SYDNEY (Reuters) - Australia’s competition watchdog on Monday supported massive increases in financial penalties for companies caught doing the wrong thing, after widespread misconduct was exposed by an ongoing inquiry into the financial sector.
Australian Competition and Consumer Commission (ACCC) Chairman Rod Sims said the government was correct to propose penalties of up to 10 percent of turnover, potentially running into hundreds of millions of dollars.
“The penalties we’re getting these days on both competition and consumer matters are tens of millions. We need penalties in the hundreds of millions,” he told state broadcaster the ABC.
“The key bit of the penalty is 10 percent of the turnover - that’s the change we’ve got to make in Australia in relation to not only competition but also consumer penalties so that company boards really sit up and take notice ... and don’t just treat it as a cost of doing business.”
His comments came after Prime Minister Malcolm Turnbull admitted he had been wrong to oppose the establishment of the independent judicial inquiry into the scandal-ridden financial sector, whose daily revelations of wrongdoing have shocked the country.
“Politically, all of the commentators are right when they say we would have been right to establish one earlier,” Turnbull said during a visit to Germany, according to the ABC.
The first three weeks of public hearings at the Royal Commission inquiry have been a political embarrassment for the government and a publicity disaster for Australia’s major lenders and AMP Ltd, the country’s largest listed wealth manager.
It has heard of strategies to deceive regulators and cases of people suffering financial distress due to poor financial advice, being charged fees for a decade after they had died and deliberately charged fees for no service.
Sims backed the government’s promise last week to double maximum prison terms for corporate crimes to 10 years, dramatically increase potential financial penalties from A$10 million ($7.7 million) to up to A$210 million or 10 percent of revenue, and ramp up the investigative powers of the corporate regulator.
“I think the banks think of themselves as a protected species,” Sims said, adding that attitude this must end.
Australia’s major lenders - Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group, and National Australia Bank - control 80 percent of the lending market and along with AMP, also have the lion’s share of the financial adviser market.
But they now face the almost certain prospect of greater regulation, stricter oversight, higher penalties and possible criminal charges.
“It is now clear to me that the Royal Commission is necessary and justified,” NAB’s CEO Andrew Thorburn said in a statement on Monday morning, ahead of the bank’s own appearance at the inquiry.
In Monday’s hearings, the inquiry heard that from 2013-2016 Australia and New Zealand Banking Group failed to have adequate controls to ensure its advisers were acting in the interest of clients, as required by law.
Evidence presented showed that from mid 2013 and until it decided to offload its wealth management and advisory businesses in late 2016, ANZ did not invest in the necessary controls and technology to ensure full compliance.
The business was sold to IOOF Holdings for A$975 million in October last year.
Shares in IOOF closed 2.2 percent lower on Monday, while ANZ shares were unchanged as it revealed it would book a A$632 million loss on the sale of the unit and a A$50 million charge in legal costs related to the inquiry.
Under examination, Kylie Rixon, chief risk officer for the wealth unit, said that while ANZ “could and should have commenced some technology initiatives earlier”, the bank had now increased supervision of its advisers.
“We’ve improved our requirements for supervision and what we require of our supervisors,” she said, adding however that the bank did not check “every piece of advice that goes out the door”.
The Melbourne-based bank reports half-year earnings for its 2018 fiscal year on May 1.
($1 = 1.3041 Australian dollars)
Reporting by Paulina Duran; Editing by Stephen Coates