4 February 2019
Transcript - #2019013, 2019

Interview with Ross Greenwood, Money News, 2GB

Subjects: Government response to the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation & Financial Services Industry.

ROSS GREENWOOD:

Many thanks for your time, Treasurer.

JOSH FRYDENBERG:

Good evening, nice to be with you.

ROSS GREENWOOD:

Do you believe that this goes far enough? Many people are painting this this evening as maybe having gone a bit soft on at least three of the big four banks.

JOSH FRYDENBERG:

I think it is a very comprehensive report with an important range of recommendations, 76 in total, which the Government is taking action on all of them. And as a result, I think we will see trust restored to our financial system, it may take some time, but it will happen. And, there will be, I think, a significant cultural change occur in these institutions.

ROSS GREENWOOD:

Does it concern you that some the actions that may be taken into the future may in fact make lending more difficult? May in fact make, for example, getting superannuation products or insurance more difficult and having more paperwork as the companies try and comply with new laws that might be brought into place? And as a result of that, you suddenly discover that Australians, well the credit squeeze that is attributed to having caused property prices to fall in Australia, that that might continue or in fact, accelerate?

JOSH FRYDENBERG:

I don’t think you can point to these recommendations as having that impact. In fact, Commissioner Hayne made very clear that he did not favour the extension of some of the responsible lending requirements to small and medium sized enterprises. What we’ve seen in this report is recommendations that will take on the misconduct that we’ve seen, with important changes to insurance, superannuation, banking and  financial advisors, enhance consumer protections, for example, preventing the sale of unsolicited insurance or superannuation advice. Also, better support and protections for our farmers with their agricultural loans, particularly in cases where they are living in a drought affected area. I think across the board there are significant changes here that will see consumers get better treatment from their banks.

ROSS GREENWOOD:

Were you especially concerned or worried when you saw some of the allegations of behaviour, especially at the National Australia Bank, which was singled out by the Royal Commissioner as you would be well- aware? And certainly, its behaviour in regards to what it said was in the regard of creating fees but having no service going to its superannuation customers. Basically, in this regard, being willing to be in breach of the law.

JOSH FRYDENBERG:

Yeah, without speaking specifically about one institution or another or one individual or  another, because I don’t think that is a matter for the Treasurer necessarily to opine on. But, what I would say is that the examples of fees for no service, the misselling of insurance, particularly selling insurance policies to people that they couldn’t even claim against, as well as examples of misleading and obstructing the regulators by certain companies. That was a really shocking behaviour, the fees for dead people included, and no one could be not affected when they listened to the audio recording of a insurance company trying to sell a insurance policy to a young man with Down syndrome. Clearly, a policy he didn’t want, he didn’t need or he didn’t understand.

ROSS GREENWOOD:

Here’s the interesting thing about this, Treasurer, and that is whether this genuinely does rebuild the confidence in the Australian public in their financial institutions. I mean, one of the points about this is that Australians really have had their faith in their financial institutions shattered by what they’ve seen is a greedy-is- good mentality. I mean, there is nothing here necessarily that I can see, necessarily, that is going to change that  apart from taking away the incentive for people to missell products.

JOSH FRYDENBERG:

Well, I think the support that Commissioner Hayne gave to the Government’s BEAR reforms, which is the Banking Executive Accountability Regime, which basically holds individuals within the large financial institutions directly responsible for misconduct that occurs on their watch with potential sanctions around their remuneration or also, indeed, leading to their disqualification of that particular person. He has said that that reform should be extended not just to the banks, but also to superannuation and insurance. I think that will have an impact on the culture and the accountability within these firms. I think the penalties that he has recommended for trustees of superannuation companies, not just directors, is an important one where the Government will quickly move to amend our existing legislation before the Parliament. And, the work that he has done around conflicted remuneration is also important. So, I think there is a lot of things there, not to mention, obviously, his recommendations around the regulators and getting ASIC and APRA to be a bit more forward leaning in their approach. I think all of that will be helpful to getting better consumer outcomes.

ROSS GREENWOOD:

What does forward leaning in their approach mean?

JOSH FRYDENBERG:

Well, I think it is holding the people who are responsible and the entities who are responsible  for misconduct to account. One of the areas he focuses on…

ROSS GREENWOOD:

…does that mean taking more court action? Taking people to court more vigorously?

JOSH FRYDENBERG:

Absolutely, it could. And, he…

ROSS GREENWOOD:

…do you believe the Department of Public Prosecution is well enough equipped, financially, to be able to take all of these cases to court if they need to?

JOSH FRYDENBERG:

Well, I’m glad you raised that because we recently announced extra financial resources for that and ASIC and the Commonwealth DPP are working more closely now than they have even in the past in order to ensure to people who are responsible for misconduct are brought to account...

ROSS GREENWOOD:

…do you believe as a result of this Royal Commission, the report you have seen handed down today, you’ve had the weekend to consider it. Do you believe that any person from the financial services industry or the banking industry- senior people I mean, not junior people- will ever see the inside of a court room dock?

JOSH FRYDENBERG:

Well, Ross, as you can imagine, it’s not for me to specifically comment on individual cases that have now been referred, all 24 of those cases, to APRA to ASIC for their further investigation. There is, of course, the possibility of criminal sanctions that could be applied. But, they will be matters for ASIC and for APRA to handle from here on and that is not a question for a politician.

ROSS GREENWOOD:

I understand, but you would agree, as Treasurer, that one of the real tests as to whether people have confidence in these financial institutions and indeed the regulators, is whether not only can they have the laws or the resources, but they can enforce those laws and therefore, if people have done the wrong thing, acted against the interest of their customers, that they end up in a court room.

JOSH FRYDENBERG:

There is an expectation that the law will be enforced and compliance will be better than what we have seen and that is where, I think, you will see a new attitude from the new team at ASIC. And, as you’re  aware, we’ve appointed a new chair in James Shipton, as well as two new deputy chairs in Daniel Crennan and Karen Chester. I think they are very focused on the task on the task at hand and Commissioner Hayne did point out in his report, Ross, that APRA and ASIC are making changes that are necessary and he will continue to watch those closely.

ROSS GREENWOOD:

But APRA, as you know, never took anybody to court, and that’s one of the reasons why the former ACCC Chairman Graeme Samuel has been, you now said, has been appointed to do an overview of APRA and its functionality. Is that because it failed as a regulator?

JOSH FRYDENBERG:

No, I think having, every four years, a capability review, which we announced today, of the regulators, is a healthy development. I think it is enables you to get to get on the inside of an organisation and to assess their performance against a series of benchmarks and Graeme Samuel is coming from the outside looking in.
He will be aided by others, as well as a Secretariat from within the Treasury Department and I think that will be
important. I mean, as we know, we’ve done one for ASIC and there’s a series of recommendations that came out of that. So I’m confident that these organisations, led by Wayne Byres with APRA and James Shipton with ASIC, will get on with the job and ensure that those people who are engaged in misconduct are held to account.

ROSS GREENWOOD:

You said today that you would take up all the recommendations of the Royal Commissioner, all 76 recommendations. What about the recommendation in regards to mortgage brokers and in the future according to Kenneth Hayne QC, the customer should pay for the mortgage broker and not the bank or the financial institution. That, of course, is at odds with what the Productivity Commission recommended.

JOSH FRYDENBERG:

Well, what we have said about mortgage brokers is that we’ll look at these recommendations individually. So the first he recommends is that we put in place are best interest duties and we’ve said tick, we’ll do that. The second thing, he said you need to end trailing commission for new deals between mortgage brokers and consumers, and what we’ve said is tick, we’ll do that from July 20. The third is that he said we need to bring an end to the up-front fees that are paid by lenders to mortgage brokers. Now what we’ve said to that is that the Productivity Commission, as you say, the Murray Inquiry and the Sedgwick Review all raise concerns about moving that way, because they said it would increase the power of the banks at the expense of the mortgage brokers. And what the Productivity Commission said is pretty telling. They said the cost of competition would be high, consumers would desert brokers and smaller lenders in regional communities with few or no bank branches would suffer much more than larger lenders. So, we are concerned about the impact on competition of such change. So what we have said on that is let’s come back in three years’ time, do a review of what the implications of moving to a new fee model would be.

ROSS GREENWOOD:

Are you pleased that the Royal Commission occurred Treasurer?

JOSH FRYDENBERG:

I certainly am pleased with the recommendations and obviously that’s why we’re implementing them.

ROSS GREENWOOD:

What I’m saying is, given the fact that, of course, everybody understands that your side of politics was very much pushed into this Royal Commission. In hindsight now, going back, is it something that the Government should have embraced more readily and more quickly than what it did?

JOSH FRYDENBERG:

Well Ross we could debate for hours about what Labor failed to do when they were last in office in relation to the banking sector. They didn’t instigate a Royal Commission. In fact, Bill Shorten, as the Financial Services Minister, was saying ‘whoopee, everything is fantastic here’. They didn’t bring in new penalties for
misconduct, they didn’t empower the regulators as we have.

In contrast, when we came to government, we initiated the financial system inquiry under David Murray and we’ve been implementing its recommendations ever since including this new Banking Executive Accountability Regime that took effect from last July, which was endorsed strongly by Commissioner Hayne, as well as this new redress compensation scheme by the Australian Financial Complaints Authority, which again was endorsed in Commissioner Haynes’ findings.

So we have taken actions across the board, we’ll continue to do so, and today’s Government response to Commissioner Hayne builds on that work.

ROSS GREENWOOD:

Just very quickly, do you want to talk through that handshake, or the lack of handshake with Kenneth Hayne QC when he handed across the Report to you on Friday?

JOSH FRYDENBERG:

Well I actually had a really serious, constructive discussion with Commissioner Hayne for about an hour before that, and then we had obviously the photo.

ROSS GREENWOOD:

Did he crack a smile at any point during that? Because the body language was certainly very cold I got to tell you at the time.

JOSH FRYDENBERG:

Well he is a very decent man and he’s obviously very upright and I think he obviously was displaying his scrupulous independence and I respect that and certainly we had a very constructive and serious conversation and I want to pay credit to Commissioner Hayne for his outstanding work, the manner in which he conducted his inquiry, but also to Counsel Assisting and the many, many people who worked behind the scenes to ensure that all ten thousand submissions were read, that the hearings were conducted appropriately and effectively and now, that the Government has these recommendations of which we are taking up and endorsing and will implement.

ROSS GREENWOOD:

Treasurer Josh Frydenberg, always appreciate your time.

JOSH FRYDENBERG:

Great to be with you.