Researchers from the Sydney University’s School of Business are anticipating significant reforms to be recommended in the royal commission final report.
The much-anticipated final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will be delivered to the Governor-General, Sir Peter Cosgrove, on Friday 1 February.
However, Hayne’s recommendations will not become public information until Monday, after Treasurer Josh Frydenberg yesterday announced that the government would hold the release of the report until after the ASX closes at 4pm on Monday, 4 February.
Experts at the Sydney University’s Schools of Business and Law are also hoping that it will provide the industry with clear guidance on ways to enhance its integrity.
“It will no doubt have a monumental impact across the Australian financial system,” said the business school’s associate professor in Finance, Eliza Wu. “Hopefully, it will also provide clear guidance on how to enhance the integrity of the financial services industry.”
While highlighting the “bad behaviour of banks”, the business school’s senior lecturer in finance, Andrew Grant, said the commission has also focused attention on a severe lack of financial literacy among the Australian population.
“Although Commissioner Hayne has already sought to ensure, among other things, more responsible lending in the future, it is highly important that consumers are aware of the risks of entering into any financial agreement,” Dr Grant said.
Professor of business law, Gail Pearson, warned that there has already been “pushback” from the finance sector against recommendations relating to commissions, incentives and remuneration designed to eliminate greed.
“It is critical that there are substantive changes and that calls for changes to culture and restoration of trust by the industry itself are not used to obfuscate,” she said.
Expressing particular concern about the insurance sector, Professor Pearson said she “looks forward to a recommendation that the legislation on fair terms in contracts be extended to contracts of insurance”.
The business school’s superannuation specialist, Professor Susan Thorp says that super fund members are hoping for recommendations that will help resolve serious conflicts of interest revealed during commission hearings.
Senior lecturer Dr Kym Sheehan, who is a Sydney Law School specialist in executive remuneration, said evidence before the commission confirmed Australia’s largest banks and financial service companies have often been unclear as to why they paid bonuses to executives when there was evidence of numerous failings.
Executive remuneration was a key focus of the royal commission’s final round of hearings, which came just weeks before a number of major banks held their annual general meetings.
Major banks NAB and CBA suffered first strikes as shareholders rejected their remuneration reports on 20 December 2018.
NAB chairman Ken Henry, who recently represented the bank as a witness during the final round of the royal commission, admitted that the group had failed its customers and shareholders in 2018.
At the bank’s annual general meeting in Melbourne on Wednesday, Mr Henry noted how the NAB board had decided to change its executive remuneration model ahead of the royal commission’s final report in February.
“We could have waited until after the royal commission, which has brought a sharp focus to incentives in the banking industry. However, the board came to the view long before the commission started that our executive remuneration scheme was not right,” he said.
“It didn’t put enough focus on the management of non-financial risks and conduct matters. And, there was a risk that our so-called Long-Term Incentive scheme might even be encouraging short-term thinking and value-destroying behaviours.
“We were not alone in considering this challenge – the consequences of traditional LTI schemes have been exercising the minds of remuneration specialists around the world for some years now.
“There seems to be clear alignment on the goal, to better measure and reflect customer outcomes alongside long-term financial performance – and bring greater transparency to the way reward is determined for individual executives.”