Friday, February 02, 2024

How a royal commission sank a 175-year-old financial giant  

 How a royal commission sank a 175-year-old financial giant

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.
APRA chairman John Lonsdale in Sydney on Wednesday, after a briefing on priorities for 2024.

Tuesday, November 04, 2003

Dark Long queue at drive-in soup kitchen
George Bush's America, the wealthiest nation in history, faces a growing poverty crisis.
· Amerikan Winter [Guardian](UK)

Wednesday, October 29, 2003

Dissing Dissent  

I am grateful to have become an American and to now belong to a country that has had an inspiring and enduring and true commitment to letting "a hundred flowers bloom," as Mao, hypocritically, once said. What has made the U.S. such a beacon to people like me is that it has always been principled, confident and strong enough to let its people debate and criticize government policies without suggesting that the critics are somehow less than patriotic.
When our government loses its tolerance for a full range of views on national and world affairs, it is veering toward the authoritarian world that speaks in one voice, the very political model it has so often stood against; even fought against. I hope I will never again have to live in such a world.

· In White House Actions, A Troubling Echo of Life in Communist China [LATimes ]

Tuesday, October 21, 2003


Sweet Reward: Tax Notes of Known World
He had never considered writing fiction full time before. Mr. Jones was the author of an acclaimed collection of short stories and the winner of a $50,000 literary prize, but he was also the son of an illiterate and impoverished mother. As a young man he lived briefly in a homeless shelter and learned to view a steady paycheck the same way that a drowning man might view a lifeline.
To think about being a writer was to think that I had the whole world, and I really didn't, and I knew I didn't," said Mr. Jones, 53, who spent nearly two decades proofreading and summarizing news items for Tax Notes, a trade magazine, before he was laid off in January 2002.
But he decided to dive into his first novel without much of a safety net. To his astonishment, his tale of a black slave owner, an aching and lyrical exploration of moral complexities, has become a literary sensation since its publication in August. Janet Maslin in The New York Times called that novel, "The Known World" (Amistad/HarperCollins), stunning. Jonathan Yardley of The Washington Post hailed it as the best new American fiction to cross his desk in years.

· As a drowning man might view a lifeline [NY Times]

Thursday, October 02, 2003

A Reporter's Mission - and Its Occasional Price
Four American journalists who died while covering the war in Iraq and another who was slain in Pakistan were honored today in a ceremony on a Civil War battlefield in Maryland - Michael Kelly of the Atlantic, Elizabeth Neuffer of the Boston Globe, David Bloom of NBC, Mark Fineman of the Los Angeles Times and Daniel Pearl of the Wall Street Journal.
In their deaths, Baltimore Sun writer David Folkenflik see journalism's larger purpose: At the heart of the work of those correspondents is the fundamental mission that should be common to all reporters: discerning the truth and then airing it, even when it might offend the sensibilities of the powerful.

· Remember [Tim Porter (First and Last Draft)]
· Journalists::valuable components of the democratic process

Coetzee Wins Nobel
Once again snubbing the winless Dutch, the Nobel Prize for Literature has gone to South African J.M. Coetzee, published in the U.S. by Viking Penguin. The Swedish Academy characterizes the two-time Booker winner as a writer who in innumerable guises portrays the surprising involvement of the outsider.

Edward Said - Outsider
Edward Said inspired admiration, even if you disagreed with his politics. He lived in the world as an exile, a condition from which he drew strength. Exile, as a metaphorical state, was something we all should aspire to, Said contended, since it gives one an outsider's perspective on the world. He was a theoretician who hated theory because he loved people. A true public intellectual, he would say, possesses not just access to the media but a public (constituency would be his term) to which he or she is accountable. Ground yourself in the world.
· Exile [Village Voice 10/01/03]

Surf, Swim, Look Inside This
While we all wait to see when Amazon launches their new system of searching inside thousands of books, eBooks.com has announced that they are now offering fast, relevant searches across every word in every title from the 25,000 titles they carry.
· Surfing eRivers [eBooks.com ]

The Web's Hot Type
Publishers are waking up to the promotional possibilities of the internet. Creating promos like this sends a message to an author that you're doing exciting, creative, new things to market their books. It also sends a message to a wider, younger, new web- and design-literate audience that these books are being addressed to them in their language.
· Market [The Guardian (UK) 10/01/03 ]
· Trails [Kokodatrail.com ]

Monday, September 29, 2003


Whenever I come across plastic and slimey kindofish (sic) characters: bullies at work, or cowards in print; bashers pregnant women in the safety of their homes, or liars around the parliamentary bar..., this saying tends to commits itself in my mind: The ultimate measure of a man is not where he stands in times of comfort, but where he stands in time of challenge and controversy.
-King (Martin Luther)

So True Cowards & Crowds
GAS BAG, EH? Someone called Norman Finkelstein says
In contrast to bursting windbags like Vaclav Havel, Hitchens is too smart to take his vaporizings seriously.
This is a former Marxist, but very much a member of the implacable left. Oppose Bush and anyone who defends any of his policies at all costs.
This fashion of hatred for Vaclav Havel among the left is fascinating to me. Must return to this. In terms of practical politics, Havel's a social democrat, really. In principle he's probably close to, say, an American lefty on a range of social issues. But he opposed the Soviets. And this is unforgivable. He opposed the Soviets eloquently (and bravely). Ergo, he is a bursting gasbag. I realize that Havel's worst crime, however, was to support the overthrow of a totalitarian regime in Iraq.
Imagine Finkelstein in Havel's shoes facing a choice between prison and freedom, all based on whether he shuts up or not. He'd fold the very first time he was interrogated and sign anything they put in front of him.
The piece is a rant about Christopher Hitchens, by the way, not Havel. For a good time, read Hitchens' response.
· Hitchens [via Pragueblog]

Friday, September 26, 2003

Expert stresses ethics
There's been a serious erosion of ethics in recent years and it represents a great danger because what is today foreshadows what will be tomorrow.
Corporate wrongdoers were punished swiftly in the 1930s and "being ruined meant something," Bowman said. Today, however, "the mention of business ethics draws a laugh," he said. We as Americans have lost our sense of outrage.

· Outrage lacking over wrongdoing [Daily Mail]

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