Banks have funny way of showing they’re sorry for fee-for-no-service scandals

But that the corporate regulator believes the banks are still not tackling this task following everything that came out at the royal commission beggars belief.

Are the banks taking this seriously? Or just seriously enough such that it doesn’t endanger earnings or shareholder returns?

If so, it’s hardly the customer-first ethos that every bank chief executive seems to spout at every available opportunity.

Indeed, ASIC’s suggestion that the banks are further stalling this process by taking a legalistic approach to the services they were supposed to provide – claiming, for example, that the mere offer of an annual review justified the charging of a fee for that review – is further evidence of a distinct lack of remorse.

ASIC says some institutions suggested that the clients would need to “opt in” to the process of reviewing and then potentially remediating customer circumstances. Losing this battle with the corporate regulator has apparently further slowed the review process.

These problems underscore how the banks are playing catch-up on two fronts – repaying fees and charges that should never have been gouged from customers, and only now spending the money on systems and processes that have been clearly neglected for too long.

ASIC acknowledges that these wider reviews are hard to do, given they cover periods that stretch back up to 10 years and cover 36 licensees across the six institutions which still authorise more than 7,000 advisers.

Apparently, reviewing the files of advisers that are no longer with the businesses is one area that is causing particular problems. ASIC says poor record keeping and poor systems within some of the wealth businesses means that some customer files can’t even be accessed.

But the banks have brought these problems on themselves.

Did no one in the risk and compliance departments of these businesses not imagine that problems could exist in client files at licensee businesses? How on earth was it considered acceptable that the record keeping systems and processes at the licensee and adviser levels could be as haphazard as they apparently are?

By way of example, Commonwealth Bank won’t split out how much of the $1.4 billion it has spent on remediation thus far has actually gone back to customers, but we know from other institutions that the majority of the remediation spend is on updating processes and systems, rather than refunds.

This is clearly money that should have been spent years ago – to ensure that the risk systems and processes were of a standard that the fee-for-no-servicescandal could have been quickly spotted and fixed.

Yes, investing in technology and systems might have come at a cost to earnings. Maybe a few cents might have been shaved off a dividend payment or two.

But the monetary and reputational costs the banks are facing from the royal commission may well have been avoided.

James Thomson

j.thomson@afr.com

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