Australia’s banks are under pressure to overhaul the way they reward staff and managers for selling products to customers, after a major review into banking practices.
- Report urges banks to overhaul incentive payments, but stops short of recommending banning the practice
- Reforms could take up to three years to implement
- Financial Services Union says review is limited and a royal commission is still needed
The final report into product sales commissions by former public service commissioner Stephen Sedgwick made 21 recommendations urging banks to “make a sharp break with the past”.
The review — commissioned by the Australian Bankers Association, which represents the big four banks — recommended incentives for retail bank staff no longer be based on sales performance alone.
Mr Sedgwick said the recommendations would address a “trust deficit” in the banking industry.
“Almost every bank will need to change at least some of its practices to comply with these recommendations,” Mr Sedgwick said.
“Time is not on the side of the industry. I suggest that each bank quickly implement these proposals irrespective of whether they perceive other banks are moving similarly.
“Decisive action will clearly signal that each bank stands for doing the right thing.”
No ban on incentive payments
While Mr Sedgwick did not recommend an outright ban on incentives, he urged banks to implement models where a range of measures were considered in rewarding staff.
A key recommendation was that sales should not be the dominant component and that maximum payments should be scaled back in some roles.
Mr Sedgwick’s proposed overhaul comes as banks attempt to revamp their image amid continuing calls for a royal commission into bad banking behaviour.
The Australian Bankers Association (ABA) quickly welcomed the recommendations and said banks would implement them as soon as possible.
Chief executive Anna Bligh said the changes represented a “transformational change” in the way banks operate.
“It is a clear indication that all banks are serious about making a better banking industry,” Ms Bligh said.
“This is not just about payments — it’s about governance and leadership. It’s not just about bank tellers and their managers. It goes up the line.”
Royal commission still needed: union
The Finance Sector Union welcomed the Sedgwick Review as having made a serious contribution to the debate around banking culture, but said a royal commission was still needed.
FSU national secretary Julia Angrisano said the limited terms of reference, written by the ABA, meant the review did not examine the areas of banking that had been rocked by scandal over recent years.
“What we need is a full inquiry into banking and the financial services sector so Australians can be confident that when they interact with financial institutions they won’t be exploited,” Ms Angrisano said.
Ms Angrisano said without legislation creating a level playing field for all financial service providers, Mr Sedgwick’s recommendations for cultural change would bring only piecemeal change and a staggered adoption over more than three years.
“Without supporting legislation, many of the key elements of the report will not be universally adopted by the industry and this could be fatal to the reform process,” he said.
Of the major banks, the National Australia Bank and ANZ have committed to putting the Sedgwick recommendations into practice.
While Mr Sedgwick did not find evidence of systemic risks to customers to support a total ban on bonuses, he urged banks to get their houses in order.
“Some current practices carry an unacceptable risk of promoting behaviour that is inconsistent with good customer behaviour and should be changed,” Mr Sedgwick said.
Banks are also being urged to stop paying incentives to mortgage brokers which could see the end of “soft dollar” payments including travel and hospitality.
Mr Sedgwick wants the changes in place as soon as possible but no later than 2020.