A series of probing articles by investigative journalist Adele Ferguson about the behaviour of Australian banks over the past five years, helped bring about a Royal Commission into the sector.
The Australian Royal Commission found banking practices seriously flawed and recommended an overhaul of the industry with tough new regulations.
The Commissioner criticised the culture and conduct of the Big Four (ANZ Bank, Commonwealth Bank, National Australia Bank and Westpac) in a scathing assessment of practices driven by greed.
In her book Banking Bad released this week, Ferguson draws all the strands together, tracing the origins of the banking scandal to events in the early 1990s -a post-deregulation era when money flowed into compulsory superannuation funds, set up by the then Labor Treasurer Paul Keating.
Banks there formulated what are now considered corrupt or questionable methods to attract super fund money and also adopted aggressive selling approaches and products, which paid little regard to customer needs.
Calls for a Royal Commission into the banking sector in New Zealand have so far been rejected, though the Reserve Bank and the Financial Markets Authority last year met with 16 chief executives of New Zealand banks, seeking reassurances that the bad behaviour revealed in Australia was not happening here.
However, Ferguson told Kathryn Ryan a Royal Commission here into our Australian-owned banks “couldn’t hurt”.
“Trust me, getting that Royal Commission did not come easy. It was many years of scandals, building upon scandals, and it was thanks to whistleblowers.
“So, if you haven't had whistleblowers coming forward, you really don't know what's going on. What I'm saying is, if you've got these scandals going on in the big banks in Australia, and they've got subsidiaries in New Zealand, it's hard to not draw a connection that there are similarities.”
Her investigations go back to 2013 when she got a phone call from national Senator, John ‘Wacka’ Williams telling her a whistleblower from the Commonwealth Bank had been in touch with him
“So I call him up and he tells me he's been speaking to this guy called Jeff Morris, he was a financial planner at Commonwealth Bank, and he had allegations of forgery, fraud and a management cover up.
“So, I called Jeff, I got many, many documents, read through them, checked them out, spoke to victims who he was helping. And it turned out to be completely true.”
That story proved to be the tip of the iceberg. When it was first published Ferguson was inundated with emails.
“That morning I just got hundreds and hundreds of emails from people. It was like a MeToo moment where people had looked at what had gone on and said, this has happened to me.
“So it was a real confluence of factors. You had a whistleblower who was brave enough to speak out, and then you had victims that people could identify with, and something triggered in the nation and other whistleblowers came forward from inside the Commonwealth Bank with documents that showed that it wasn't a one-off event.”
Prior to her story breaking, revelations of banking misbehaviour were waved away as ‘one bad apple’ rarities, she says. But the dam had broken.
“Other whistleblowers that were inspired by Jeff Morris’ bravery, then said, look at what's going on at Macquarie [bank], look at what's going on at ANZ, and look at what's going on at National Australia Bank, and it just snowballed from there - and then have a look at the life insurance division.”
The culture of bonuses and aggressive selling was now endemic in the banking sector, she says.
“What would happen was with these financial advisors, and much of the frontline staff, they'd have league ladders where they would be rated based on the amount of products that they were selling.
“If you were the star employee, you would be lauded, you get your bonuses and they treat you like a king or a queen. If you were down the bottom of the pile, you would be reviled and taken in and you'd be pressured to do whatever it takes to sell products.”
This “unhealthy culture” meant often entirely unsuitable products were pushed at customers, she says.
“It was sort of a carrot and stick type culture really, and it was just very unhealthy. It was just not acting in customers’ best interests and at the end of the day, it was really putting profit before people.”
Jeff Morris revealed appalling behaviour was widespread at Commonwealth Bank. Morris worked in the bank’s financial planning division.
Retirees were being pushed into inappropriate risky investments, signatures were being forged and management was covering it all up, Ferguson says.
“So he went to the corporate regulator [ASIC] to say you've got to come in, because there's a lot going on here. People are coming in crying, they're devastated, they've lost everything and management are covering everything up here.”
The Australian Securities and Investments Commission (ASIC) did nothing for 16 months, she says. It then issued an “enforceable undertaking” to the bank.
“But what happened was they got their auditor to oversee the enforceable undertaking, and it wasn't as rigorous as it should be.”
Eventually, in 2014, there was a parliamentary inquiry into the entire banking sector.
“So that parliamentary inquiry in 2014 said, we can't trust the regulator, normally we’ll do recommendations that say ASIC has to go into the bank and do this, that and the other.
“We can't do that because we don't trust the regulator to do it. We think it's too timid, too trusting, too cosy. So, we think we need a Royal Commission. In 2014 was the first time there's a recommendation for Royal Commission, because the regulator wasn’t doing its job.”
There were a range of reasons ASIC wasn’t doing its job properly - soft touch legislation and a caveat emptor regulatory culture among them – but Ferguson says a too-cosy relationship between regulator and industry was the most pernicious.
It took the Royal Commission to reveal the shocking extent of the regulators' negligence and the banks’ collective greed, she says. And it is the only thing powerful enough to shake up the industry.
“I really believe having something like a Royal Commission because it puts the spotlight on a sector and it makes it very uncomfortable. We had it for just 12 months and most days that was front page news.
“You need to have heads on sticks to be honest, you really do. It's the only way, because once fear overrides greed, people sit up and take notice and it will send shivers through corporate Australia that the regulators mean business.”