4 February 2019
Transcript - #2019014, 2019

Interview with Tom Elliot, Drive, 3AW

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

TOM ELLIOT:

Ok the Federal Treasurer delivered a speech this afternoon after the banking Royal Commission was released, the Federal Government has said it is committed to taking action on all 76 of the recommendations. The man in charge of this is the Federal Treasurer Josh Frydenberg. Mr Frydenberg, good evening.

JOSH FRYDENBERG:

Good afternoon to you, Tom.

TOM ELLIOT:

I said at the start of this hour that I reckon the banks have been slapped on the wrist with a wet lettuce leaf. That they’d been let of easily, and all the commentary in the financial press suggests that is exactly what’s happened. What do you reckon?

JOSH FRYDENBERG:

No I don’t think so at all, there’s a number of referrals that Commissioner Hayne has made to ASIC and APRA for a range of conduct, including charging fees for no service and breaching a range of duties, and misleading and deceptive conduct. And as you know through the hearings, bank CEOs are being called to account, as well as CEOs of other financial institutions, some of whom have lost their job. What he did not do in this report is recommend a break up of existing companies, the so called move to structural separation. He hasn’t also recommended a change to APRA and ASIC as a Twin Peak Model, but he has made a number of significant changes that I think will deliver greater customer protections, better consumer outcomes, and ultimately be in the best interests of your listeners.

TOM ELLIOT:

Well, well, was he knobbled a bit? There was fear out there that he might hamstring the banking industry and make it impossible for banks to operate, do you think he went easy on the banks to avoid this?

JOSH FRYDENBERG:

No I don’t, and I do think that you’ve always got to be conscious about getting the balance right with any regulatory changes. But what he made clear in his interim report, which is a continuous theme for him through his enquiry, was that a lot of the conduct that was discussed or revealed or uncovered through the process, was actually conduct that was in breach of existing law. It just wasn’t enforced. And this is where he found the regulators were wanting, and that they were probably a bit too timid and needed to be on the front foot.

TOM ELLIOT:

But, ok but you just said that those same two regulators, ASIC and APRA, are going to remain in charge, so if the fault was with the regulators, and nothings really changing with those regulators, then surely nothing really changes?

JOSH FRYDENBERG:

Well ultimately, he says the fault is with the entities involved, he’s very unequivocal about that point, and that the boards and the senior executives are responsible for their conduct, but also for the consequences that followed. With regards to the regulators we’ve put in place a new chair, and two deputy chairs of ASIC including someone who’s going to be responsible as a special prosecutor. We’ve also beefed up their resources, and I think both in the case of APRA and ASIC, they are aware of the changes that they need to take, and actually Commissioner Hayne made the point of saying in his report that these organisations are starting to change.

TOM ELLIOT:

Now mention was made, several times, of National Australia Bank; both the CEO, Andrew Thorburn, and the Chairman, were apparently yelled at by Hayne and he criticised them a great deal. Do you think they’ll stay in their jobs?

JOSH FRYDENBERG:

Look that’s not a question, Tom, that I should be [inaudible] on, positions such as CEOs, Chairman roles are ones for boards and for shareholders, and as the Treasurer I will leave it to those institutions themselves and to their shareholders.

TOM ELLIOT:

Ok now, another fear prior to the release of the report was that it would make it harder for people to get loans. Now, for example there’s thing on farmers here, so if a farmer is in a drought declared area...

JOSH FRYDENBERG:

Yes

TOM ELLIOT:

...for example, banks will no longer be able to charge default interest...

JOSH FRYDENBERG:

Correct

TOM ELLIOT:

...on those farmers. But does that not mean that banks will be more reluctant to lend to farmers in the first place?

JOSH FRYDENBERG:

Not at all, what it actually means is that there’s going to be a bit more sympathy for the circumstances in which those distress loans. And that’s what we’re talking about. Not normal loans. Distress loans, and if you’re a farmer who’s running a rural property, let’s say a grazing property and you’re going through a drought and it’s a declared drought period then avoiding these extra interest charges which can be quite punishing in some circumstances, then that is in the best interests, I think, of the bank in the long term, but certainly in the best interests of the customer.

TOM ELLIOT:

Going back to the regulators though, what will change? If, as you said, they were too timid and I don’t know, maybe fell in love with the very bodies they were supposed to be regulating, the banks. Why will that now be different? I mean, what will change at the regulators? Will you get new people to run them?

JOSH FRYDENBERG:

Well we have. That’s one point. But secondly, there is now two major changes that Commissioner Hayne has recommended. The first is a new oversight body which will report to Government that will look at both the performance and effectiveness of ASIC and APRA, but secondly what he has also recommended is a clarification about their roles particularly as it applies to superannuation. You see APRA has been looking at superannuation, the performance of trustees, but it’s fair to say that more could have been done and what Commissioner Hayne has recommended, and the Government has accepted, is that ASIC becomes the primary conduct regulator for superannuation.

TOM ELLIOT:

Now, we’re told that some criminal charges might be laid at various executives throughout the different banks. Do you reckon anybody will go to jail?

JOSH FRYDENBERG:

Again, that’s an issue for you to commentate on, but not me as Treasurer.

TOM ELLIOT:

There’s a new rule about no hawking products. For example, one of the recommendations is that so-called heavy handed selling of superannuation is to be abolished. What is ‘heavy handed selling of super’, as opposed to ‘selling of super’?

JOSH FRYDENBERG:

Well, this is unsolicited selling. You know, when someone’s picking up the phone to you and saying “let me sell you this”, and one of the really, I think, damning and appalling examples of misconduct that came through the Royal Commission was the audio recording of an insurance company selling insurance to a young man who had Down syndrome. And when you listen to that audio recording it truly… it really is appalling...

TOM ELLIOT:

...so you think that...

JOSH FRYDENBERG:

… and so that is unsolicited advice. Ringing the person up and trying to shove down their throat an insurance policy that they don’t want, they don’t need and in this case, they certainly don’t understand.

TOM ELLIOT:

So, if unsolicited selling of financial products is bad, does that mean we might no longer get, for example, political advertisements urging us to vote for your party or another party?

JOSH FRYDENBERG:

Well, as you know, there is a freedom of communication when it comes to political advertising.

TOM ELLIOT:

Unsolicited communication?

JOSH FRYDENBERG:

Well, everyone has a vote, so everyone needs to be informed.

TOM ELLIOT:

Can people trust the banks now?

JOSH FRYDENBERG:

Well, certainly this report, the process, but also the recommendations that the Government is now taking action on, all 76 of them, I think will help restore trust and my message to the banks today was very clear. It’s that the culture needs to change and it needs to change forever.

TOM ELLIOT:

Josh Frydenberg, thank you for your time. Josh Frydenberg, the Federal Treasurer there.