I originally thought the Financial Services Royal Commission was unnecessary. Then I heard the evidence, and I changed my mind. Having read the recommendations of Commissioner Hayne, my first opinion might as well have been right. We’ve got very little that is useful, and much that will be harmful.
The motives for the commission were never pure.
On the one hand you had Labor, who had itself rejected a banking inquiry, channelling public hatred for bankers, insurance salesmen, financial planners and superannuation trustees, at the government through calls for a Royal Commission.
On the other hand you had the government, which genuinely believed there was nothing to see, resisting, until the pressure became too great. They did the politically smart thing, and folded. Can’t blame them for that. But their appointment of Kenneth Hayne was a complete mistake.
Banking and finance is a complex area, and it appears that our system, while far from broken, could do with some fine-tuning. Hayne might have been a High Court judge, but he seems singularly lacking in commercial understanding. And he is a lawyer. Lawyers are better at tearing things down than they are building up, or reconstructing.
Reconstruction is what our financial system needs.
Hayne’s major value is that he has identified some wrong-doers and recommended their prosecution, and has forced the resignation of a number of financial institution directors. That gives us some return out of the exercise, but not a lot.
The old boy and not-quite-so-old girl network is virtually unscathed and bank investors banked a nominal $19 Billion as share market valuations rose across the board.
One reason valuations rose is because there were few structural changes relating to banks, apart from the recommendation to ban bank commissions to finance brokers (and this will enhance the value of the big four because it will reduce competition amongst lenders).
The commission talks a lot about culture and the need to change it. Its solution is legally enforceable industry codes of conduct and restrictions on remuneration. These are unlikely to achieve anything.
High flying executives will always be motivated by remuneration, and no matter how it is dressed-up, the bottom line is really the only measure of executive worth that most companies care about.
And industry codes are already in place. While Haynes wants them to be legally enforceable, one of the problems in banking has been the unwillingness of regulators to enforce anything.
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