Initial findings from the Oz Royal Commission into financial misconduct are due this week. Photo / File
Any day now, Australia's Royal Commission into misconduct in the financial services sector is due to release its initial findings. After all the evidence of misconduct that the inquiry has heard, it's unlikely the industry is eagerly awaiting its report.
Given the links between the Australian and New Zealand banks, the inquiry's findings could have implications for this country. Once the report comes out, New Zealand regulators have just a month to process it before releasing their own report into New Zealand's banking sector.
Australia's four big banks - Commonwealth Bank of Australia, ANZ, Westpac and National Australia Bank - as well as insurers and financial advisers, have been under the spotlight since March, when the first in a series of court examinations kicked off.
There have been revelations of irresponsible leading, sales of inappropriate products, fees charged for advice not given and even fees being charged to dead people. There has also been evidence of information being concealed from the regulators, and failures to rectify problems which have dragged on for years.
William Curtayne, a portfolio manager with New Zealand fund manager Milford Asset Management, who is based in Sydney, expects the initial report to be "fairly scathing".
He believes it will focus on the banks' poor lending practices, and mortgage lending in particular, and the lack of due diligence the banks carried out on customers' expenses when assessing loan applications.
Curtayne says that lack of due diligence has resulted in lending being approved that shouldn't have been - and in some cases people losing their homes.
By highlighting the issue, the inquiry has already resulted in a change by the banks, which are now said to be making a much more thorough assessment of loan applicants' personal expenses.
Credit growth in Australia has slowed as a result and Curtayne says the banks have lost market share to non-banks.
Property prices in Sydney and Melbourne have dropped in recent months and Auckland's property market has flattened out after years of double-digit growth.
Mortgage brokers in New Zealand report that banks here are also asking for more information on people's expenses, although just one bank - Westpac - says it has made changes to its methodology.
Andrew Bascand, managing director at fund manager Harbour Asset Management, who closely follows the Australian banks, says: "What we don't want is no lending in New Zealand and Australia. But we also don't want irresponsible lending."
He says the general impression from regulators in New Zealand - the Financial Markets Authority and the Reserve Bank - is that there have been no systemic behavioural issues.
But there may still be individual cases that need to be put right.
"I do think we will continue to see changes in the banking structure in Australia and that will filter down to New Zealand," says Bascand.
But he says it is not just the Australian-owned banks that should heed the inquiry's message, but New Zealand-owned banks too.
"Kiwibank, TSB, Heartland - there are lessons here for those institutions as well."
Bascand says the Australian banks have already tried to interpret what might come out of the inquiry.
Commonwealth Bank of Australia, which owns New Zealand's ASB bank, has decided to spin off its asset management and mortgage broking businesses into a separate operation in a bid to reduce perceived conflicts of interest.
Meanwhile, the ANZ has sold its advice business to financial services company IOOF. "From the bank perspective we have seen a lot of changes already."
"I do think recommendations will be made in terms of ensuring directors, executives and senior managers will be significantly more accountable for the advice part of the business."
Bascand says one of the most shocking things to come out of the inquiry has been the lack of transparency between the financial firms and the Australian regulator, the ASIC.
Some companies were found to have concealed breaches of the rules, or reported some breaches, only to later reveal that there were many more.
Others reported breaches but then took years to fix them.
Even before the report, it has been an expensive exercise for the banks. Some estimates have put the cost of the hearings alone at A$1 billion for all the parties involved.
And beyond those costs, Bascand says the fines levied have been large and the remediation costs high, as well as the cost of bringing in new regulatory controls.
After the initial report is released, the chief executives of the major financial firms will have a chance to respond before a final report is released in February.
Curtayne says it is also important to remember that while the Australian Royal Commission could make recommendations, it couldn't change the law or regulations - that would be up to the government and regulators.
In New Zealand, the FMA and RBNZ are expected to release a report on the New Zealand banking sector by the end of next month and the life insurance industry by the end of this year.
Bribes, sudden resignations, dead people being charged fees, insurance premiums for non-existent houses, private investigators — Australia's long-running Royal Commission has been more colourful than its name would suggest.
Formally known as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry — or the Hayne Commission, after its head, Justice Kenneth Hayne — the inquiry has probed the delivery of services such as credit cards, mortgages, insurance, financial advice and superannuation.
Since public hearings began in March, Australian news reports have delivered a steady stream of revelations.
Early in proceedings, the commission heard how some staff at National Australia Bank (NAB) — owner of New Zealand's BNZ — accepted cash-stuffed envelopes.
Bribes of up to A$2800 were paid to a group of employees to knowingly approve loans based on fake documents, in order to "smash targets" and earn bonuses.
The commission heard that ANZ had failed to accurately verify the living expenses of home loan customers who were referred to the bank by mortgage brokers, believing that was the brokers' job, despite those brokers having a vested interest in having the loans approved.
As for Commonwealth Bank, owner of the ASB, the inquiry was told that it pushed "junk insurance". The insurance covered credit card repayments if a client lost their job, but it was sold to people who were unemployed, students and pensioners.
The charge was 55Ac a month for every A$100 owing on their card — A$16.50 for the average card debt of A$3000 — even though the bank knew those people would not be able to make a claim as they had no job to lose.
The commission also heard evidence from a man who described how Commonwealth Bank offered to increase his credit card limit within days of him telling staff he had a gambling problem and didn't want to go even deeper into debt.
At the minimum payment rate, his debt would have taken 138 years to pay off.
In April, the commission was told how Commonwealth Bank advisers continued to charge dead clients for financial advice — in one case for more than a decade. It wasn't the only bank to admit to charging dead people fees.
In April, AMP's chief executive Craig Meller quit his job immediately, becoming the first senior executive to stand down as a result of practices unearthed by the inquiry.
The next week, AMP announced that chairwoman Catherine Brenner had also resigned, making her the company's second high-profile casualty.
Another to go was senior NAB executive Andrew Hagger, whose resignation was announced after he faced intense questioning at the inquiry.
Financial advisers were also in the gun. Among other cases, the commission heard how a former ANZ planner charged a woman A$3800 in annual fees for advice to roll over her superannuation, so that she could save a few hundred dollars a year.
The inquiry also heard how an elderly widow on a pension, who wanted to put $A32,000 into a term deposit, was instead advised to put the money into an investment account and charged A$1150 a year for ongoing advice.
Also in April, NAB faced the commission over the incorrect witnessing of beneficiary nomination forms which could potentially have rendered invalid the final wishes of more than 2500 of the bank's customers.
Two days later, Dover Financial Services owner Terry McMaster, a key witness, collapsed on the stand after being accused of lying.
On August 8, the former chair of NAB's superannuation trustee arm admitted that it had charged dead customers for financial advice.
On September10, the senior counsel assisting the commission said in an opening statement that Australia's biggest insurance companies had admitted to misconduct in some form. This included delays, overcharging, high-pressure sales tactics and surveillance of claimants.
The commission was told that life insurance and investment company ClearView deliberately focused on poorer customers, with more expensive policies that offered less cover than the policies it sold to wealthier clients.
ClearView admitted to as many as 300,000 criminal breaches of the law by using aggressive and pestering cold-calling tactics to sell insurance.
Commonwealth Bank's insurance arm, CommInsure, was criticised for turning down an insurance claim from a woman who had breast cancer on the grounds that her surgery wasn't considered "radical" enough.
CommInsure managing director Helen Troup told the inquiry she agreed that the insurer's treatment of the woman fell short of expected standards.
Evidence of the woman's battle with the insurer prompted calls from cancer experts for insurers to ensure their policies are up to date.
And it took four years and media investigations before CommInsure revised its definition of a heart attack to reflect current medical practice, and in the process it turned down millions of dollars worth of claims that would later be found to be valid, the commission was told.
Insurer Suncorp, the inquiry heard, at one stage used private investigators to spy on one in 10 personal injury claimants. Its investigators also took on a surveillance job even when they personally knew the policyholder, and upset one claimant by pursuing them and driving erratically.
Suncorp was also in the spotlight when the inquiry heard that it sent home and contents renewal policies to bushfire victims who had lost their homes, and charged them premiums in some cases, even though the homes no longer existed.
On September 17 came the revelation that AMP staff knew it was also charging life insurance premiums for thousands of dead customers.
Another life insurance case involved a 26-year-old man with Down syndrome who was sold an expensive life policy after he was called by a Freedom Insurance agent. Before it relented, the company insisted the man come on the phone; he was recorded struggling to say the words the insurer demanded.
Changes have already been made as a result of the inquiry. For example, financial institutions are to be banned from sending out unsolicited increases in credit card limits.
The inquiry can recommend changes to the law and to regulation.
And there is the possibility of civil or criminal legal action for some of the breaches it has uncovered.
House prices will be 20% lower in real terms by the mid-2030s than in 2021.