The Royal Commission

Hey team,

So, the first round of the public hearings for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is done. What a fortnight it’s been. “Alleged” bribery, fraud and misconduct were all uncovered. And that’s in just two weeks of hearings. With this thing set to go on for a year, no doubt there’s much more to come. So what is a Royal Commission and what’s this one all about?

Royal Commissions
A Royal Commission is a major public inquiry into something important. They are a big deal. The Commissioner appointed to run the whole thing is given a heap of power. They can summons witnesses essentially forcing people to testify, make them produce documents and even authorise search warrants. Failure to comply can result in serious fines or even jail time. Like I said, they’re a big deal.

To get one started, the government drafts up a terms of reference. This essentially spells out what the commission is actually supposed to be inquiring about. They submit it to the Governor General who then releases it on behalf of the Queen to the public via a letters patent. If you want, you can read the banking one here. The Royal Commission appoints a Commissioner to run the process and they in turn may choose a number of legal counsels to help them get the whole thing done.

Fun fact: Royal Commissions generally have long and very boring names. You know, like the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Because of that, they are usually known by the Commissioner in charge of it. In this case it’s Justice Kenneth Hayne and Royal Commission has become known as the Hayne Royal Commission. Fun fact indeed.

Alright, that’s the boring stuff out of the way.

What’s this one about
Read the letters patent attached above. It’s a short read.

Ok fine. I’ll make it even shorter for you. It’s all about determining whether these highly profitable financial institutions have been unduly taking advantage of their customers. That’s it really. Simple enough.

Want the spoiler? They have. ”Allegedly”. They “allegedly” have.

Round 1 Complete
Yep, the first round of hearings finished last Friday. They were focused on the lending practices of the banks and it wasn’t pretty. Turns out they incentivise mortgage brokers to make loans which may not always be in the best interest of their customers. It would also appear that banks have been increasing peoples credit card limits well beyond what they knew they could afford to repay. Some banks have been giving complementary overdrafts, when none were actually requested and others were falsifying application documentation so as to get approvals for loans when none should have been given in the first place. I know right, who would have thought all of this from such a fine, upstanding industry. Blown away.

Anyway, that’s just two weeks of hearings. There are many more to come and no doubt a lot more to be uncovered. For the inquisitive ones among you, ahead of each hearing, the Commission publishes a number of background papers as well as transcripts from every persons testimony. Have fun.

Oh and if you are invested in shares like ANZ, Westpac, CBA or NAB, expect to see the share prices bounce around pretty significantly this year. I’m not saying they are going to go up and I am not saying they are going to go down. But they will move around a lot as more and more of this stuff gets uncovered. 

For now, that’s 5 Minutes. Hope it helped.



Categories: Investing, Macro Economics

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