Professor Allan Fels, the inaugural chair of the Australian Competition and Consumer Commission, said APRA’s responses at the Banking Royal Commission exposed it as “extremely inadequate”.
In the most recent hearings, examining superannuation, APRA was forced to admit it had not commenced any court proceedings in that sector in the past 10 years.
Counsel assisting also pushed APRA on the priority it placed on the stability of super funds over the interests of super fund members, and why it avoided court cases when public action was a substantial deterrent to bad behaviour.
“It was made crystal clear in an embarrassing way at the royal commission … [APRA has] a long-term culture of weak law enforcement,” Professor Fels told the Melbourne Economic Forum.
In a five-year period to 2008, APRA disqualified 133 people from being super trustees.
After 2008, APRA had to apply to the Federal Court to boot people out of the industry, and in the past decade they’ve done it just once.
Productivity Commission assistant commissioner Rosalyn Bell told the forum the key problem from the banking royal commission was conflicted remuneration: where the fees bank staff and brokers made from customers put them in conflict with the customer’s best interests.
“Forcing lenders to divest mortgage brokers, insurance arms … won’t do much,” she said.
Ms Bell doesn’t expect things to improve for customers, even as banks spin off their wealth-management arms and allied businesses, such as insurance.
Professor Ross Garnaut is one of Australia’s most eminent economists and policy advisers. His take-away point from the royal commission was the high and opaque price Australians paid for financial products.
He shared a personal letter from Nobel Prize-winning economist Robert “Bob” Solow, that illustrated the larger issue of remuneration exposed at the royal commission.
Professor Solow discussed the usual factors in economics: the costs of capital and labour.
“In reality,” he wrote, “there’s a third component — monopoly rent”.
So, in addition to what the market returns to labour (wages) and what the market returns to capital (profits) there’s also the ‘rent’ of remuneration, fees and costs.
“What is the rent component? That’s what I’d like to know!” Professor Solow wrote. “It gives me something to think about. Better than playing Bridge”.
Professor Garnaut wrapped up the issue, detailing how opaque fees and structures had inflated the costs of financial services, to the detriment of customers.
“The royal commission has shown us the amount of ‘rent’ in the banking sector,” he concluded.
Deliberately confusing products
Customers are up against banks, because they can’t navigate the “confuse-opoly”, according to the chief executive of think tank the Grattan Institute, John Daley.
Mr Daley told the gathering he used to run financial products when he worked at ANZ and that “100-page PDSs [product disclosure statements]” were needlessly confusing customers.
“I could probably tell you all you need to know about that product in 2.5 pages,” he said.
“And I’d be padding one of them. We tell people to be afraid, it’s just not that complicated”.
Instead of making them more informed about financial products and able to compare them, Mr Daley said, the banks had created a situation where customers got stuck in bad deals.
The Melbourne Economic Forum, organised by Victoria University and the University of Melbourne, brings together economists, academics and regulators.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry begins its sixth set of public hearings in Melbourne on Monday, examining insurance.
The draft report of the commission will make recommendations based on hearings into consumer finance, financial planning, loans to small and medium enterprises, farming finance and banks’ interactions with Indigenous Australians. It is due at the end of September.