An investigation into allegations of financial-industry misdeeds blames greed for a failure by Australia’s banks, insurers and pension funds to protect consumers.
Australia’s banks have long had a reputation for being among the world’s safest for investors. But a series of scandals over the past year has rocked the country’s biggest financial institutions.
The judicial probe, set up by the government last year, has heard accusations of inappropriate lending, collecting fees from dead customers for financial advice and lying to regulators.
An interim report handed to the government on Friday said the pursuit of profit had come at the expense of integrity, with fees charged for services never received and insurance products never honored.
“From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales. When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done,” the report said.
Responding to the report Friday, Australia’s treasurer, Josh Frydenberg, said, “The culture, the conduct and compliance of the sector is well below the standard the Australian people expect and deserve.”
Banks broadly accepted blame.
“It is difficult to face the statement of ‘profits before people’, but this is exactly what we need to confront,” National Australia Bank said in a statement issued on behalf of Chief Executive Andrew Thorburn.
ANZ Chief Executive Shayne Elliott vowed to improve in a statement from the bank.
Mr. Frydenberg was also critical of the culture of the country’s financial regulators. The Australian Securities and Investment Commission, he said, had been too close to the sector to effectively prevent wrongdoing, and too willing to negotiate on penalties. Another regulator, the Australian Prudential Regulation Authority, had never instituted court action.
“ASIC notes the report’s serious and important observations of ASIC’s role as a regulator,” commission Chairman James Shipton said, adding that the commission would respond fully in October, after carefully considering the report’s findings.
The inquiry has claimed several high-level casualties. The chief executive, chairman and several board members at Australia’s largest wealth-management company, AMP Ltd . , resigned after the company admitted it had misled regulators and been slow to compensate customers for fees charged for financial advice it didn’t deliver. National Australia Bank Ltd. executive Andrew Hagger stepped down over failings during his time as head of consumer banking and wealth.
Australia’s largest bank, Commonwealth Bank, has been penalized for alleged interest-rate rigging and compliance breaches that the government said allowed its automated banking machines to be used for money laundering.
On Thursday, Westpac Banking Corp. , another of the country’s biggest banks, signaled a $170.5 million hit to its annual earnings as it refunds customers charged for advice that wasn’t delivered and pays for penalties awarded in recent civil lawsuits.
Bank fortunes have gone awry even as Australia extends a 27-year run of economic growth, the longest streak without a recession in the developed world.
Consumer advocates and banking experts say the banks’ large size, mostly a result of consolidation earlier this century, has encouraged them to feel unassailable. That and a lack of competition has bred complacency, those critics say.
“Our banks have been remarkably profitable but not for good reason, simply because they have effectively been able to milk their customers,” said Martin North, a financial-services analyst. “Our financial sector has gotten too big, it’s too complex. At the moment Australia Inc. is paying way too much for the services it gets, and the structures are wrong.”
Australia’s four biggest banks—Commonwealth Bank, Westpac, National Australia Bank and ANZ—account for around 80% of the country’s home loans. Over the past decade, the number of regulated financial companies in Australia has dropped by about a third.
Investors fear tighter regulation of a sector that has reliably returned a run of record annual underlying profits and solid dividends. Shares of the largest banks are down an average 9% in 2018, while the benchmark blue-chip index is up more than 2%.
Analysts have speculated that the probe’s final recommendations could call for a breakup of wealth-management companies, push for criminal charges against executives and further weigh on credit when a once-booming housing market is weakening due to tighter lending practices.
The government has beefed up penalties for corporate wrongdoing, including prison time, and strengthened the corporate regulator’s investigative powers.
A final report is due by February, although Prime Minister Scott Morrison has said he would extend the investigation if necessary.