Banking royal commission: Can Commissioner Kenneth Hayne solve the culture conundrum?

Banking royal commission: Can Commissioner Kenneth Hayne solve the culture conundrum?

There’s no better example than the prospect of Hayne introducing reforms to make banks lend more responsibility.

But this industry is underpinned by what Hayne has described as adequate laws and reasonable if flawed regulators.

It’s a sector chock-full of risk officers, lawyers and compliance staff. Beyond enforcement, will Hayne explain how the sector got itself into this mess, and help ensure it doesn’t end up there again?

That culture is central to his deliberations would seem to be evident from the final two weeks of the commission’s public hearings last November. That word “culture” was mentioned 471 times (yes, Chanticleer counted) over those 10 days, as Hayne and his team tried to get to the heart of how these companies actually operate.

Individual accountability

A definition of culture remained unsurprisingly elusive. CEOs and chairmen told Hayne it’s partly vision, partly rules written and unwritten and mostly just the way we do things round here – in the immortal words of theDennis Denuto, that inspiring lawyer from the movieThe Castle, it’s the vibe.

The closest we got to an example of what a good culture looked like came from some will see as a unlikely source:former Macquarie Group chief Nicolas Moore.

He explained that a key tenant of Macquarie model is that executives are encouraged (including through remuneration) to stay with the business for long periods, such that they “live with” the decisions they make.

The other key, Moore said, was individual accountability.

“That everybody in the organisation, no matter what role, have to actually feel they’re accountable for the outcome that they deliver. And that consciousness, we think, is the greatest safeguard we have in terms of the long-term health of the organisation and the client outcomes,” Moore said.

This idea of individual accountability is not as enshrined in Australia’s financial services sector as it is in other jurisdictions, such as the United States, Canada, Singapore and India.

Unlike in Australia, where firms are licensed, and it is generally products that are regulated, a number of overseas jurisdictions require that senior executive with fiduciary are licensed across a range of functions – and not just retail-facing ones. This has been part of the American system since the 1940s.

Would Hayne go so far as to recommend licensing regime for Australia’s banks? It appears unlikely,although such a regime is possible (and advisable) for financial advisers.

But Chris Whitehead, the Australian chief executive of financial services sector professional body FINSIA, argues that an increased level of individual accountability is warranted and should be embraced by a sector so apparently desperate to win back the trust of the community.

And if Hayne doesn’t recommend this, the industry should act.

Whitehead argues that having a system were individuals could be kicked out of an industry – in the same way a doctor or lawyer can be struck off – would help lift standards and actually make life easier for executives, who would be empowered to raise problems and address conflicts across the entire value chain of the financial services sector.

Licensing is one solution, but FINSIA says implementing global standards around education and professionalism, and introducing enforceable codes of conduct, would be a less radical but effective step to help cement the importance of individual accountability. Naturally, it would like to play a role in setting these standards.

Accountability Regime

The closest we got to an example of what a good culture looked like came from some will see as a unlikely source: former Macquarie Group chief Nicolas Moore. JOEL CARRETT

The government’s Banking Executive Accountability Regime is a step towards more formally enshrining individual accountability. Whether Hayne recommends it or not, if the broader industry cares as much about culture as it makes out, it should seize the change to examine overseas models and lead sectoral change.

James Thomson

[email protected]

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