Insights / February 15th, 2018

Banking Royal Commission holds first hearing

Hearing outcome

Commissioner Kenneth Hayne QC commenced the hearing by referring to the length of time taken by certain large entities to provide details on incidents of misconduct during the last 10 years. This request was initially made 15 December 2017 and responses were delivered 19 January 2018. Further requests were made by the Commission for information on events of misconduct (as opposed to departures from community standards and expectations) in the last five years on 2 February 2018. Responses were due back by 13 February, but some entities had failed to provide a response at the time of the hearing. Other large industry participants had responded by providing examples of misconduct; however these responses failed to specify the nature, extent and effect of the identified conduct, as requested by the Commission.

The importance of public submissions to the Commission’s investigations was highlighted and the Commissioner encouraged further submissions from the public via the online form. At the time of the hearing, 385 submissions had been received online. Of those submissions, approximately 110 were from Queensland, 106 from Victoria, 95 from New South Wales, 49 from Western Australia, and 17 from South Australia. Fewer than 10 submissions came from each of the remaining states and territories. Of the responses, 49% relate to banking, 18% relate to superannuation, 6% relate to the general insurance market, and 6% relate to the life insurance and total permanent disability insurance market. The dealings that the majority of the submissions refer to are:

  • personal finance (approximately 31%)

  • superannuation (17%)

  • small business finance (13%)

  • mortgage brokers (12%)

  • financial advice (9%)

From these 385 submissions, 84% related to misconduct or conduct of financial service entities that do not meet community standards and expectations (e.g. financial services using falsified documents). 40% related to cultured and governance practices of financial services entities (e.g. poor management of conflicts of interest) and 35% related to the effectiveness of redress for consumers.

First round of hearings

The Commissioner emphasised that the one-year enquiry would not have time to publically analyse every case of alleged misconduct. Given the tight timeframe for the inquiry, the Commission will instead use case studies and examples to identify varying types of misconduct and why that misconduct occurs. The Commission will then assess responses to misconduct and what the response should have been. The focus will centre on determining why misconduct occurs, rather than censuring those responsible for the misconduct. The investigative work done by the Commission will also only be disclosed at the Commission’s discretion, particularly given that in some instances, premature disclosure would hinder the performance of the Commission’s task. The Commission reminded the public that it cannot award compensation, refund investors or resolve disputes.

The Commission noted that parties will be able to give evidence under a summons to the Commission without fear of legal action founded on confidentiality agreements they have previously signed. Commissioner Hayne clearly stated, ‘if a witness gives evidence or produces a document under a notice or summons, no injury can be done to that person.’

The first round of hearings will commence next month, with the exact dates of the hearings to be published on the Royal Commission website. The hearings will begin by closely examining whether consumers are being treated honestly and fairly in their dealings with banks when taking out a loans; particularly mortgages loans, car loans and credit cards practices. There will also be an early focus on the financial planning and wealth management industry to ensure their clients’ confidence and trust is well placed, and the Commission intends to release a paper on this specific industry within the coming months.


One quarter of the listed companies that make up the ASX 20 index are Authorised Deposit-taking Institutions (‘ADIs’). ADIs such as banks, building societies and credit unions are enormous contributors to the national economy, and at the end of 2017 they held approximately $4.6 trillion in assets. This is about two and a half times the size of Australia’s nominal economy ($1.8 trillion), as measured by nominal GDP.[1]

Data published in the Commission’s first research paper reveals that home loans are the largest asset of ADIs comprising around 42% of the assets of such institutions at the September 2017 quarter. At this same time, around 5.8 million households had a home loan with an ADI. Senior counsel assisting, Ms R Orr QC, explained that, ‘These figures reveal the significance of home ownership for the economy, but they do not necessarily reveal the importance of home ownership for the average Australian, for whom the purchase of a property is likely to be the most substantial and perhaps the most stressful financial transaction of their life. The need for honesty and fairness in this context is paramount.’

Further to this, by November 2017 there were around 16.7 million credit and charge card accounts in Australia, the total balance of which was $52.2 billion. Practices and conduct surrounding car loans and credit cards therefore require close attention, and will be analysed in the initial hearings.

The Commission’s report and recommendations are due by 1 February 2019.

Please contact Hillary Ray if you need any assistance or want to know more information.

[1] Royal Commission into misconduct in the banking, superannuation and financial services industry Hearing Transcript (12 February 2018), 16.

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