CANBERRA: Australia’s corporate regulator is to launch a crackdown on the country’s banking culture, which it claims is encouraging misconduct and the “fleecing” of consumers.
The intervention by the Australian Securities and Investment Commission follows a series of banking scandals and new research showing that a poor risk culture at financial institutions is allowing misconduct and “Machiavellian” tendencies to flourish.
“Those affected by poor culture are usually those who can least afford it,” Greg Medcraft, Asic chairman, told a senate committee on Wednesday. “When I talk about poor outcomes for customers, this is a polite way of saying people are getting fleeced.”
Australia’s banking industry did not face the same level of scrutiny as many other jurisdictions following the financial crash in 2008 as the country avoided recession. But concerns are growing following a scandal over poor financial advice provided by Commonwealth Bank, which has since spread to other financial institutions.
Asic is also investigating the alleged manipulation of the setting of Australia’s benchmark interbank borrowing rates — similar to the action taken by international regulators over the Libor rate.
Mr Medcraft told the committee banks were behaving in an “appalling way” in relation to its investigation on interbank borrowing rates and Asic was still trying to gain their co-operation.
So far Asic has accepted settlements for “potential misconduct” from UBS, BNP Paribas and Royal Bank of Scotland, which have made donations of A$1m-A$1.6m to financial literacy programmes in Australia. Seven ANZ Bank traders have been forced to stand down while the inquiry continues.
Mr Medcraft told the committee Asic would step up its pursuit of financial institutions using criminal sanctions when an individual breaches the law and it considers a company’s culture is to blame. The regulator is also seeking powers to be able to levy tougher civil sanctions in these types of cases.
“We think that when an officer breaches a law Asic administers — and culture is responsible — then the officers and the firm should be responsible,” said Mr Medcraft. The Australian Banking Association said the industry supported reform but there were limits to regulation.
“The law is important but insufficient to change culture,” said Diane Tate, executive director for retail banking policy. “Culture can’t be regulated.”
New research by Macquarie University has found a worrying risk culture at Australia’s banks, where middle management continues to overlook ethical breaches and misconduct, and senior executives often do not know what their staff are doing.
Elizabeth Sheedy, associate professor and co-author of the research, said there were problems with pay structure and performance measurement systems. “These put people under huge pressure to perform and can push them to cross boundaries of acceptable behaviour,” she said.
A survey of 300 business units at five Australian financial institutions and three Canadian banks identified a culture whereby staff did not report misconduct, particularly when perpetrated by top performers.
“We have been able to establish a correlation between Machiavellians and unethical behaviour and not surprisingly you find some Machiavellians working in banks,” said Ms Sheedy. She will present the findings of the research to banking regulators in Brussels and London next month.
