The Governor-General of the Commonwealth of Australia established a Royal Commission on 14 December 2017 for an inquiry into the conduct of banks, insurers, financial services providers and superannuation funds.

It will also consider how well equipped Australian regulators are to identify and address misconduct in the industry.

The Commission is tasked to submit its interim report no later than 30 September 2018 and the final report of the inquiry with recommendations no later than 1 February 2019.

Australia has one of the strongest and most stable financial systems in the world and hence, the outcome is expected to be the best experience for customers.

All Australians have the right to be treated honestly and fairly in their dealings with banking, superannuation and financial services providers.

Financial planning and advice alone is a significant part of the Commission’s inquiry. There are in excess of 25,000 financial planners in Australia. More than 2 million Australians pay a combined $4.6 billion a year for financial advice.

Findings of Royal Commission
So far, the findings of the Commission have been shocking, depraved and unscrupulous which sent shockwaves through the industry, politics and the public in general.

These revelations include a bribery and fraud ring in Western Sydney bank branches; myriad of cases around inappropriate lending to customers including issuing a loan to a problem gambler; failing to sack a financial adviser who provided poor advice to a nurse which led her to believe she could borrow $2 million to set up a bed and breakfast; charging financial advice clients “fees for no service” in cases where they acquired the clients from retiring advisers; misleading corporate regulators in 20 occasions; charging fees from the estates of death clients for up to 10 years after their death; redrafting independent legal advice from a reputable law firm several times including scrubbing out a CEO’s name; having sub-standard systems to identify errors and delaying notifications to corporate regulators; failing to get accurate information prior to issuing loans to individuals; selling junk insurance on credit cards to people and paying commissions to mortgage brokers after knowing that it could result in poor customer outcomes.

The Banking Business
The bombshells revealed in the Royal Commission stem from conflicts between the Westminster banking system and the recent phenomenon of wealth management businesses.

For centuries, banks accept deposits from general public seeking a safe custody for their money. Banks pool the money and lend it to people they assess could eventually repay the money safely. Bankers make their money by charging the borrower an interest rate slightly above what they have to pay to depositors.

The banking business of financial intermediation changed in Australia in and around the year 2000 when Australian banks decided to enter the wealth management, financial advice, insurance companies and superannuation funds, creating a significant change in the industry.

A wave of takeovers ensued where the Commonwealth Bank acquired Colonial First State, Westpac Banking Corporation swallowed BT and National Australia Bank ate MLC.

Due to the seriousness of the issues revealed in this Royal Commission, there is currently a notable call from the industry pioneers and politicians for radical reforms forcing banks to sell the financial advice and wealth management businesses.

Basically, bankers should provide banking services and wealth managers should engage in wealth creation in the market place, avoiding potential conflicts of interest in these two separate lines of business.

This proposed reform would prevent enormous financial harm and create much better value for all customers in the Australian financial services industry.