MELBOURNE, Australia--Australia's banks face a sweeping investigation, as the government bows to pressure over a string of industry scandals.
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The 12-month royal-commission inquiry will examine the conduct of the nation's banks, financial-services firms, insurers and pension funds, and whether regulators are equipped to identify and address misconduct, Prime Minister Malcolm Turnbull said Thursday.
"This will not be an open-ended commission. It will not put capitalism on trial, as some people in Parliament prefer," he told reporters.
The nation's four biggest banks earlier Thursday dropped their opposition to an inquiry, saying in an open letter to the government that uncertainty about whether there would be one was undermining offshore investors' confidence in the nation's financial system.
"It also risks undermining the critical perception that our banks are unquestionably strong," the letter said.
The four banks-- Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp.--are among the most profitable in the world. By value, they account for roughly a third of the local stock market and make 80% of the country's loans, funded largely by international debt markets. Shares of the four, which have been volatile this year as the economy grew sluggishly and the housing market showed signs of cooling, fell modestly Thursday.
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For months Australia's main opposition Labor Party has called for an inquiry into allegations of financial-industry misdeeds from giving misleading advice and not honoring insurance claims to rigging rates and failing to prevent money laundering.
Members of Mr. Turnbull's own ruling coalition have lately joined in, some threatening to force a vote on the issue next week.
"We have got to stop the banks and our financial-services sector being used as a political football," Mr. Turnbull said Thursday, saying attacks may be "politically advantageous for some people" but risk vital economic interests.
Calling a commission was regrettable but necessary, he said, adding that Australia has one of the strongest and most stable banking, pension and financial services industries in the world.
Bank executives had argued that a commission would be a costly and unnecessary distraction for an industry already challenged by new technologies and global economic uncertainty.
"I think the letter was written given the inquiry is almost certain to happen at some stage, so they [the banks] may as well cooperate now," said Omkar Joshi, a portfolio manager at Regal Funds Management in Sydney.
Westpac is defending itself in court against allegations of rate-rigging, while ANZ and National Australia Bank settled with the Australian Securities and Investments Commission and admitted to "unconscionable conduct" in setting a benchmark interest rate.
Commonwealth Bank is being sued by the financial-intelligence agency for compliance failings that allegedly allowed its cash machines to be used for money laundering.
The banks have been the subject of almost 50 reviews, inquiries and investigations since the global economic crisis, including twice-yearly questioning of executives by a parliamentary panel. This year the government rolled out a quarterly tax on the biggest banks' liabilities, expected to raise 6.2 billion Australian dollars (US$4.7 billion) over four years, required bankers to defer bonuses and gave regulators more power over executive conduct.
The industry has admitted mistakes and made changes that include decoupling sales targets from compensation, scrapping ATM fees, strengthening whistleblower protection and making executives more accountable. Canberra has also moved to introduce a "one-stop shop" for customer complaints and increased the powers and budget of the securities regulator.
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(END) Dow Jones Newswires
November 30, 2017 00:56 ET (05:56 GMT)