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Australian Finance Sector To Be Probed As Government Sets Up Royal Commission Amid Political Pressure

Australian Finance Sector To Be Probed As Government Sets Up Royal Commission Amid Political Pressure
Reversing its long stand of opposing investigations into the Australian finance sector, the government there has now ordered a wide-ranging inquiry in to the sector that has been ridden with scandals and has seemingly bowed down to mounting political pressure to do so
Powers of compelling witnesses and recommending criminal charges have been given to the Royal Commission, scheduled to hold investigations for a year, into the functioning and conduct of banks, insurers, pension funds, and other financial services firms.
“Uncertainty ... over the potential for such an inquiry is starting to undermine confidence in our financial system and, as a result, the national economy,” Prime Minister Malcolm Turnbull told reporters.
“This is essentially a regrettable but necessary action. The political environment has created a sense of inevitability.”
The draft terms of reference for the inquiry as published by Turnbull’s office states that the Commission would investigate allegations of conduct which “falls below community standards and expectations” and about the excessive remuneration or faulty corporate governance practices were to be blamed for it and submit its report to the government by February of 2019.
“It’s going to be costly and take up a lot of time of senior people,” said Matthew Ryland, portfolio manager at Greencape Capital, which holds bank shares.
“The cost-focus banks are probably in a better position to handle that than the sales-focused banks,” he added.
During the period of the inquiry, banks would find it hard to raise mortgage rates for meeting the regulatory needs of maintaining higher levels of reserve capital, noted other analysts.
The news resulted in a fall of 1.9 percent in the shares of the Commonwealth Bank of Australia among t he Australia’s “Big Four” banks.
The bank has already been accused of permitting over 50,000 payments of criminal proceeds and it is already facing a legal suit filed by the federal anti-money laundering agency. The bank has blamed a computer glitch for payments while accepting that the payments did take place.
The share of Macquarie Group Ltd, Australia’s largest investment bank and Australia and New Zealand Banking Group Ltd also had fall in their share prices after the news.
The banks have already prepared a battery of layers separately to handle the Royal Commission, according to reports.  
Sources also reportedly said that the banks would make use of the expertise of their legal, retail, institutional, mortgage pricing and communications personnel for addressing the Royal Commission where exclusive teams would be created. 
The commission has also been given the power to even recommend changes to legislation and would most probably headed by a former or serving judge who is yet to be selected. Criminal convictions and prison sentences were the result of an earlier Royal Commission that was set up to probe the fall of Australia’s second-largest insurer - HIH Insurance, in 2001.
The Commission would however not possess the power to order banks and financial institutions to make them pay for compensation with regards to individual cases.

Christopher J. Mitchell

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