Joe Hockey’s mother-in-law was a victim of the Commonwealth Bank scandal, in which many people lost savings due to rogue financial advisers in part of the CBA group.
But Hockey has been keeping his distance from the government’s handling of the affair (apart from saying the bank has got to “lift its game”) on the grounds of conflict of interest.
His mother-in-law has been compensated, unlike many others. But you’d think she’d be leery of the CBA these days.
As would anyone who’s looked at last week’s Senate report that documented not just the misbehaviour but the cover-up by which the bank tried to deceive the regulator (the Australian Securities and Investments Commission) about the extent of the problem in its Commonwealth Financial Planning Limited.
The majority report (including Nationals senator John Williams) has called for a royal commission or other inquiry, a proposal being resisted by Finance Minister Mathias Cormann, who’s chosen to rely on a dissenting report by deputy chair, Liberal David Bushby.
Bushby (who’s close to Cormann) opposed a further inquiry saying, among other things, that it “could protract the emotional strains on victims of malpractice” and raise false hopes of further compensation.
A government that enthusiastically probes union corruption is reluctant to shine such a bright torch on the banking industry.
The government now finds itself in a fresh bad place on the issue of financial advice and consumer protection. As someone in the financial planning industry puts it: “Bank bashing is an Australian pastime – why would the government pick the bank’s side against mum and dad Australia?”
Why indeed?
It goes back to the Coalition’s pre-election policy to wind back Labor’s Future of Financial Advice legislation.
Cormann, who drafted the Coalition’s policy in opposition, is a hardline free marketeer, believing in the buyer’s responsibility and the need to get rid of “red tape”.
In government Arthur Sinodinos, as assistant treasurer, had initial carriage of the changes (until forced to stand aside because of the Australian Water Holdings affair). Sinodinos was formerly with the National Australia Bank.
Some believe the government felt obligated to the financial sector because of the amount of campaign money the Liberals raised from it. We know the government tilted its changes to FoFA legislation to help the banks (and that was strengthened in Sinodinos’s version), although it was later forced to make some modifications.
But even taking everything into account, it’s still hard to fathom why the government has followed a course that at every turn brings such a damaging backlash for it. The safety of their retirement savings is one of today’s critical hip-pocket concerns of voters.
Why, for example, did the government not wait until after the report on the Commonwealth Bank to announce its final position on changes to FoFA? This would have required administrative rearrangement, because July 1 was already a trigger for certain things, but it could have been done.
And why was Cormann so secretive about gazetting the regulations for key aspects of his changes (on the very day of the report on the CBA)?
The Financial Planning Association of Australia (FPA) is supportive of Cormann’s revised changes, which strengthened the government’s commitment to banning commissions and conflicted remuneration (although there is debate about the extent of this ban – it is partly a matter of definition).
But the recent events in the CBA scandal have now led to the FPA calling for the government to convene a summit “with a clear and independent charter around the changes needed to restore community trust in financial planning”.
“We would like to see the summit chaired by an eminent, independent figure. … If we can’t have a summit which commands the respect of the public, one with genuine teeth that can truly deliver positive changes, we would fully support calls for a royal commission,” the FPA said on Wednesday.
Cormann argues a royal commission isn’t needed because the CBA events were in the past (so was the child abuse under scrutiny at such a commission, critics point out); the regulatory environment has changed and is changing; and the industry has made an effort to lift standards.
As has been noted, however, the CBA cover-up was quite recent. The number of victims is still not known, nor whether suggestions of scandals elsewhere in the banking world are correct.
Cormann says he is waiting for Thursday’s CBA response to the Senate inquiry.
But whatever’s said, as of now the government looks to be on a hiding to nothing.
There will be a move in the Senate to disallow some of the regulations. Politically, the pressure won’t ease up. Labor’s Sam Dastyari, who has replaced the just retired Mark Bishop as head of the committee that did the inquiry into ASIC and the CBA, says: “The concern a lot of us have is that there could be some systemic problems.” He adds: “The last thing we need is less regulation and less oversight in this area.”
The question is whether the CBA’s response will be strong enough to head off the push for a further investigation, which is the last thing that this bank, the other banks and their ally, the government, want.
Listen to Michelle Grattan’s newest podcast with incoming senator David Leyonhjelm here.