This article was first published in Pesel & Carr’s newsletter, 47.
They say you should never speak ill of the dead. The fallout from the Royal Commission into our banking sector shows that taking money from the dead is not such a good look either.
The constant weeks of interrogation by counsel assisting Rowena Orr QC have been death by a thousand cuts to the reputation of the country’s major financial players.
Tales of “marginal borrowers” being encouraged to take loans beyond their means have been aired, conflicts on interests amongst mortgage brokers and financial advisors exposed, and the “dehumanising” treatment of vulnerable customers put under the microscope.
And then there are the revelations that the Commonwealth Bank has been taxing the dead – or at least continuing to charge their estates – long after they passed away.
“I have never seen anything as appalling as what we are witnessing at the banking RC,” tweeted Sky News’s Janine Perrett. “And I covered the ‘80s crooks including Bond and Skase.”
In short: it’s been a public relations nightmare for the industry, despite the best efforts to confine the reach of the inquiry.
Still the tide began to turn against the banks, so they upped their spending further, so much so that financial services advertising is being seen a major driver of a recent boom in advertising spending.
According to Standard Media Index figures from May, advertising spending by domestic banks rose $5.7 million and by other financial services by $5.3 million in the first quarter. Only two other industries increased their spend by a greater amount.
It was to no avail. The public would not be fooled and were nursing a lot of anger towards the banks. Of submissions to the Royal Commission, so far 66% have been about banking; 10% concerned superannuation; and 9% focused on financial advice. (People can continue to make submissions about misconduct in the financial services industry until 28 September 2018.)
As the revelations of criminal activity, lies and fees for no service continued to flow even the most ardent supporters were shocked. The Treasurer was moved to describe them as “deeply disturbing” and to raise the prospect of severe consequences.
Civil penalties for individuals will be increased from $200,000 to $1.05 million or three times the benefit gained or loss avoided.
For corporations, maximum penalties under the Corporations Act increase from $1 million to the greater of $10.5 million, three times the benefit or loss or 10 per cent of a company’s annual turnover.
Heads have already rolled, with AMP CEO Craig Meller and Chair Catherine Brenner both falling on their swords after the company was found to have repeatedly lied to ASIC about their “fee for no service” activities.
Meller said: “I do not condone [fees for no service] … However, as they occurred during my tenure as CEO, I believe that stepping down as CEO is an appropriate measure to begin the work that needs to be done to restore public and regulatory trust in AMP.”
It hasn’t worked, at least not on the stock exchange. While the banks lost less than 5 per cent of their value since the commission started, AMP’s share price plummeted more than 20 per cent.
Meanwhile, independent of the Royal Commission, AUSTRAC, the federal financial intelligence agency, was investigation the Commonwealth Bank. The result? CBA has agreed to pay $700 million plus legal costs – the biggest fine in Australian corporate history – for breaches of anti-money laundering and counter-terrorism financing laws that resulted in millions of dollars flowing through to drug importers.
So how can these institutions convince us they aren’t a bunch of cowboys and crooks? There won’t be a quick fix, that’s for certain. The behaviours that led to this state of affairs has taken place over years and it may take that long to regain public trust.
Instead of looking for a Band-Aid solution to cover the damage to reputation, banks need to do some soul searching about meaningful ways they can change their practices and perform better. The public don’t want feel-good promises, they want tangible improvements.
Now is the time to focus on core business principles and build the brand the banks aspire to.
As Stephen R. Covey, author of “The 7 habits of highly effective people” often said: “You can’t communicate your way out of a problem you’ve behaved yourself into.”
To sign up to 47, please email rebecca.giarrusso@peselandcarr.com.au.
