Hayne taint fades out in banking

Over the past fortnight we have seen the perennial question 'did the banks learn anything from the Royal Commission?' re-emerge when a story broke on the ABC web site about the AMP making arrangements for its clients to which it needed to pay back funds in some form.

Set aside the details of the AMP circumstance for the moment, which were reported by Elysse Morgan from the ABC at some length, and focus on the argument put by some commentators about the banks learning from the royal commission.

The royal commission was not there to educate the banks. The royal commission was ultimately held to consolidate evidence of misconduct so that the community was able to understand what the banks had done and what, if anything, Commissioner Hayne thought ought to be done to fix things based on the evidence presented before him.

Banks spent much of Hayne's year of inquiry in 2018 in self-incrimination mode, being asked to tell the commission what they already knew they - boards, senior management, staff, referral agents and brokers - had done to their clients.

The banks and other institutions quizzed during the taxpayer funded theatrical extravaganza knew precisely what they as institutions were doing to clients.

Some people will point to the banks making internal changes to deal better with remediation payments and also to refine internal controls so that misconduct is less likely as being a result of the royal commission.

Let's not attribute these kinds of things to the banking royal commission because companies that are prudently, conscientiously and correctly run will do a proper and thorough risk management analysis on a regular basis and implement measures to deal with issues such as paying clients for errors that have been made. In particular, banks are given specific instructions by their regulator about the regularity of reviews of their risk management frameworks.

Consider for a moment the much-quoted example of the risk management review undertaken by NAB and EY in accordance with the APRA prudential standard CPS 220 on risk management. The standard requires a bank to have its risk management framework audited each year and then for it to be subject to a deeper, more extensive review once every three years to ensure the framework in place is still fit for purpose.

It is during these reviews that banks should be looking at every aspect of their business and working out how they refine processes and procedures to avoid fraud, ensure clients are properly looked after and that all of their team members are behaving in accordance with the code of conduct that is in place at each bank.

There have been some adjustments to remuneration and the refusal to pay certain performance bonuses as a result of the poor performance of organisations, which is a sign that the heat from the community that can only in part be attributed to the royal commission.

While the royal commission was significant and provided a harrowing account of financial services misconduct the repeated references to lessons banks and similar institutions should have learned is losing its lustre.

Any institution that requires a royal commission to teach it to fix problems of which it was already aware and capable of remedying in its own interest - and in the public interest  -lacks any true sense of a corporate and social conscience.