5 February 2019
Transcript - #2019021, 2019

Interview with Neil Mitchell, Mornings, 3AW

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

NEIL MITCHELL:

Earlier today, because he's on a plane now, I recorded an interview with the Treasurer, the man in charge of making it all happen, Josh Frydenberg.

JOSH FRYDENBERG:

Nice to be with you, Neil.

NEIL MITCHELL:

Now the banks are all promising to be good little banks and behave themselves and not be driven by greed and be honest with their customers. Do you trust them?

JOSH FRYDENBERG:

Well, it's not the words that matter, it's actually the deeds.

NEIL MITCHELL:

So how do you monitor them? How do you watch them?

JOSH FRYDENBERG:

Well, we've got the regulators who are now focused on the job. We've accepted the recommendations from Commissioner Hayne to ensure that they have a new oversight body. We have provided additional resources to the tune of about $170 million.

NEIL MITCHELL:

But do we trust the regulators? I mean they mucked it up last time, why do we, we can't trust the banks, we're not too sure about the regulators. Why's it going to work this time?

JOSH FRYDENBERG:

Well, Commissioner Hayne did say in his report that he has seen a change in the approach of  the regulators. We've also put in place new leadership, Neil, at ASIC with the new chair and two new deputy chairs and we've provided them with additional powers and having spoken to the heads of ASIC and APRA, I'm very conscious that they acknowledge the challenges ahead and they will be leaning in more than they have in the past.

NEIL MITCHELL:

Are you gonna get the banks in and bang their heads together?

JOSH FRYDENBERG:

Well, I think the banks have got the message, not just from me but from 25 million Australians.

NEIL MITCHELL:

So are you going to get them in and have a talk to them or not?

JOSH FRYDENBERG:

I continue to talk to them. I will probably be speaking to some of them today and my message will be the same privately as it is publicly, that they must do better, that they need to reform, that they need to change the culture within their own organisations and that consumers must come first, second and third.

NEIL MITCHELL:

How do you change the culture, and change the level of trust, without changing faces? Will people have to go? Will heads roll at the banks?

JOSH FRYDENBERG:

Well, you will understand that as the Treasurer I'm not going to opine on individual cases or

entities but I do point out that Commissioner Hayne has referred more than 20 cases to APRA and to ASIC for investigation and I know that they're taking those cases very seriously.

NEIL MITCHELL:

He's also talked about criminal charges. Without naming names, do you know which organisations he's talking about?

JOSH FRYDENBERG:

Look, I'll leave that again to ASIC is APRA. They're the ones who work at arm's length from government, they're the ones who have responsibility for those decisions.

NEIL MITCHELL:

Are the executive salaries still too high?

JOSH FRYDENBERG:

Well, certainly executive salaries have been high in the sector and what we have seen through the banking executive accountability regime that we as a government have put in place, and it was endorsed yesterday by Commissioner Hayne, is that remuneration can be affected where the conduct is not in accordance  with both the law and what is appropriate for our financial institutions.

NEIL MITCHELL:

Okay, but they're all earning between $5 or $6 million between $4 million and $6 million, is that too much? They have taken pay cuts in fairness.

JOSH FRYDENBERG:

Again, issues around remuneration are ones for boards and shareholders and we have seen within the shareholder cohort of these banking institutions, made a very strong message being sent to the executives, that the pay needs to be commensurate with performance and performance is based not  just  on financial outcomes but also the way that these companies are perceived in the public's minds.

NEIL MITCHELL:

Okay, what about profit? Do they make too much profit because last figures I looked at we had the most profitable banks in the world?

JOSH FRYDENBERG:

It's not a crime to make a profit because you could say that about your…

NEIL MITCHELL:

….it depends how you're making it.

JOSH FRYDENBERG:

Exactly.

NEIL MITCHELL:

If you're making it by holding a gun at somebody's head or ripping them off, it is a crime.

JOSH FRYDENBERG:

Well, and absolutely and if, if that is the case then everyone needs to face the full force of the law and what we have heard through the Royal Commission is shocking examples of fees being charged for no service, fees being charged to dead people, the misselling of insurance. All that must stop and must stop now.

NEIL MITCHELL:

Okay, so are you happy for them to maintain a very strong level of well, the most profitable banks in the world, do you want them to stay in that position?

JOSH FRYDENBERG:

I want our banks to provide a fair return to shareholders. I want our banks to remain stable. I want them to be properly prudentially regulated and let's not forget they came through the GFC much better than some of their counterparts across the country but what I don't want to see, and what the Government will not tolerate and what the Australian people will not tolerate is misconduct and one of the major announcements we made yesterday, Neil, is that we are setting up a compensation scheme of last resort. So going back 10 years, people who have felt that they have been harmed by misconduct, by their financial institutions, will now have a process of redress through the Australian Financial Complaints Authority.

NEIL MITCHELL:

So what do I do? I'm a customer and I feel I've been ripped off in the past 10 years, maybe the past 50 years, I feel I've been ripped off in the past 10 years, what do I do? Where do I go?

JOSH FRYDENBERG:

You bring your case to the Australian Financial Complaints Authority.

NEIL MITCHELL:

And what's the maximum I can be paid?

JOSH  FRYDENBERG: 

As  an  individual  up  to  $500,000,  if  you're  a  small  business  $1  million,  and  if  you're  an agribusiness $2 million and it's binding.

NEIL MITCHELL:

It's going to be a hell of a queue, isn't it?

JOSH FRYDENBERG:

It's going to be there will certainly be a lot of cases but what we have said is that this is the pathway forward for people to be heard and to have their cases looked at.

NEIL MITCHELL:

What about as a customer more broadly, how do you guarantee me a better deal with all this self- immolation, all this discussion, how do you get a better deal as a customer now?

JOSH FRYDENBERG:

Well, certainly I think the customer will get treated fairly and honestly, more fairly and honestly than we have seen in previous cases but what we have to ensure is that there's competition. To get a best possible deal from your financial institutions we need to see competition. That's why, for example, around mortgage brokers we're bearing in mind what some of the changes would mean to competition and that is why we are seeking some further advice.

NEIL MITCHELL:

You agree there's a danger of a credit squeeze? In fact, there's always signs of a credit squeeze from the banks.

JOSH FRYDENBERG:

Look, I have no doubt that the existence of the Royal Commission did contribute to some different approaches on behalf of our banks but what I am focused on is ensuring that there is the flow of credit and  I do point out that in Commissioner Hayne's report yesterday he didn't make major changes to what are called responsible lending which was one of the concerns that people had about the impact on credit.

NEIL MITCHELL:

And those criticising mortgage broker changes where the banks, the customer will pay rather than the bank, they're saying this will force up interest rates, do you agree this is possible?

JOSH FRYDENBERG:

What I'm concerned about is the impact it will have on competition and that's not just my concern, that is the concern of the Productivity Commission, the Sedgwick Review, the Murray Review, who all found that if you were to make that change in the fee model for mortgage brokers, you would be giving a free kick to the big banks because they would have the larger branch presence and they would be the ones who are able to reach out and do the role that is currently done by more than 20,000 small businesses across our community.

NEIL MITCHELL:

APRA and ASIC have certainly been pretty useless, I mean that's been the criticism. Whose fault is that? Who oversees them?

JOSH FRYDENBERG:

Well we've got new leadership…

NEIL MITCHELL:

What about the old leadership, who let them get away with it?

JOSH FRYDENBERG:

Look, we've got….

NEIL MITCHELL:

Scott Morrison, wasn't it, as Treasurer?

JOSH FRYDENBERG:

At the end of the day, they are independent institutions, as you would expect that they would be, but what Commissioner Hayne has recommended, which we have accepted, is that there is a new oversight body to look at the performance and the effectiveness of both APRA and ASIC and they will report to Government.

NEIL MITCHELL:

Can you define for me the difference between greed and a healthy profit?

JOSH FRYDENBERG:

Look, I think everybody knows greed is not putting the interests of consumers first and a healthy profit can sometimes do that.

NEIL MITCHELL:

You it's a bit embarrassing for the Government. You resisted a Royal Commission, it's turned into a very important one, hasn't it?

JOSH FRYDENBERG:

Well, look, you and I can debate the fact that when Bill Shorten was the….

NEIL MITCHELL:

Oh, c’mon…

JOSH FRYDENBERG:

But the point is he never called a Royal Commission. We called the Financial Systems Inquiry about coming to Government. We put in place reforms that were endorsed by Commissioner Hayne and yesterday, looking to the future, we have announced that we are taking action on all 76 recommendations. I'm focused on the future that is what matters to your listeners.

NEIL MITCHELL:

So what's next? Where's the next Royal Commission? We seem to have government by Royal Commission in State and Federal, what are you going to do next? Are you going to do the insurance industry over properly?

JOSH FRYDENBERG:

Look, the insurance industry was actually looked at very closely by the Royal Commission and in fact there's a number of recommendations, for example, around preventing no hawking and that will be, I think, important, that's the unsolicited sale of insurance. And one of the interesting little changes that has been announced by Commissioner Hayne that we've accepted is that you won't be able to purchase add-on insurance straight away when you purchase a product. So, for example, when one of your listeners goes and buys a mobile phone for $900, they're immediately up-sold insurance cover to get a new screen and that cost of that insurance cover can sometimes be more than actually putting in place a new cover on their iPhone.

NEIL MITCHELL:

That was a lovely little photo opportunity with the Commissioner yesterday, wasn't it? A bit tense? Did you have a beer afterwards?

JOSH FRYDENBERG:

I had a really constructive and serious discussion with him for an hour. He's very professional, he's very proper, he's done an outstanding job but when those boom mics come in with the television cameras, I think, you know, he obviously, rightly so, wanted to show his scrupulous independence.

NEIL MITCHELL:

Good to speak to you. Now you're a man of significant academic background, you've studied in  some of the world's best universities. Have you heard of Sir John Barnard?

JOSH FRYDENBERG:

Sir John Barnard? Elaborate.

NEIL MITCHELL:

1734, he said the banks were outrageous and he reformed them. Here we are doing it again. What's the guarantee that it will actually work this time when it didn't work in 1734 or ever since?

JOSH FRYDENBERG:

Look, I think the recommendations that were made by the Royal Commission to us and now we're taking action on all of them will make a difference and they probably would have been as applicable decades ago as they are today.

NEIL MITCHELL:

Sir John Barnard.

JOSH FRYDENBERG:

I'll go and look him up.

NEIL MITCHELL:

I'm indebted to Scott Pape, I'd never heard of him. Scott Pape in the 'Herald Sun'. Josh Frydenberg, recorded him earlier, the Federal Treasurer rather.