Home loans, car loans and credit cards will come under the microscope when the Banking Royal Commission holds its first round of public hearings in Australia next month.
Commissioner Kenneth Hayne QC and senior counsel assisting Rowena Orr made brief initial statements in Melbourne today ahead of what will be an exhaustive 12 months of public hearings into misconduct in the banking, superannuation and financial services industry.
"The commission will hear evidence that suggests consumers have not always enjoyed the right to be treated honestly and fairly when it comes to home loans," Orr said. "Some [cases] may involve breaches of the law, while others may fall short of community standards."
She revealed more than 385 submissions had already been received from members of the public, with 49 per cent of those relating to banking, 18 per cent to superannuation, 6 per cent to general insurance, and 6 per cent to life insurance and total permanent disability insurance.
By state and territory, Queensland consumers made 110 submissions, Victoria made 106, NSW made 95, WA made 49, South Australia made 17, and the ACT, Northern Territory and Tasmania each made fewer than 10.
Eighty-four per cent of submissions related to misconduct or conduct that falls below community standards, 40 per cent related to culture and governance, and 35 per cent related to the effectiveness of redress for consumers.
"Some themes have already emerged," Orr said. "We have seen a number of submissions about topics such as financial services entities acting on falsified documents, the provision of inappropriate financial advice, inappropriate lending and delay in processing insurance claims."
She added that 32 notices to produce documents had so far been issued to individuals and financial entities under the commission's extensive compulsory powers.
Commissioner Hayne, a former High Court judge, earlier reminded banks that they would not be protected by confidentiality agreements, either in the case of confidential settlements reached with customers or non-disparagement clauses applying to former employees.
"Under the Royal Commission Act, if a witness gives evidence or produces a document under a notice of summons, no injury can be done to that person," he said.
"Any institution which sought any form of legal redress against a member of the public or a whistleblower seeking to volunteer information to the commission would be taking a step which would very likely provoke two immediate consequences.
"First, the commission would be very likely indeed to exercise its compulsory powers to secure the information in question. Second, the very fact that an institution sought to inhibit or prevent the disclosure of the information would excite the closest attention not only to the lawfulness, but also the motives for seeking to prevent the commission having that information."
Commissioner Hayne said he first wrote to financial institutions in December requesting details of events of misconduct since 1 January 2008, with a number providing unsatisfactory responses using only specific examples, rather than the outlining the "nature and extent" of the breaches.
A number said they could not meet a deadline of February 13 to provide the more detailed information.
"That the request for details of events of misconduct cannot be met within the time sought, even though the request for that information was made approximately two months ago, is itself a matter to which further attention may have to be given," he said.
Earlier today, Australian Bankers' Association chief Anna Bligh warned the commission would be embarrassing for the banks.
"It's important that it [the inquiry] gets to the matters that have disturbed the public," she told ABC radio. "I do expect this will be painful for banks and their staff."
In a background paper released on Friday, titled: "Some features of the Australian banking industry", Commissioner Hayne appeared to flag a focus on the big four banks, highlighting the declining competition in the sector and their high profitability.
Martin North, from research firm Digital Finance Analytics, said with issues in the financial advice and insurance sectors having been well canvassed in previous inquiries, lending practices appeared to be the focus.
"Lending is such a large part of the profit-generating engine of the banks and it's quite complex because there are a lot of third parties like mortgage brokers as well," he said.
"We might find poor lending practice is called out. Personally I think there will be evidence down the track, but the question is are there sufficient examples now, or is it too early in the cycle because we still have record low interest rates?
"Generally it's when interest rates start to rise that problems show up. Is there enough evidence to be a smoking gun? Certainly, I think there's a smell of gun powder."
WHAT IS IT?
Officially called the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it was established on December 14 last year after Prime Minister Malcolm Turnbull caved to mounting pressure.
The previous day, the heads of Commonwealth Bank, ANZ, Westpac and NAB penned a joint letter to Treasurer Scott Morrison urging him to bite the bullet and call a "properly constituted inquiry" in order to end "political uncertainty".
The first round of public hearings will begin in "approximately one month", with the date to be published on the commission's website. An interim report is due by September 30 and the final report by February 1 next year.
WHAT WILL IT INVESTIGATE?
The inquiry has incredibly wide-ranging terms of reference and Commissioner Hayne will have a large amount of latitude to choose which areas he wishes to focus on.
Broadly, they fall under three general areas: conduct by the banks themselves, including any potential criminal misconduct; the culture and governance within the banks and whether that contributed to the conduct; and the adequacy of the overall regulatory and legal framework within which they operate.
CAN I GET COMPENSATION?
No. The commission has been forced to clarify misconceptions that it is a dispute resolution body.
"The Royal Commission has become aware that some people may have been receiving information that the commission can make a decision to refund investors or provide compensation," the website says.
"Such claims are not correct. The commission cannot resolve individual disputes. It cannot fix or award compensation or make orders requiring a party to a dispute to take or not to take any action."
WHAT WON'T BE LOOKED AT?
The inquiry is not required to investigate matters "sufficiently and appropriately" dealt with by another inquiry, investigation or criminal or civil proceeding. That may mean some issues are off limits.
That includes "rate rigging" allegations regarding the setting of the bank bill swap rate — NAB and ANZ reached settlements with the regulator while civil proceedings continue against Westpac. It also rules out CommBank's alleged contraventions of anti-money laundering and counter-terrorism laws.
The commission will not look at financial stability or the resilience of the banks, nor macro-prudential policy and regulation.
WHO DOES IT COVER?
The commission covers all banks, insurers including general insurers and life insurance businesses, superannuation providers, but not self-managed funds, wealth managers, financial services providers, and intermediaries between borrowers and lenders such as mortgage brokers.
Not all credit providers are covered. The terms of reference do not specify non-bank lenders. While holders of an Australian financial services licence are included, those who only require an Australian credit licence are not, aside from intermediaries such as mortgage brokers. That appears to exclude the small loans sector and so-called "payday lenders".
- additional reporting AAP