Jozef Imrich, name worthy of Kafka, has his finger on the pulse of any irony of interest and shares his findings to keep you in-the-know with the savviest trend setters and infomaniacs.
''I want to stay as close to the edge as I can without going over. Out on the edge you see all kinds of things you can't see from the center.''
-Kurt Vonnegut
Six years after the Hayne inquiry into the banking, super and financial services industry, it’s easy to forget the scale of the misconduct. The fees-for-no-service scandal alone cost the sector $4.4 billion
Twelve messages and 20 misleading statements. That’s all it took to thrust AMP into crisis in 2018. The banking royal commission, headed by former High Court judge Kenneth Hayne and his forensic counsels, assisting Rowena Orr, QC, and Michael Hodge, QC, had only begun examining the financial advice sector. AMP executive Anthony Regan was first in the crosshairs
The 175-year-old financial giant had charged its clients millions of dollars in fees without providing a service in return. While AMP had told regulators it was a mistake, internal documents showed it was really a deliberate policy. Regan, once confident but now sinking ever further into his chair after seven hours in the witness box, ultimately lost count of how many times AMP lied.
The Hayne Royal Commission upended the financial services industry. Michaela Pollock “This was the 14th false or misleading statement by AMP to [the Australian Securities and Investments Commission],” Hodge said, referring to a letter between the pair from 2015 in which the company had blamed one of its fees-for-no-service issues on an administrative error.
There was a pause, then he pushed again: “You’re losing count?” “I’m in your hands in that regard, Mr Hodge,” a sheepish Regan replied. “There’s so many you will have to rely on my count, I’m afraid,” Hodge said.
It proved the most significant flashpoint of the inquiry to that date. Within days of Regan’s evidence, AMP chief executive Craig Meller resigned amid the public and investor outcry. Ten days after Meller, chairwoman Catherine Brenner – who intervened in a supposedly independent report to be handed to ASIC on the issue to minimise the involvement of Meller – fell on her sword.
She has since returned to boardrooms as a director at Scentre. Nearly six years after the royal commission first hearing, it’s easy to forget the sheer scale of the misconduct uncovered.
“The damage done by that conduct to individuals and to the overall health and reputation of the financial services industry has been large,” the final report authored by the by former High Court judge said. “Choices must now be made,” said Hayne.
“The financial services industry is too important to the economy of the nation to allow what has happened in the past to continue or to happen again.” $4.4b remediation
The fees-for-no-service issue – possibly the biggest single controversy of the inquiry – ballooned into a $4.4 billion remediation job for the major four banks, Macquarie and AMP as of 2022. The inquiry later aired that their financial planners were slugging dead customers with fees, too, and, in Commonwealth Bank’s case, knew for years before it informed regulators.
Despite industry assurances it has solved these historical issues and that they are now culturally reformed, only last year the Banking Code Compliance Committee found six banks were still charging dead customers even after being notified of their deaths.
And this was just one of the scandals uncovered during the inquiry, without mention of the adverse treatment of farmers and business borrowers, the aggressive techniques employed to grow loan portfolios including the use of “introducers” – unlicensed third parties who could refer new customers – the probe highlighted. Or the train-wreck appearances of top finance executives.
Kenneth Hayne arriving for a commission hearing in 2018. Brook Mitchell
Terry McMaster, the CEO of financial advice firm Dover Financial, collapsed in the stand after two hours of cross-examination centring on what counsel assisting called an “Orwellian” client protection policy. The policy excluded Dover from liability if advisers did not research products or advisers breached any law, in addition to other provisions that McMaster agreed.
Hayne put to McMaster that the policy was “misleading or deceptive” shortly before the collapse. McMaster was treated in the court before leaving in an ambulance. Dover shut down in June 2018 after entering a court-enforceable undertaking with the corporate regulator to close.
A year after the hearing in 2019, ASIC successfully sued McMaster and Dover for breaches of the Corporations Act. Federal Court justice Michael O’Bryan said Dover – which shut its doors in June 2018 – had broken the law more than 19,000 times in relation to the client protection policy, ordering the firm to pay a $1.2 million fine and McMaster personally a $240,000 penalty.
Justice O’Bryan said the client protection “was highly misleading and an exercise in Orwellian doublespeak”.
“The document did not protect clients. To the contrary, it purported to strip clients of rights and consumer protections they enjoyed under the law,” he added.
IOOF – another near 180-year-old institution – had to fight off the Australian Prudential Regulation Authority in court after it tried to have five of its officers, including former managing director Chris Kelaher, banned from the industry after its examination in front of Commissioner Hayne. APRA had alleged IOOF had failed to prioritise the interests of superannuation fund members as is required under law, but failed to convince the Federal Court.
The royal commission had uncovered instances of poor record keeping at IOOF, which has since rebranded itself as Insignia Financial, and using cash reserves funded by members to pay corporate fines and remediate others.
The Federal Court dismissed APRA’s case because it relied too heavily on documentary evidence, hindsight and its argument exhibited “systemic weakness”. “It was for APRA to prove the primary facts on which the allegations of contraventions depended,” Federal Court judge Jayne Jagot said. “The way in which it sought to do so was fundamentally inadequate.”
She said APRA had used events to imply negligence at IOOF “when the one thing that is clear is that the facts of the incidents in question in this case by no means speak for themselves”.
Then there was the Aboriginal Community Benefit Fund – since renamed Youpla – a business that allegedly signed up people to funeral insurance products who believed it was an Aboriginal organisation. However, the inquiry heard no director or member of management was actually Indigenous.
The company was fined $1.2 million last year for misrepresenting the sale and promotion of funeral insurance. The Federal Court, however, did not find that it had made false representations about its ownership – a ruling ASIC has appealed.
Youpla went into liquidation last April, but ASIC brought a new civil action against five of its directors in August, alleging they entered reinsurance deals with a Vanuatu-based entity that left it open to unaffordable premium increases.
Thorburn, Henry whacked
National Australia Bank’s then-chief executive, Andrew Thorburn, and chairman, Ken Henry, resigned after particularly stinging criticism in Hayne’s final report – a “corporate catharsis” that some argued was due after pre-inquiry upheavals at both CBA and ANZ.
Belligerent in the witness box – a tone Henry later said he regretted – the chairman had several terse exchanges with Orr. Asked several times if the board should have stepped in earlier on NAB’s fees-for-no-service scandal, Henry said: “I have answered the question how I can answer the question.”
“I’m sorry, is it a yes or a no, Dr Henry?” Orr said again.
“I’ve answered the question the way I choose to answer the question.”
Later on, Henry, a former Treasury secretary, would blithely suggest “we could have fired everyone” when asked if there was a better way to encourage executives to put the customer first than adjusting the bonus pool to align with this objective.
Thorburn, meanwhile, stumbled over the purpose of the bank.
“We never had a purpose. And our chairman and myself led that work inside the company to work out what is our purpose … We went back and looked at a lot of artefacts and there have even been books written about the bank and why we existed,” he said.
Rowena Orr at the royal commission in February 2018. Eddie Jim
“It sounds so complicated when you say it, but you’re a bank. Presumably your purpose is to be a bank,” said Hodge.
Hayne ultimately concluded that NAB “stood apart from the other three major banks” as he was “not as confident as I would wish to be that the lessons of the past have been learned.
“My fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains,” he added.
“Dr Henry seemed unwilling to accept any criticism of how the board had dealt with some issues. I thought it telling that Mr Thorburn treated all issues of fees-for-no-service as nothing more than carelessness combined with system deficiencies when the total amount to be repaid by NAB and NULIS on this account is likely to be more than $100 million.”
NAB ended up refunding $1.4 billion. Consumers will hope the penalties and ritualistic shaming of executives will live long in the memory of bankers around the country.
