Interview with Raf Epstein, 774

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RAF EPSTEIN:

So there’s two separate actions the Commonwealth Bank is facing. They’re in court facing tens of thousands of accusations of money laundering. In some cases, organised crime benefit, in other, a smaller number, potentially they helped finance terrorism. They face potentially billions of dollars’ worth of fines. In the wake of that, another regulator, the Australian Prudential Regulation Authority, they keep an eye on the banks, they are going to have an inquiry, a six month inquiry, into the culture of the Commonwealth Bank. To talk about that and other issues, we’re joined by Kelly O’Dwyer, she is the Minister for Revenue and Financial Services. Minister good morning.

KELLY O’DWYER:

Good morning Raf.

RAF EPSTEIN:

Why is an inquiry into the culture of one bank a good thing, but an inquiry into the culture of four banks or more is a bad thing?

KELLY O’DWYER:

The first thing I would say is that the independent regulator has decided to initiate this inquiry into the CBA. This is not a decision of government. It’s a decision of our prudential regulator to conduct an independent inquiry that focuses on the Government’s culture and accountability framework with CBA. The reason they’re doing that is they have said there have been a series of issues related specifically to the CBA and there are two other regulators already engaged in looking at those issues. AUSTRAC is one that you’ve mentioned that ASIC, the other regulator, is also looking at continuous disclosure obligations and whether or not the CBA has complied with those. Now, our regulators are empowered to be able to not only look into the banks, not only to be able to compel evidence, but they’re also able to take action immediately as a result of that. And it could be anything from civil penalties to something far more serious.

RAF EPSTEIN:

Although I think that APRA would need to ask ASIC to charge a bank in the same way a royal commission would need to recommend. But just to get back to my initial question – you are in favour of and have been speaking up the inquiry into the culture of one bank, why is that a good thing but an inquiry into four banks or more is a bad thing?

KELLY O’DWYER:

Well a royal commission is an entirely different issue altogether. This idea that somehow our financial system is not operating well is completely false. We’ve already had a Financial System Inquiry led by David Murry, which, by the way, was opposed by Labor at the time the Government brought that into effect, demonstrates that we have strong banks and that they are well capitalised. That is critical and fundamental for our financial system. A royal commission will not, in and of itself, be able to take any action. It will be able to look into particular issues that already, as we know, the regulators are looking at those issues. We have had a number of inquiries already and the Government is more importantly taking action as a result of the Senate inquiries and the various inquiries by people like the small business ombudsman as well.

RAF EPSTEIN:

Minister, people might only hear you talking about whether or not our banks are safe and have capital, that’s all really important, obviously, and we’re lucky to live within the banking system that we have. But if you’re trying to find out if there’s a cultural problem, a royal commission speaks to people outside the bank. This APRA investigation won’t be able to compel anyone outside the bank because it’s not a royal commission. So doesn’t that mean that you’re relying on the bank to tell you if they’ve got a cultural problem?

KELLY O’DWYER:

No, APRA will be able to look if there is a cultural problem. They are specifically focused on governance, culture and accountability frameworks and practices within the Commonwealth Bank, very specifically.

RAF EPSTEIN:

But they’re only talking to people inside the banks, not outside the bank.

KELLY O’DWYER:

The terms of reference haven’t been finalised. They have announced that they are, in fact, going to conduct this independent review with panel within the six months, and it will be made public. There will be an interim report and then a final report, and all of this will be very transparent to the public.

RAF EPSTEIN:

I understand that transparency is a very good thing, Minister, but I am not sure you’ve addressed my query. They can’t compel anyone outside of the bank to talk to them about cultural problems inside the bank. If they’re accused of money laundering, don’t you want an inquiry to speak to people outside the bank?

KELLY O’DWYER:

Well there is already, as I said, action on foot by our regulator and I’m not going to talk about that because that is in fact before the courts.

RAF EPSTEIN:

No, and that’s completely fair enough, but aren’t we trying to address whether or not there is a cultural problem? There’s that point of, don’t you need to be able to force people outside the bank?

KELLY O’DWYER:

And the prudential regulator has the full capacity to be able to look at whether there are cultural problems. I think we’re both agreeing it’s important to look at the fact that there may or may not be broader cultural or governance issues within a specific bank where there has been a series of incidents and APRA, who is our prudential regulator, will talk to whoever it needs to talk to in order to be able to make that recommendation and assessment to the Government. And that’s what we’re doing. But broader than that, can I just say this, Raf, it is important to understand that the Government has already taken a series of actions that are very much in the interests of consumers. The Government, in the next couple of weeks, will be bringing in legislation to establish, for the first time, an Australian Financial Complaints Authority. This complaints authority will be a one-stop shop for dispute resolution where individuals who might have an issue with their bank and have not been able to resolve it, have an independent arbiter who will be able to make a decision, will be able to assign compensation where that’s appropriate, and where they will be able to access this in a timely manner. This is a very, very significant step and it’s not relying or waiting for a royal commission, which will take years to actually conduct specific inquiries. It is actually taking action now, based on the information we already know. And we know that this is what people actually want. They want the Government to get on with the job, which is what we’re doing. We are also going to be introducing, the Treasurer specifically will be introducing, a banking executive accountability regime…

RAF EPSTEIN:

Can I just ask about how you limit the pay of bank executives but not limit the pay of other executives? By what principle do you seek to limit bank, people who are paid by banks, not people who are paid by other companies?

KELLY O’DWYER:

So the Government is not looking to set the pay of bank executives but in circumstances where there has been wrongdoing and bonuses have been paid to executives, there needs to be full accountability of those executives that do in fact run the bank and are responsible for the procedures within that bank. So there will be clawback arrangements that would in fact apply and in the same sort of circumstances, we would see direct accountability for APRA to be able to come in and remove particular individuals or executives within the bank where again, there have been examples of wrongdoing.

RAF EPSTEIN:

So I don’t know if you can give me an example, Kelly O’Dwyer, and I appreciate your voice sounds a little like mine sounded last week so I appreciate your time.

KELLY O’DWYER:

I’ve got the Canberra cold, which has been enhanced by the Melbourne cold.

RAF EPSTEIN:

That’s OK. I don’t know, Minister, if you can give me an example because I think listeners are very familiar with Storm Financial, the Commonwealth’s financial planning scandal, CommInsure, would it be something like that that an executive would then have to hand back a bonus or is there a hypothetical example of some sort of maleficence under which a bank executive hands back their bonus?

KELLY O’DWYER:

Well we’re currently consulting on that right at the moment and that will all be very clear before we bring in the final legislation into the Parliament. But what we’re talking about is the fact that there have been scandals that have occurred and people have not lost their jobs. People have not been held to account as a result of those scandals. We have not seen any impact on the remuneration of those executives and that clearly means that that breeds the wrong sort of culture in financial institutions. We need to make sure, just as if somebody in their ordinary course of work does something wrong that they would expect to be held to account, we need to ensure that our big banking institutions, that are very important to our financial system, need to have appropriate levels of accountability.  And we need to make sure that the regulator, the prudential regulator APRA, has the ability to be able to remove people who potentially pose a problem.

RAF EPSTEIN:

I’m still not sure under what circumstances someone faces any reduction in pay or loses their job.

KELLY O’DWYER:

In circumstances where it is found that there has been wrongdoing in the bank.

RAF EPSTEIN:

Such as?

KELLY O’DWYER:

As I said, we’re working through specific examples and I’m very happy to come back on your program, Raf, and talk to you about this when we’ve finalised the legislation but I’m not going to prejudge the consultation process, which is going on right at the moment.

RAF EPSTEIN:

Just a final question on same-sex marriage and this group of Liberal and National high profile people, I think Nick Greiner, the former NSW Premier, is the patron of this organisation. You’re of the same position. Are you going to be campaigning for the Yes case?

KELLY O’DWYER:

I will be. I’m going to co-convene the Yes case for those members of the Coalition who believe that it’s important to have a change to the marriage act, along with Simon Birmingham. We’re both Cabinet ministers in the Turnbull Government. I absolutely respect that there are people with different views. Our view is one that says the ability for people to make commitments to one another, that is very fundamental to the fabric of our society and it enhances our society when people are in strong and stable relationships. I believe it’s important, as a Liberal, to encourage those strong and stable relationships, which is why I will be supporting a change to the marriage act and why many of my colleagues will be as well, and encouraging people to vote Yes in the upcoming postal plebiscite.

RAF EPSTEIN:

Thanks for your time and good luck with your voice.

KELLY O’DWYER:

Thanks very much.