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Banking royal commission: ASIC should cancel big banks' operating licences if they behave badly, experts say

Banking royal commission: ASIC should cancel big banks' operating licences if they behave badly, experts say

Just weeks after the boss of Dover Financial collapsed in the witness box at the banking royal commission, the badly behaving company was out of business, bowing to pressure from the Australian Securities and Investments Commission (ASIC) to surrender its licence.

But despite their own laundry list of wrongdoing, the licenses of the big four, and AMP, it seems, are safe.

Long-time banking analyst, Brett Le Mesurier, cannot see why.

"I see no reason ASIC should differentiate between large and small players," he said.

"If companies or their related planners transgress, then they should all be treated the same way."

It was a series of scandals facing the Commonwealth Bank that forced the Government to bow to pressure to hold the royal commission

The money-laundering debacle, for which it will pay a $700 million fine, was the final straw.

It followed shocking revelations in CBA's financial planning and insurance divisions, and its involvement in the collapsed Storm Financial — all of which cost thousands of people their life savings

Now, according to the royal commission, CBA is the gold medallist for charging fees for no service.

"For the individual involved, the upside is they get hundreds of thousands of dollars in bonuses, if not millions in bonuses," said Damien Klassen, finance industry veteran and head of investments at Nucleus Wealth.

"That's the upside if they manage to get away with it.

"The downside is, they get fired, and their company pays a huge fine. That sounds like a pretty decent trade-off for the individuals involved."

Make an example by reprimanding large companies, expert says

The royal commission has recommended criminal charges against AMP for also charging clients, but not providing any service, and then repeatedly lying about it to ASIC

A so-called independent report into the issue was changed 25 times at AMP's insistence.

Mr Klassen said a sure-fire way to clean up the industry is for a big company like AMP to lose its licence to operate.

"If a large company lost a financial services licence for the behaviour over one of these, then the behaviour for the rest of the companies in the sector would be, for the next generation or two, would be fixed," he said.

But what about the impact on the financial system by taking out one of the big players?

Mr Le Mesurier said the system would easily cope with the loss of AMP.

However, he said ASIC would have to be careful if it went after the licence of the Commonwealth Bank.

"If Commonwealth Bank lost its banking licence, it would have a very significant impact, because obviously it funds much of the Australian community, both home and business loans, and it's also a substantial deposit gatherer," Mr Le Mesurier said.

"But if the loss of licence purely related to the financial planning network, well, there's many other homes for those financial planners to go to."

The Commonwealth Bank has joined ANZ and NAB in distancing itself from wealth management.

It is creating a new, separately listed, company which will include two of its financial planning businesses as well as its funds-management arm.

But after all the scandals, will customers be better off?

Not according to Jeff Morris, the whistleblower who lifted the lid on what was really going on inside Commonwealth Bank Financial Planning.

"I don't think it's intended to be for the customers," he said.

"It's more for the bank in terms of trying to draw a line under all the scandals and the bad news and the brand damage by separating themselves from some of the businesses that have caused most of that," he said.

At the heart of CBA's scandals is the vertical integration model, where financial planners are used as sales people for the bank's products, like superannuation and insurance.

The new, hived-off company, retains that vertical integration.

"They will still be owned by a fund manager, and the fund managers live or die by their inflows, so the pressure will be on those financial planners, as salesmen, to keep those inflows up," Mr Morris explained.

A reason some believe, without a much tougher approach from ASIC, like taking the licence of a big player, we'll be having another banking royal commission in about 10 years.

This article was published by
By: Andrew Robertson
Last modified onWednesday, 05 September 2018 04:04

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