GEORGIE GARDNER:
Treasurer, good morning to you.
JOSH FRYDENBERG:
Nice to be with you, Georgie.
GEORGIE GARDNER:
The Coalition, of course, fought tooth and nail against this Royal Commission, blocking it 26 times. What was the rationale behind resisting it?
JOSH FRYDENBERG:
Well, Georgie, look. We can debate the failure of the Labor Government when they were last in power and they had a number of financial scandals on their watch, and they did nothing. We called the Banking Royal Commission and yesterday we announced that we would be taking action on all 76 recommendations. I want to look to the future and I want to ensure that Australian consumers get a better deal from their financial institutions and we restore their trust in them.
GEORGIE GARDNER:
Alright, you did of course, though, vote against it 26 times. So, now you concede that the industry does in fact need an overhaul. And you say that the recommendations will be implemented pretty much in full. I guess the question is, though, why should we trust a Government that had to be dragged into this investigation in the first place?
JOSH FRYDENBERG:
Well, actually, Georgie, we have been making a number of significant reforms ever since we came to Government in the financial sector. We commissioned David Murray to do the wide ranging financial systems inquiry and a number of those reforms were strongly endorsed by Commissioner Hayne in his report yesterday. Like the Banking Executive Accountability Regime that we have put in place to hold individuals accountable for misconduct on their watch. And he has recommended, Commissioner Hayne, that that be extended to superannuation and insurance. There a number of things that we have done which is actually making a difference already.
GEORGIE GARDNER:
What is your promise to bank customers who have completely lost trust?
JOSH FRYDENBERG:
Well, what I say to them is that we will resource the regulators and we will give them the powers that are necessary to ensure that people are held to account. And I sent a very firm message to all those in the financial services sector that not only that they can do better, that they must do better. And that reform should make a difference and make a difference now and forever. So, there is an unequivocal message that they have a social license to operate and that the Australian people deserve to be treated honestly and fairly by their banks.
GEORGIE GARDNER:
Alright, so banks clearly need to be more transparent and more accountable. But, I want to speak to you about regulators. They, of course, have also been given a damning assessment, failing in their duties. Now, Prime Minister Morrison is on the record warning against “nanny-like regulators,” but given what has been uncovered, isn’t that exactly what is required?
JOSH FRYDENBERG:
Well, actually, what Commissioner Hayne found is that we have seen a lot of misconduct that was in breach of existing law. But, what the regulators were doing were giving infringement notices or putting out press releases and slaps on the wrist, rather than litigating and taking to court these offences...
GEORGIE GARDNER:
...And why is that? Why was that?
JOSH FRYDENBERG:
Well, that was a choice by the leadership at the time of the regulators. Now, we have put in place new leadership, a new chair, two new deputy chairs of ASIC, we’ve given them more powers and Commissioner Hayne said yesterday that they are actually making changes. So, I am confident that they will be leaning in now to this type of approach and it will be much more effective in holding people within these financial institutions to account for misconduct.
GEORGIE GARDNER:
Do you accept that that soft approach basically was due to ASIC and APRA systematically being de-funded, to the point that they had become completely ineffective?
JOSH FRYDENBERG:
Absolutely not, and in fact, we have increased their funding by $170 million across the regulators and our enforcement agencies and we will ensure that they have every amount of resource that is necessary to do the job.
GEORGIE GARDNER:
So, you don’t accept that regulators have been underfunded?
JOSH FRYDENBERG:
No, I don’t. I believe that they have got the funding necessary. It was more in the approach that they took where they preferred negotiation, Georgie, over litigation.
GEORGIE GARDNER:
Now, the one recommendation you don’t agree with is a crackdown on mortgage brokers. Why not?
JOSH FRYDENBERG:
Well, I want to say that there was a number of recommendations around mortgage brokers that we have given a tick to. Firstly, creating a best interest duty on their behalf. Secondly, getting rid of what are called trailing commissions. And then there was a question of whether we should stop up-front fees from the lender to the mortgage broker. What we are concerned there about is the impact on competition. We don’t want the work that is now currently with 25,000 small businesses and people working within the mortgage broker industry just simply to go to the big banks. We don’t want to give the big banks a free kick and that is why previous findings of the Productivity Commission and of other reports, David Murray’s report, have found that this shouldn’t have been changed.
GEORGIE GARDNER:
You said that the industry must change forever, but how can you ensure that implementing these recommendations isn’t just a temporary fix?
JOSH FRYDENBERG:
Well, certainly there needs to be a cultural change and it starts with the banks. Commissioner Hayne found that they are responsible for what has occurred on their watch. I think people have now got the message. I think that their reputations, both of individuals and of entities, has suffered greatly in the public’s mind and I think yesterday was an important step forward in getting the right approach and restoring the necessary trust in our banking sector.
GEORGIE GARDNER:
Alright, well, it is going to be a hot election issue and you certainly have got your work cut out in restoring trust. Treasurer, we appreciate your time this morning, thank you.
JOSH FRYDENBERG:
Thank you, Georgie.