Reading Time: 5 Minutes
“An old man looks across the table to a middle-aged man… the old man is clearly unimpressed, but the middle-aged man ignores him and grins for the cameras… knowing full well this will make the 6 o’clock news.”
What a week it’s been right!
Because late on Monday afternoon, we had the results for the Banking Royal Commission.
The final report had the legs to be the biggest shake-up of the Australian financial services industry.
EVER.
So much so that…
Whoa, back it up a bit TheFrugalSamurai… what are you referring to?
Oh… sorry guys – got ahead of myself there!
For our international friends who might not be aware, these last 12 months or so has seen very interesting times here in Australia.
To paraphrase Hamlet, something rotten is in the state of…er… Oz.
Our banks and financial sectors for too long have gotten away with greed, malpractice and putting their own interests first for the bottom line.
Stories such as deceased people still paying for insurance premiums, or evicting retired pensioners due to failed loan guarantees hit a personal chord with the Australian public.
The people bayed for blood and we got the Royal Commission.
(A Royal Commission is effectively the highest level of investigation and enquiry, similar to a US congressional hearing).
We’ve heard appalling stories and practices across our financial services sector during these 12 months culmination in Monday afternoon’s public release of the final recommendations and report.
But ya know what?
After it was released, everyone in the industry breathed a HUGE collective sigh of relief.
Because the 76 recommendations, albeit industry changing, could have been far, far worse.
Here’s what I think of the recommendations:
Changes to the industry? I think not…
This was supposed to be it.
The great reset of our financial industry. When big sticks would be applied to big men.

But as far as I can tell (and I’m only two-thirds of reading the full 530 page report, yes I lead an interesting life, no I’m not single, sorry ladies), there aren’t any major significant changes recommended.
There was talk of our banks splitting up their business models (e.g. bank-owned wealth manager recommend customers the banks own products), but this isn’t the case.
Changes to the law? Nah!
There was great talk, and trepidation, that existing laws and regulations would need to be changed to provide fairer and safer consumer outcomes off the back of the interviews and case studies.
This hasn’t been the case. Commissioner Hayne emphasized he didn’t see any reason to change the law, only that they need to be enforced better.
OI regulator! Pull up those socks!
He did mention however that our regulators need to do more and act more. He wants them to really go after the banks and not be shy about it when they do wrong.
Good news for regulators as they’ll get a bump in funding levels I’m sure… and then quietly taken away by the inevitable budget cuts…
How’s our credit?
This was probably the most important consideration of all.
Throughout the hearings last year, the banks tightened their credit standards more and more to the extent credit was difficult to come by for just about everyone.
The recommendations could really have turned the screws tighter, and further a credit squeeze leading the economy into a recession.

This hasn’t happened, mainly I think because banks applied the screws themselves all through 2018.
The Biggest Loser…
I found this to be the most ironic and impactful recommendation.
Commissioner Hayne recommends banning trail commissions for the mortgage broking industry, as well as transitioning to a fee-for-service system.
In Oz, our mortgage brokes are renumerated by the lenders in the form of an upfront (usually 0.5-0.6% of the loan amount) and a trail commission (usually 0.15%-0.25% for the life of the loan) – all paid by the lender/bank. The borrower (us) don’t pay.
In theory it makes perfect sense, if you see your accountant, or dentist, or plumber – you are expected to pay them when they perform a service.
But in practice, this recommendation has just shot a rocket up our banks’ bottom line, as well as killing the broking industry, and with it – competition.
I doubt, many of us will pay a few thousand to a broker when we can just walk into a bank branch and get the same loan.
As 80% of lending is shared amongst the big 4, and 80% of their revenue is from home loans – you can just see themselves rubbing their hands with glee.
This is terrible news for consumers, as killing the mortgage broking industry without implementing a system for the average consumer to navigate the complex world of mortgage finance is a sure-fire way for ripping people off indirectly.
Don’t just take my word for it, have a look at the share price of our 4 biggest banks and 2 largest mortgage brokers when market opened Tuesday:
![[âIMG]](https://www.propertychat.com.au/community/proxy.php?image=https%3A%2F%2Fscontent.fbne3-1.fna.fbcdn.net%2Fv%2Ft1.15752-9%2F51155545_598722053906890_3265604037629706240_n.jpg%3F_nc_cat%3D107%26_nc_ht%3Dscontent.fbne3-1.fna%26oh%3D364955c55093b7063e1d5fddcb78c607%26oe%3D5CF91449&hash=d15b94bd9268d3f5d76e991c32a920b2)
Capitalism to blame!
An oft repeated word throughout the Final Report is “culture”.
“Why did it happen..? Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained?
Staff were motivated by money, by reference to profit and to sales and the bottom line.
Now, hang on a sec…
Banks and bank staff are motivated by money? By making profits and through making sales?
Should we just remove profit-motives from banking, sit around the campfire and sing Kumbaya?

Sorry for sounding facetious but I find this bordering on the naive.
Of course, when you are living in a capitalistic society, in a profit-driven environment, the few people with low ethical standards do things people with higher standards wouldn’t do.
But repeating the word “culture” isn’t going to change anything – banks have already responded with KPI and “culture” changes internally pre-Royal Commission.
I think the word “culture” has just been thrown around to avoid the fundamental issue at hand.
That the banks and the financial sector was allowed for too long to go unchecked, to accumulate disproportionate amount of power and to abuse this power to their advantage.
If you REALLY wanted a culture shift, then hit the banks where it really hurts – their bottom line.
MAKE the decision to go hard into the financial services industry, and for the fallout to be so memorable, that no one in the industry will forget this moment in their career.
That will guarantee a culture change.
Instead, expect lobbyists and our politicians to play political handball with these recommendations.
And for legislation and legal proceedings to drag on for years until the memory of this Royal Commission will just fade along with the others.
BAH humbug!
Might have to just buy some bank shares myself.
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41 Comments
joancajic
This was really informative and puts things into perspective for me. Thank you.
The Frugal Samurai
No worries, hope it made sense for you!
blancanvalbuena
It isn’t just Australia where there are rotten things going on. The markets are a mess, the US is in a state of uncertainty…I look forward to a more stable financial time for us all.
The Frugal Samurai
I agree, except it’s gonna be a while with everything that’s going on I think! Thanks for reading 🙂
Dalene Ekirapa
Well, it also was tough to get credit here especially for small businesses and companies. Good enough, we are seeing a better change this year.
The Frugal Samurai
That’s good to hear! Small businesses are the backbone of the economy!
Hollie
I’m overseas and I had no idea what a Royal Commission was until this post. You learn something new everyday!
The Frugal Samurai
Glad to be of help – hope you enjoyed the post!
Tara Pittman (@momknowsbest15)
Banks can seem to have greed when it comes to investing. We all want a good return on our money
The Frugal Samurai
Totally agree, banks are damn greedy… but that’s how the world works ain’t it!
Sarah Bailey
It is awful when change is promised but it never happens. Especially in sectors as important as banking, after all we all have to rely on them to look out for us.
The Frugal Samurai
100% agree with you! Fundamental changes were required but alas… seems to be business as usual! The money always wins in this day and age it seems…
Jess
I knew 0 about the banking commission prior to reading this post. This was very informative and broke the information down perfectly
The Frugal Samurai
No problem, glad to be of service!
Kelsey Harmony
This was an interesting read! Your opinion is definitely valuable in the market place today!
The Frugal Samurai
Thanks for saying so and for reading! 🙂
Joanna
I had no idea that the situation was so bad in Australia. A monopoly on loans is never good and the only ones who will suffer are the consumers.
The Frugal Samurai
EXACTLY right! Amazing you can see it so clearly when you’re not even in Oz… but the powers to be just don’t! Living in ivory towers methinks…
TheSuperMomLife
This isn’t something I’m familiar with. Thank you for providing more info on the subject.
The Frugal Samurai
No problem, thank you for reading!
kidneyfornikki
I have learned something about Australia’s markets. Sadly, a lot of it feels like what’s going on in other countries with financial shadiness or outright illegality. Here’s to stable financial times for everyone!
The Frugal Samurai
I reckon right! How hard is it for some sort of TRANQUILITY! Although, we did have a few years of that so guessing it’s time for some turbulence, BUCKLE IN… thanks for reading!
Mom Life Optimized
This was good information that I didn’t know anything about. Man, how many things do we see fees and charges for and never ask the question, we just pay the stupid stuff.
The Frugal Samurai
I reckon, most times just gloss over the small print aye!
mjmamaajournal
this is really interesting and truly informational. i believe this is also happening in the states i just heard something about it on the radio.
The Frugal Samurai
No kidding? In the states as well? Day of reckoning is coming then! Thanks for reading.
lattelindsay
This is really interesting. I think a lot of countries will be doing the same and starting to crack down on what the banks are doing.
The Frugal Samurai
Yeah I think so, we are moving into a new age where it’s less about profits and more about “service”…
The Frugal Samurai
Yeah, more and more emphasis on service and less and less on “profits”, it’s the new age!
spoonie-mama
Credit in America is frustrating as well. My husband and I prefer to buy things in cash, but now that we want to buy a car we actually need a credit history to get a loan. I will pass this guide on to friends in Australia though.
The Frugal Samurai
No problemo please do! Yeah I heard about the credit system in the States, seems pretty unique that you need to take out a loan just to build your credit history!
swathiiyer
Every where I found that banks are greedy, they want to make profit with our accounts, but for us nothing. promise are great while making an account with them then they change everything.
The Frugal Samurai
I know! They just can’t help themselves, like I mentioned think we are heading into a new age of banking – where the customer is actually put first… NAH who am I kidding!
GladysNava
Such a helpful blog post! I am really glad to know about these. Thanks for sharing ♥
The Frugal Samurai
No problem, thank you for reading 🙂
Bindu Thomas
What an interesting read! I wasn’t familiar with this more. Thank you so much for the information.
The Frugal Samurai
No worries, thanks for reading!
bestiesnotepad
This one huge learning post. So much of it I did not know already. Thanks for the great post.
The Frugal Samurai
No problem at all, glad you learnt something from it! Thanks for reading 🙂
Enriqueta Lemoine
Good to know things are changing. Hopefully for good.
The Frugal Samurai
Yes, agree with you – hopefully for the greater good!