting. We now know that in April last year, CBA planned to be an industry leader on broker remuneration.
Its plan was to move away from commission payments to brokers, thereby removing the perverse incentive for brokers to sell unnecessarily large loans. It wanted to move to a flat fee model.
Internal correspondence shows Comyn urged action on Ian Narev, the then chief executive:
We believe this is an opportunity that will not be repeated and requires decisive action.
CBA never changed from its commission model.
Orr asks:
What happened, Mr Comyn?
Comyn:
Well, we decided that – and I’m sure – a number of the documents I think you have in my tender bundle, there is lots of work that’s going on, under way – that’s under way concurrently. We come to a view that nobody will follow. And we will suffer material degradation in volume. And we will not improve customer outcomes. And we start thinking about how to continue to engage in the discussion, and certainly some time later we then – there’s meetings with broker groups, we conduct our own research, we get involved in the SIF, Productivity Commission starts looking at it. But you’re quite right, at that point in time when I hit send on the email, that was my intent.
Comyn later says he would “prefer” to move to the flat-fee model. But he feels unable to embrace it because no one would follow, without regulatory intervention.
Updated
The crux of the current evidence is that CBA knew its remuneration model for brokers, in which they were incentivised with commissions to sell bigger loans, was leading to poor consumer outcomes.
And yet, CBA was too scared of changing to a demonstrably effective model – the Netherlands flat fee model – because the other banks were unlikely to follow suit. An email chain between Comyn and his predecessor, Ian Narev, shows these concerns. Comyn wrote to Narev:
What we’ve made clear is that it’s very hard for us to move unilaterally so we would need legislation.
Comyn had been hopeful that a pending Asic report would recommend a flat fee structure. He tells the royal commission:
I thought it would be very difficult to change the – the commission structure unless there was at least regulatory guidance, which I – which I would have thought the industry would then follow. But absent that, I thought it would be very challenging.
We then hear that the idea of delinking loan sizes from commissions came extremely close to being implemented at CBA. Internal correspondence shows that Comyn was about to announce a flat fee model last year. He advised Narev of an impending announcement in the following week.
We are proposing to delink the value of a loan from the broker commission and replace with a flat fee, conditional on satisfactory customer outcomes. Interestingly, broker commissions have risen 45% since 2009 as a result of increased house prices. We are also proposing to introduce a transition payment to existing high quality brokers that will provide downside protection in case other lenders do not follow. We are proposing to announce next week, effective in February 2018.
He said he did not believe the changes would destroy the broking industry, if the industry followed CBA. But he said there was considerable uncertainty about whether others would follow.
The change would have reduced broker revenue on an average loan from $6,600 to $2,300, the inquiry heard.
Updated
So that flat-fee model would have allowed brokers to be “agnostic” to the size of the loan and leverage. It would by extension help to remove an incentive for brokers to sign customers up for loans they didn’t need or couldn’t afford.
But CBA did not, in fact, go to the Netherlands’ flat fee model. Instead, they moved from their existing commission structure to a different fee model, in which the lender, rather than the consumer, paid a fee to the broker.
Orr asks:
So why didn’t you go to the Netherlands’ model rather than to the lender pays the fee model?
Comyn says:
Because our – as you will see, we were struggling or grappling with how to implement, and I’m sure we will return to it, we felt there was a genuine first mover disadvantage. We didn’t think it would be replicated, absent regulatory intervention. Therefore, we didn’t think we would improve customer outcomes because, effectively, no one else would change their model. We would just originate fewer loans through that channel.
Comyn is effectively saying the bank would have lost business if it went to the consumer flat-fee model. No other bank would have followed it, and therefore it wouldn’t have had a huge impact on customer outcomes.
Updated
We’re back. And we’re back into evidence about CBA’s approach to mortgage brokering. The royal commission hears CBA considered shifting to a model where customers pay a fat flee for mortgage advice, following a positive experience in the Netherlands.
It would be a significant change from the commission model used by CBA. It would also disrupt brokers significantly, but Comyn believes it worked well in the Netherlands.
Comyn said:
So in the context of our situation, it would prevent – let’s say the fee being set that a customer would pay a broker – let’s call it $2,000 but a financial institution such as ourself couldn’t charge $2,000 because we were prepared to subsidise, because of our size, that would create an unfair advantage. So it required some regulation to ensure there was no beneficial or undue advantage gained.
Comyn said he believed it would improve customer outcomes. It would also reduce the broker’s share of the home loan market.
Updated
The morning that was
The royal commission has broken for lunch.
There were no huge revelations from this morning’s evidence. As anticipated, the commission was not attempting to reveal new instances of misconduct or extract a grovelling apology from the CBA’s chief executive, Matt Comyn. Instead, it was aimed at trying to understand the causes of banking misconduct. This is what we heard:
- Comyn believes the bank’s most concerning failing was that it did not properly understand the different relationships between various parts of its business and customers. That meant it did not properly understand its duty to customers.
- Comyn believes CBA’s culture will be one of the hardest aspects of the business to change, because it is difficult to measure.
- CBA’s head of compliance in its retail division, Larissa Shafir, wrote a scathing note to Comyn following an inquiry by Apra, the regulator, into the bank’s conduct. Shafir said the report was accurate and vindicated the concerns previously expressed by her team. She said changes were needed to ensure that compliance was not seen merely as a “rubber stamp” exercise. Comyn agreed to the royal commission the note was an “indictment” on CBA.
- The royal commission spent much of the morning addressing the role bonuses played in misconduct. Comyn said he had the power to address staff bonuses himself. He said he had considered removing bonuses, but decided against it. He said such a move would have significant impacts on parts of the business, particularly in home lending. Comyn says bonuses are important to motivate and incentivise staff to perform well, though he conceded his thinking had shifted somewhat since seeing more examples of bad customer outcomes.
- CBA removed bonuses for its teller staff last year, and it had no impact on their performance.
- The former CBA chief executive Ian Narev had hinted to Comyn that the bank may not need bonuses anymore. Comyn said they were necessary to “uncover the unserved financial needs of our customers and ensure we always provide good customer outcomes”.
The hearing will resume at 2pm.
Updated
We’ve moved into an examination of mortgage brokers. It’s a significant part of CBA’s business. The bank also owns mortgage aggregators.
We hear CBA conducted a five-year study on the effect of commissions on the flow of home loans through brokers. The higher the commission, the more home loans flowed, the commission hears.
Staff must be 'motivated to uncover customers' unserved financial needs'
A bit more on that email chain. Narev, the former CBA chief executive, told Comyn in 2016 that the bank needed to develop its core philosophy on remuneration. They needed to work out what they “actually believe” is the link between bonuses and behaviour, Narev said.
Narev was hinting at the idea that bonuses may not be needed at all.
In his response to Narev, Comyn offered a few quick thoughts. He said staff needed to be proactive in selling CBA products to customers.
We want our staff to be motivated to uncover the unserved financial needs of our customers and ensure we always provide good customer outcomes.
He continued:
Customers lack the financial literacy to understand their needs and the products that best served their needs.
Asked about the letter, Comyn says he has certainly seen more examples of bad outcomes for customers and hints that he may be shifting in his thinking on bonuses.
We’re now talking about an email chain between Comyn and Ian Narev, his predecessor, in 2016. Comyn was informing him of changes to remuneration in the Netherlands, where a cap was introduced on variable pay for bank staff, and in the United Kingdom, where the regulator had warned and punished banks for incentivising staff on product sales performance.
Evidence suggested the changes resulted in better customer outcomes in both countries, the inquiry heard.
Comyn explained to Narev that Australia was different, because the banks here were not responsible for the global financial crisis, and so hadn’t been subject to the same sort of regulatory scrutiny. He also said there was “no evidence of widespread mis-selling in Australia” and that Australian banks were more customer-focused.
But he also told Narev CBA’s incentive schemes needed to avoid four risks. The first was “bad customer outcomes”, which included customers receiving loans “they don’t need”. CBA also needed to avoid “broken promises, perceived inaction, and customer needs going unmet”.
Updated
We’re now examining a decision by CBA in 2017 to remove financial incentives for its tellers. Comyn agrees that he had hoped the decision would improve customer outcomes. Has it affected the performance of tellers?
I have not observed a deterioration in their performance to date.
Updated
Comyn explains that removing bonuses would cause significant problems, particularly in the home lending space. He said a similar approach caused dramatic changes in the UK. He said this had caused more mortgages to originate with brokers:
If you look into the UK you will see all of the major banks there are shutting branches because, in effect, what is happening is more and more of their customers are dealing with intermediaries, which is putting more financial pressure on their branch network, they close their branches, it helps the intermediaries more and you get into a precipitative cycle down.
Updated
Comyn considered dumping staff bonuses but decided against it
Matt Comyn concedes he has the ultimate power to make a decision about bonuses, or as he calls them, “short-term variable remuneration”. He said he had considered it, but so far decided against it.
Comyn says remuneration is always under consideration. He says he understands the link between short-term variable remuneration and poor customer outcomes.
Orr:
But you decided not to respond to those links by removing variable remuneration?
Comyn:
We’ve made a number of changes to variable remuneration ... I would certainly be committed to, if they are not completely successful, then it may – and it probably will be – necessary to take further steps.
Updated
Orr has taken Comyn to examples where bonuses have motivated CBA staff to do the wrong thing. One was the Dollarmites scandal, which involved branch staff depositing small amounts of money – either the bank’s or their own – to create or top up children’s accounts to meet their own personal targets.
Comyn agrees bonuses can lead to “perverse outcomes”.
Updated
Comyn accepts that bonuses create the risk that banking staff will put their own interest ahead of the customers. He says:
There have been examples of that, yes.
Orr asks:
Do you accept that is an inherent risk of short-term variable remuneration?
Comyn:
I do.
Updated
Orr helpfully lists other ways CBA could motivate its staff, sans bonuses. These, Orr says, include positive feedback, encouraging them to take pride in their work and be satisfied with helping customers, giving them additional responsibilities, promotion, and a higher base pay.
Orr:
But do you maintain that it is necessary to have another form of motivator which is short-term variable remuneration?
Comyn:
I would suggest that all of the elements that you raised are appropriate, and things that we, of course, do.
But, as always, Orr has laid a trap of sorts.
She produces an email from Comyn to the head of the bank’s remuneration committee, David Higgins. The email says the most “fundamental” care of CBA staff is job security and career and personal development. The email read:
At its most fundamental, our people care about job security, personal growth, a positive environment, and career advancement. CBA has a strong service culture and our people are intrinsically motivated by feeling that they are helping customers and playing their part in a winning team.
Comyn agrees these are motivators, but says bonuses are too.
Bank chief explains why he doesn't like the word 'bonus'
We’re now getting into another cause of so much of banking misconduct: bonuses. We’ve seen example after example in the royal commission of banking staff putting their own financial gain ahead of the interests of the customer.
Comyn doesn’t like the word “bonus”. He describes it as “short-term variable remuneration”. Orr asks why:
Because I think it sends the wrong message, that it’s something in addition to or part of just coming to work. We tend to think about both the combination of fixed remuneration and short-term variable reward as total remuneration, and there are some principles about why we think short-term variable remuneration is appropriate.
He goes on to say he believes “short-term variable remuneration” is important to motivate and incentivise his staff to boost performance. Orr asks why he can’t just pay them more:
Orr:
Why does not paying an adequate and appropriate level of fixed remuneration adequately motivate and incentivise your staff?
Comyn:
Well, I accept that for the vast majority of people it may be hard to understand why a fixed component wouldn’t – would not be sufficient.
He gives an example of a lender who does 30% less work without bonuses.
I do accept that it’s an open discussion and I do not sit here today saying there are no further opportunities to improve remuneration. It’s still an open issue in my mind.
Updated
Comyn says one of the problems within his organisation has been a reluctance to hear criticism. He says there has been a “fragility” among the bank’s executives.
I think at one point maybe in my witness statement I make the point that there was too much focus on not just collaboration but also – actually it’s in the prudential inquiry interview – too much of a sense of relationship at all costs. And so we need to bring much more sharpness and a willingness to listen, and in the past I think there’s been too much fragility of – on the part of individuals to – to hear criticism.
Updated
Head of compliance's scathing note an 'indictment' on CBA
We hear another “troubling” response to the Apra report by a senior CBA executive, the general manager for compliance in the bank’s retail division, Larissa Shafir. She warned that changes were needed to ensure that CBA’s “decisions are made on the basis of an understanding of compliance risk, and that compliance is not viewed as a blocker or a rubber stamp function”. Orr summarises Shafir’s note to Comyn:
Ms Shafir referred to the lack of authority of the compliance function which she said was rooted in senior management’s lack of appreciation of the regulatory environment, and the legitimate expectations of good conduct the community place on an organisation of CBA’s size, scale and history.
Orr asks Comyn whether this is an “indictment” on CBA. Orr:
Mr Comyn, Ms Shafir’s comments are an indictment of the culture within CBA in relation to treatment of compliance risk, and operational risk, more generally. Do you agree?”
Comyn:
Yes, I do.
Updated
Orr asks Comyn about a review by Apra, the banking regulator, into banking misconduct. Comyn says he sent it to his 500 top executives and asked them to discuss it with their teams and report back to him.
One note, from Marianne Perkovic, executive general manager for Commonwealth Private, is read out by Orr.
It’s a revealing letter. She told Comyn:
I moved to Commonwealth Private as an opportunity to lead growth but much of that has been shadowed by transformation. My drive and motivation to lead these challenging opportunities where I put my brand and reputation in the firing line for CBA has always been a personal commitment to putting things right for our clients. I am proud that this is how I operate but I also feel disappointed as I know I have let some of our clients, people and the community down by not speaking up loud enough to stand up to behaviours that I knew were not right.
Comyn says this was not a common theme in the responses given to him.
Perkovic also told Comyn the bank was far too reactive. It only acted on misconduct issues where they were reported in the media, went to the regulators, or were raised by the CBA board.
We have relied too much on legal, finance and consultant’s views on how to run our business at the expense of customer and community expectations. We are too reactive and only increase our sense of urgency to fix things if issues become mandatory compliance.
Updated
Orr asks Comyn another open question. What’s going to be the hardest thing for CBA to address? He says CBA’s culture is difficult to measure, and therefore difficult to change. He also says the bank will find it difficult to better manage “non-financial risk”.
The larger change around the culture of the organisation, that is in some ways harder to measure, and obviously the management of non-financial risk has been a clear failing ... but I think that is something that is more readily observable.
Updated
Rowena Orr asks Matt Comyn what he personally sees as the most concerning failing of the CBA, common across all of its misconduct.
I think is because in too many instances we did not understand the relationships, the various relationships which do differ [across CBA’s products] ... and therefore a clear understanding of the duties and obligations associated with that.
Orr asks for clarity about what he means. He explains he means the relationships the banks had for different customers across the wide range of its businesses. He said understanding those relationships was key to knowing the bank’s obligations to each customers. It would have prevented the bank from charging customers for fees without service, for example.
Orr asks how the bank could not have understood its obligations to customers. Comyn says:
I think we should have, Ms Orr
Orr responds:
Why didn’t you? What do you put that down to, Mr Comyn?
Comyn:
Well, a culture of us not learning from issues of misconduct in the past.
Updated
Matt Comyn is now giving evidence. Rowena Orr is asking him about a submission made by CBA about the causes of misconduct.
Orr:
You identified two categories of root causes, do you recall that?
Comyn:
Yes . I do.
Orr:
The first relates to what you describe as customer and culture.
Comyn:
Yes.
The “customer and culture” cause describes a failure by CBA to prioritise customer interests, or consider properly the duty they owed to customers. It has led – “consciously or unconsciously” – to decisions that put the bank’s financial gain over the customer interest.
The bank has also failed to properly consider non-financial risks in its practices, Comyn said. It also failed to properly consider external voices.
The second root cause is failings of “accountability, governance, and capability”.
The bank had inadequate capability in critical areas, particularly “operational risk and compliance”. Orr asks “how did that happen”, in a business as big as CBA? Comyn says:
I don’t have an adequate explanation for that.
Updated
While we wait, let’s quickly recap what we’ve previously heard from Matt Comyn. He’s only been in the top job since April, but has worked at CBA since 1999.
We heard from him at an inquiry by the House of Representatives standing committee on economics last month. He offered an apology and described CBA’s conduct as “unacceptable”. He told that inquiry:
Our customers and the community rightly expect that we always do the right thing, but we have seen far too many instances of unacceptable customer outcomes. As the royal commission has shown, there have unfortunately been failures of judgment, failures of process, failures of leadership and, in some instances, greed.
We have been too slow to identify problems, too slow to fix underlying issues and too slow to put things right for customers. We became complacent. Our capability has been inadequate in critical areas, particularly operational risk and compliance. We have underinvested in prevention, even though we have invested significantly in customer remediation.
This is completely unacceptable.
Updated
Rowena Orr talks a little about the decision to call the chief executives of the big four banks. She says they were chosen because they play a “pivotal” role in the operation of the banking sector in Australia.
It is not possible to call executives from every entity that has been the subject of a case study ... as a result the commission will call a selection of executives from a selection of entities.
The big four were chosen because of their size and influence, she says.
These four institutions hold approximately three-quarters of the total assets held by authorised deposit taking institutions in Australia.
One way or another, the operation of these institutions affect the lives of most Australians.
Orr also acknowledges the critical role board members play in setting the strategic direction of the banks. To that end, we will hear from the chairs of CBA, NAB and Bendigo and Adelaide Bank. The commission will also hear from the chairs of Asic and Apra, the two regulators.
The purpose of calling these witnesses is not to go over old ground or seek more apologies or expressions of regret.
That concludes Orr’s opening address. We will hear from CBA’s chief executive, Matt Comyn, shortly.
Updated
Rowena Orr makes one thing perfectly clear from the outset. We’re not here to hear more apologies from the banks. Some have already said sorry or given “expressions of regret”, she says. But this will do little to help the royal commission. Orr tells the commissioner, Kenneth Hayne:
The purpose of this round of hearings is not to hear further apologies or expressions of regret. We do not think that will assist you in fulfilling your task.
Instead, the final round of hearings will do two things:
1. Examine why misconduct in the banking sector occurred to such a significant degree. Orr says:
What caused the conduct that has been examined? Why did these things happen? Was it because of particular practices of financial service entities?
Was it because of the culture of financial service entities or their governance practices?
2. Find ways to stop it happening in the future. Orr outlines some questions that will be examined. Do we need new accountability structures for the banks, law changes or changes to the practices of regulators? Do we need new mechanisms of oversight for financial service regulators? Are there barriers to the banks improving themselves? If so, how do we remove them?
Updated
And we’re off.
The senior counsel assisting, Rowena Orr, QC, is outlining the purpose of the current round of hearings to the commissioner, Kenneth Hayne.
“Our focus is on understand why misconduct has occurred and what can be done to prevent further misconduct.”
Updated
So, what can we expect from this round of hearings? The royal commission is hoping to delve into the root causes of misconduct. What caused the big banks and wealth management firms to, for example, charge fees for no service? Why did they fail to act when it came to their attention?
To do this, the royal commission will examine “culture, governance, remuneration, and risk management practices” in Australia’s banking system. It will also probe the senior banking executives on possible responses to misconduct, including reforms to banking regulation.
The royal commission also plans to examine the role of the regulators, both the Australian Securities and Investment Commission and Australian Prudential Regulatory Authority in “supervising the actions of financial services entities, deterring misconduct by those entities, and taking action when misconduct may have occurred”.
Updated
Hello, and welcome to our live coverage of the banking royal commission’s last round of hearings.
It’s set to be a blockbuster final fortnight. We’ll see the top brass from each of the big four banks front up to explain just how they allowed serious misconduct to flourish without consequence.
First up, we’ll hear from the Commonwealth Bank’s chief executive, Matt Comyn, and the chairman, Catherine Livingstone. It’s set to be an uncomfortable hearing for the CBA leaders. They’ll be expected to explain what they’ve done to change culture and internal systems to ensure the kinds of flagrant abuses we’ve seen from the big banks are not repeated.
Stick with me as we watch the morning unfold.
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