Banks pledge commission crackdown

"The below is an admittance that banks indeed have something to "crackdown on". Most people would be outraged if they knew the full extent of what they have been getting away with for many years".

The banking industry will launch a sweeping review of commissions paid to sales staff and has committed to improving protection for whistleblowers, as lenders respond to intense political pressure over misconduct by staff and fend off ongoing calls for a banking royal commission.

The Australian Bankers' Association on Thursday morning announced a review of conflicted payments to staff, including commissions for selling certain financial products. It said these payments would be scrapped or changed where it led to poor outcomes for customers.

Banks say they will also work with regulators to "ensure the highest standards of whistleblower protections by ensuring there is a robust and trusted framework for escalating concerns".

It is understood the senior members of the banking industry have been intensely working on the plan for the last six weeks and the process has been driven by the chief executives of the banks, who have been looking for a way to relieve intense pressure building on the industry in the wake of a series of conduct scandals.

With regulators including the Australian Prudential Regulation Authority upping the pressure on banks to consider how their remuneration plans influence conduct and culture, and after the Trowbridge report highlighting a range of concerns about commission-based pay in the life insurance industry, the bank bosses realise how bankers are paid in some banks must be reformed to ensure incentives don't encourage the sale of products not suitable for customer needs.

"Each bank commits to ensure it has overarching principles on remuneration and incentives to support good customer outcomes and sound banking practices," the ABA said in a statement.

The work on commissions will be carried out through an industry group led by Gina Cass-Gottlieb, a partner at law firm Gilbert + Tobin. The banks said they will publish public quarterly reports on their progress, with the first coming out in three months.

It is understood that the Australian Competition and Consumer Commission has been approached by the banks, who want to ensure their proposal to work together does not fall foul of competition laws.

Australian Bankers' Association chief executive Steven Münchenberg said that overall levels of banker pay should not be reduced by any changes that are made. "We are not going to be reducing peoples remuneration, but expect there to be some restructuring," he told Fairfax Media.

He said that the level of concern among the members of the ABA had grown in recent weeks as the sector came under sustained criticism, and "has become such that the industry absolutely needs to respond substantially, and we feel we have done that today." The banks response goes further than the measures announced by Treasurer Scott Morrison on Wednesday.

With the government's package of reforms to strengthen oversight of the banks not containing any measures to strengthen whistleblower laws, the banks on Wednesday said they will "standardise the protection of whistleblowers across banks, including independent support, and protection against financial disadvantage".

After the government said on Tuesday it would create a "one stop shop" for handling bank complaints by consolidating various ombudsman services, the banks said they would also boost processes for handling complaints by installing an "independent customer advocate" inside each bank for customers in disputes with their lender.

Bank bosses response

ANZ Bank chief executive Shayne Elliott said in a statement that while some of the work was already underway, it was a" public commitment from the entire banking industry that we are going to work harder and more consistently to improve the way we deal with customers and resolve issues."

"It's also a recognition that we need to work harder to improve the way we respond when things go wrong and it gives our customer reassurance that they will be dealt with fairly and transparently in their dealings with the bank," Mr Elliott said.

Westpac Banking Corp chief executive Brian Hartzer said in a statement banks have given a lot of thought to how conduct and culture be strengthened across the industry. He said the framework would cover making sure product-based payments are aligned to good customer outcomes; ensuring customer complaints are dealt with efficiently and effectively; and making sure a safety net is in place in the form of a strong regulator.

"The plan includes a number of practical measures that will empower customers, enhance standards and increase transparency across the industry," Mr Hartzer said. "We believe these actions will lift standards across the banking and financial services sector and bolster the existing strength of our regulatory framework."

The package of changes comes after the banks have found themselves under intense political pressure, after Labor called for a royal commission into the industry, citing a series of scandals in which customers have been mistreated.

John Brogden, the chief of the Australian Institute of Company Directors, told The Australian Financial Review the big problem with bank culture is the misalignment of incentives.  "What every company in Australia needs to understand is that having a bad culture can do more damage than strong short to medium -term numbers can ever do good," Mr Brogden said. "Financial incentives have to reward good culture as well as good performance. It's clear that in some instances that is ignored."

On Thursday morning Commonwealth Bank, Westpac, National Australia Bank and Westpac each committed not to pass on to customers any costs from the government's plan for the industry to fund the corporate regulator.

By Clancy Yeates and James Eyers