New Zealand banks may find themselves caught up in the aftermath of the Australia's banking industry report due out this evening.
National Bank of Australia, ANZ, Commonwealth Bank, Westpac. Photo: 123RF
The Hayne Royal Commission has exposed a catalogue of systemic bad behaviour motivated by hunger for profits by Australia's big banks, superannuation and finance companies.
The commission has already damned Australia's finance sector and the final report is likely to lead to sweeping changes and tougher regulations.
New Zealand banks distance themselves from their Australian parents, although they have already been told by local regulators to up their game.
But if Australian authorities take a hardline on fees, services, and ethics, it's likely to flow throught to this country, resulting in higher costs or tighter lending rules for New Zealand customers.
What sparked problems with the banks in Australia?
Australia's banks have been plagued with one scandal after another over the past decade.
At the heart of it is the banking industry's promotion of an aggressive, sales-driven culture, which emphasises profit at all costs.
In addition, there's the flawed compliance structure, and the refusal of banks to hold anyone in a senior position accountable.
Three years ago, ABC's Four Corners shone a light on the Commonwealth Bank's financial planning scandal.
The bank's financial advisers misled its customers and recommended speculative investments, which resulted in them losing hundreds of millions of dollars.
Commonwealth Bank's financial planners have also been accused of forging signatures, overcharging fees and creating unauthorised investment accounts for customers without their permission.
This event was a trigger for the Senate inquiry in 2014, which recommended a royal commission.
CBA was not the only bank in trouble - Westpac, ANZ and NAB in Australia have also been implicated in the financial planning scandal.
The corporate watchdog ASIC also found the major banks have been slugging their customers $AU178 million ($NZ186 million) in financial advice which was never provided.
CBA's insurance arm also came under fire last year for using unethical tactics to avoid paying out legitimate claims.
For example, CommInsure used outdated medical definitions to delay or deny payments to policyholders, and pressured medical assessors to reject claims.
On top of that, CBA's chief executive conceded no staff members had been sacked over the CommInsure scandal.
More recently, CBA has been forced to defend itself in court over allegations it systematically breached anti-money-laundering and terrorism-financing laws on nearly 54,000 occasions and could potentially face about $1 trillion worth of fines.
Australia's Westpac, ANZ and NAB have also been caught in the crossfire of litigation.
Those banks allegedly rigged the bank bill swap rate, one of the key interest rates in the economy (which provides a benchmark for setting personal and commercial loan rates).
Although ANZ and NAB admitted wrongdoing and settled their cases against ASIC for $50m each, Westpac refused to back down and is still fighting its case in the Federal Court.
Haven't they already paid up?
Yes, to some degree - the banks have had to make some major changes over the past few years and some of them have been costly.
Since the financial crisis, Australian banks have forked out more than $1 billion in fines and compensation for rorting their own customers.
The big four banks' (plus Macquarie Bank's) profits will also be affected by the Federal Government's levy, which taxes their debts above $100b at a 0.06 percent annual rate.
Although the Australian Government expects this to raise $6.2b over the next four years, the ABC identified a $2b shortfall in that forecast.
However, the big banks have not ruled out passing the impact of the levy onto its customers.
In Australia, the big four banks also decided to drop ATM fees in September. That decision was quickly seen as a move to dodge a royal commission (something the banks didn't want at that point).
Why do they suddenly want an inquiry?
The position taken by the banks and the Australian Government is that they want to address the uncertainty in the financial sector head on.
This is taken from the banks' letter to the Treasurer: "In light of the latest wave of speculation about a parliamentary commission of inquiry into the banking and finance sector, we believe it is now imperative for the Australian Government to act decisively to deliver certainty to Australia's financial services sector, our customers and the community."
The letter acknowledges the previous position of the big four banks that an inquiry like this would be, "unwarranted … costly and unnecessary distractions".
"However, it is now in the national interest for the political uncertainty to end. It is hurting confidence in our financial services system, including in offshore markets, and has diminished trust and respect for our sector and people. It also risks undermining the critical perception that our banks are unquestionably strong."
-ABC / RNZ
