The Australian banking industry is only beginning a long journey to repair its conduct and culture after shocking misconduct scandals, the world’s top financial figures have warned.
The Group of 30 says the crisis unfolding in Australia demonstrates that the banking industry remains subject to further serious scandals and fallouts.
“With the ongoing royal commission investigation and pending recommendations, as well as continued revelations of retrospective misconduct among Australia’s financial institutions, we anticipate that the Australian banking industry is only beginning its long journey to repair its conduct and culture,” the G30 said.
The G30’s views formed part of its global report on banking conduct and culture, released on Friday as Australia’s banking royal commission completed its public hearings.
A key conclusion was that bank conduct and culture were at the centre of a “slow, uphill battle for trust”, despite improvements by the industry since the global financial crisis.
The private international body of leading financiers and academics noted the royal commission followed revelations of serious and egregious misconduct by Australia’s financial institutions.
Examples included weak controls to prevent thousands of breaches of anti-money laundering and counter-terrorism financing laws, unsuitable financial advice and the $1 billion industry-wide problem of fees for no service such as charging the accounts of dead clients.
Former Westpac CEO Gail Kelly, the G30 steering committee vice-chair, said for permanent and ongoing change to occur, banks needed to focus on leadership at every level of the organisation.
“Leading by example and ensuring that day-to-day activities at the front line are consistently aligned with company values is critical,” Ms Kelly said.
Australian Prudential Regulation Authority chairman Wayne Byres agreed with the G30 that there was a long journey ahead for the industry.
Mr Byres said the misconduct revealed when financial institutions “confessed their sins” to the royal commission showed issues persisted for too long before they were detected.
He said it showed compliance and audit functions are not strong enough in organisations.
“Regulators can’t find all this stuff.
“We can’t be the first line of defence.”
Mr Byres said stronger control mechanisms were needed to detect issues early and get them rectified while they were small, along with a focus on incentives and their consequences.
There also needed to be a strengthening of accountability.
“No one has actually taken responsibility for issues,” he said.
“Boards have not known how to apply consequences because it’s not clear who was responsible for things.”
The royal commission’s final hearing focused on why misconduct occurred and what can be done to prevent it in the future.
Royal commissioner Kenneth Hayne QC, who has blamed greed for the widespread misconduct, will deliver his final report by February 1.