The Royal Commission: The relationship with regulators

There has been much comment on the role of ASIC and APRA through the Royal Commission. As a result, the relationship between the banks and the regulators is likely to change. This may include:
  • More structured and formal approach to dealing with each party
  • A more challenging and confronting approach
  • A greater emphasis of resolution through the courts, rather than managing outcomes via enforceable undertakings
  • Pressure to maximise the penalties charged for breaches
  • Greater pressure to meet undertakings, with less flexibility in extending resolution deadlines
  • More intrusive, regular and deeper investigations
  • Focus on individual executives’ performance, in addition to a holistic view of the bank’s failure.

Senior executives would be expected to spend significantly more of their time on regulatory matters. From understanding their accountabilities, reviewing materials for regulators, preparing for meetings and in face-to-face meetings with the regulators.

Governance and oversight – traceability to the law, not simply policy and procedures

Banks will need to upgrade the way that they operate to demonstrate how outcomes (e.g. loans) meet legal obligation (e.g. responsible lending). This goes significantly beyond many processes at banks that are currently more simply aligned to the application of policy and process.

Banks will need to build ‘traceability matrices’ between law, regulation, policy, outcome, and ongoing monitoring.

All products and transactions will be to be subject to compliance/risk review, not just a sample. There will be a need for continuous and on-going monitoring, beyond the initial transaction date, as customers’ circumstances and community expectations will change over time.

The size and complexity of this will require investment in expertise and technology.

In addition, it may be necessary to redesign the ‘Big 5’ model from an industry dominated by the four large domestic banks and AMP. This has been a cornerstone of the financial service industry in Australia for decades. The model was designed based on a trusted relationship between the banks and their customers and on the understanding that the strong banking system that it represented was in the best interest for Australia.

The current system has arguably served Australia well, but has it been challenged to such an extent that the relationship will be broken – either actively or progressively through customer reaction.

The alternatives, at least through a regulatory and compliance lens, may not improve the industry. They include a significant increase in the number of active small banks, or large international organisations entering the Australian financial services industry – not just banks, but even perhaps the large data platforms – Apple, Amazon or Tencent for example.

Client care & outcomes – complaint and remediation

The case studies heard at the Royal Commission have highlighted numerous bad outcomes for customers. In many of the cases, the situations were well known to people in the banks. Typically, these cases were either not dealt with correctly or in a timely manner.

While it will be important that banks do not become targets for unscrupulous individuals seeking fraudulent claims, they will need to invest in systems and processes that identify, validate and resolve matters fairly, quickly and provide compensation where they are found to be in the wrong.

Banks should subject these complains and remediation programs to continuous review by a trusted and impartial umpire to provide independence and to help align the program to ‘community standards.’

For more commentary from Deloitte on the Interim Report click here

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