Why The Big Banks Are Facing Customer Revolt

The four big banks of Australia are facing a growing revolt from customers, regulators and the government. Is it deserved?

The government says that the regulators – ASIC and APRA – have sufficient authority to regulate the conduct of the banks. But the Opposition says that those organisations are hamstrung by funding cuts. Amidst some of the biggest misconduct scandals to hit the Australian banks, it’s hard to argue that the revolt hasn’t been a long time coming.

It began with a lone whistle-blower, Jeff Morris, who exposed the financial planning scandal at the Commonwealth Bank.

Mr Morris revealed CBA planners were switching clients onto high-risk, but profit generating, products without their clients’ permission. In some cases, this involved forging clients’ signatures on documents. When the GFC hit in 2008, thousands of clients lost millions of dollars.

big banks, commbank, financial planning, One such adviser, who’s now banned from giving financial advice for seven years, was named in a Senate inquiry as Don Nguyen. One of his clients, Merv and Robyn Blanch, lost $170,000 from his shoddy advice, according to the ABC. The Blanchs’ daughter Merilyn Swan mounted her own investigation of her parents’ financial records to uncover fraud. After a battle with CBA, her parents were initially offered $6000 in compensation, which was later upped to $95,000.

Morris told the committee that Don Nguyen and other non-compliant advisers benefited from an “incredibly loose, non-compliant culture” at CFP. He described an “aggressive sales-based culture wherein advisers pushed clients into inappropriately high-risk products both to earn bonuses and ‘avoid getting the sack’,” the report said.

CBA is accused of trying to cover it up.


In September 2008, as the global financial crisis revealed the extend of Nguyen’s bad advice, he was suspended. But the following month, he returned to work and was promoted to the position of senior planner.

Two weeks later, on October 30, 2008, Morris and the other whistleblowers alleged in an anonymous fax to ASIC that Nguyen’s promotion was part of a management conspiracy to avoid paying client compensation.

“Nguyen just gave everybody more or less the same risk profile,” Morris told the committee. “He got to the point where he just photocopied them. [CBA] found this in 2008, and he should have been dismissed at that point. But they brought him back for two reasons: one was to hose down the client complaints, the other was to sanitise his files. They gave him a second assistant to help sanitise the files. I saw him there, day after day, with ‘liquid paper’ going through changing things in the fact files.”

Morris and the other whistleblowers alleged that while the compliance team at Commonwealth Financial Planning had recommended that Nguyen be sacked for his misconduct, “the team had evidently been warned to ‘back off’ by CBA management ‘on a sufficiently senior level’,” the Senate report stated. It is evidence like this, the majority report suggested, that pointed to signs of a cover up.

Next came the insurance scandal at Commonwealth Bank’s insurance arm, CommInsure. A joint Fairfax Media and Four Corners investigation has exposed that CommInsure uses an outdated definition of heart attack to deny trauma claims and battled a claim from one of its own employees who was suffering depression and post-traumatic stress disorder.

One man, claiming to be a general practitioner, said that in his experience dealing with patients’ claims CommInsure was “hands down the hardest to get a payout out of”. 

“In the past three years I’ve had four patients who had serious conditions causing them to lose time off work, and CommInsure has found reasons to nullify their insurance policy,” he wrote.

“They were all to do with forgetting to disclose a medical condition, even though it was unrelated to the claim … little things like taking antibiotics or seeing a marriage counsellor and it being interpreted as having an undisclosed mental disorder because the marriage counsellor happens to be a psychologist.”

big banks, asic, financial planning, investment

This month, ASIC appeared in court in relation to rigging the bank bill swap rates. The corporate watchdog will take legal action against  the big banks, starting with the ANZ Banking Group, for allegedly rigging the bank bill swap rate and on Monday asked a court for more time to prepare its case against the ANZ.

ASIC wants to delay the trial date in the ANZ Bank hearing to prepare other cases relating to other banks. The Commonwealth Bank and National Australia Bank are under investigation for allegedly rigging the rates.

ASIC alleged ANZ created an artificial price for bank bills on 44 separate days between March 2010 and May 2012. It also alleges a large number of ANZ’s products were pegged to the artificially created price for bank bills in order to maximise its profit or minimise its loss to the detriment of other banks not involved in the rigging.

Meanwhile, Opposition Leader Bill Shorten has promised that should Labor win the federal election, he will hold a royal commission into the financial services sector.

A key area to be considered in any royal commission is compensation for customers and the treatment of whistleblowers.

Mr Shorten said Labor’s support for a royal commission was a decision not made lightly.

“Public confidence in the banking and finance industry has taken hit after hit the past few years,” Mr Shorten said.

“There are literally tens of thousands of victims if not more. Today I say, enough is enough.”

Mr Shorten cited retirees ripped off by planners, small businesses being driven to the wall by banks and the recent news major insurance companies (most notably CommInsure) had worked to ensure terminally ill people with life insurance were denied claims

The royal commission will look at whether illegal and unethical behaviour in the financial services sector was widespread, duty of care financial institutions have to their customers, how business structures affect the behaviour of finance sector employees and whether Australian regulators have enough resources, Mr Bowen said.

Terminally ill cancer sufferer Evan Pashalis whose life insurance claim was denied by his insurer CommInsure (he was paid out after he appeared in a joint media investigation) welcomed Labor’s call for a royal commission.

“We have banks that are too big to be held accountable they are playing games with the lives of ordinary Australians and I believe government intervention is long overdue,” Mr Pashalis said.

Jeff Morris said he agreed “wholeheartedly” with Mr Shorten that this is the time for a royal commission.

“We had fine words from Malcolm Turnbull on Wednesday about the state of the finance sector but what counts is deeds, not words,” Mr Morris said.

Mr Morris said that so many victims of poor financial advice were still yet to be compensated showed the need for a royal commission rather than compensation schemes that were not delivering outcomes for consumers.

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What do you think? Should there be a royal commission into the conduct of the banks?