Banks have a public-relations problem stemming from a deficit of trust that won't be restored by regulation but rather requires leaders to fix cultures, said the chairman of the financial system inquiry, David Murray.
The financial-planning scandals at Commonwealth Bank of Australia and Macquarie Group this year raised questions about aggressive sales cultures in banks, while last week's revelations that ANZ Banking Group has suspended seven traders over possible manipulation of benchmark interest rates cast another pall over the industry. Globally, many of the world's largest banks have been slapped with billions of dollars of fines for fixing interest rates and duping clients.
"In the financial services industry, we are clearly going through a post-crisis period where trust has had to be rebuilt," Mr Murray told a lunch in Sydney. "We are in a world now where, in the wake of the crisis, many things are going to continue to happen that keep calling that trust into question."
To sort out the mess, the industry needs strong leaders who prioritise training people over technology solutions. "There is no doubt in my mind that leaders in this industry are going to have to put human systems first and look carefully at the consequences of those systems if they are going to build that trust," he said.
Mr Murray said he could not comment on the final report of the financial system inquiry. He took no questions from the audience and refused to talk to journalists at the end of the speech, other than to say his report had not been finished or printed.
It is expected the report will be delivered to the Treasurer at the end of this week and released by the government soon after. Mr Murray will deliver another lunchtime speech on the inquiry next Monday for the Committee of Economic Development of Australia.
In the interim report, Mr Murray expressed concern about banks putting their own interests over those of customers.
While not addressing the CBA scandal directly, the interim report said: "Conflicts of interest have been a long-standing issue in financial advice. There has been a tension between providing financial advice for the benefit of consumers and the product distribution role played by advisers."
On Monday, Mr Murray, who was chief executive of CBA in the late 1990s, reiterated his concerns about advice, saying that "when things go wrong, they are not generally life threatening for people, but they are lifestyle threatening." Organisational culture can be the basis of competitive advantage, he said, but added that "it is very hard to legislate for – in fact, if you try to legislate for culture, you are trying to make everybody the same and taking away the competitive spirit".
Bank chiefs recognise there is still work to be done to rebuild customer confidence. "We do need to re-establish trust in the financial services industry. Not so much here in Australia but certainly in the US and Europe – [where] there is no level of trust," ANZ chief executive Mike Smith said in July. "That trust has to be re-earned, frankly."
The Australian Prudential Regulation Authority has said it is up to bank boards to set appropriate cultures, but the regulator is pushing banks to develop more-detailed programs to ensure staff knew how their bank's principles can be acted upon in a practical way for particular roles.
