At a Glance
It is clear that Malcolm Turnbull has won the election with a narrow majority in the House of Representatives.
What is not clear is the final makeup of the new Senate. The Senate known as the house of review will now be the house of uncertainty.
The final result in the Senate probably won’t be known until early August but what is clear is the new crossbench Senate intends to flex its muscles.
This has major consequences for the Governments legislative agenda. It will also have implications for particular industries that will come under the spotlight of the new Senate.
It’s safe to say…one of the first cabs of the rank will be the financial services industry.
A Banking Inquiry Is Looming
In the last Parliament the Labor Party campaigned on having a Royal Commission into Banks. This policy consistently achieved overwhelming public support in every published poll.
During the recent campaign, to reinforce the community’s disdain of ‘big banks’ a common refrain by Labor was that of $50 billion promised in company tax cuts by the Government, $7.5 billion would go to the ‘big banks’.
It’s pretty clear that this issue will not go away and Labor will continue to pursue this in the new Parliament.
The narrow re-election of a majority Turnbull Government allows the big banks to breathe a small sigh of relief in that the Government will not support a Royal Commission into Banks.
If the Turnbull Government had not have been returned with a workable majority, the banking industry could have faced the very real prospect of Labor leading the charge to legislate for a Royal Commission. Many of the lower house crossbenchers would have supported this.
Likewise calls for a Royal Commission will continue and some of the Senate crossbenchers may still seek one as part of their future horse-trading with the Government.
Banks are never going to win a popularity contest, with recent financial planning scandals, a focus on corporate tax avoidance, big banks and the broader financial services industry are now well and truly in the political crosshairs.
So what does this all mean?
Here Comes a Senate inquiry
The one certainty in the new Senate is that there will be a long and extensive inquiry into the banking industry with the broader financial services industry not immune from potential scrutiny.
With the ACCC taking action against Medibank Private for misleading policy holders in the middle of a sell-off by the Federal Government, don’t be surprised if the private health insurance industry comes in for some Senate scrutiny as well.
Let’s face it, there is no shortage of potential issues for a Senate Committee to inquire into.
In 2014/15 the Financial Ombudsman Service (FOS) whose members include banks, insurers, credit providers, financial advisers and planners, debt collection agencies and other businesses that provide financial products and services received a total of 31,895 consumer complaints.
This is a rich vein of consumer discontent for any Senate inquiry to mine before it looks at other issues like:
- Banking culture
- Remuneration practices
- Tax minimisation practices
- Rigging of the Bank Bill Swap Rate, (currently the subject of Federal Court action by ASIC)
- Small business lending practices
…and that’s just to name a few.
In terms of support for a Senate inquiry let’s look first at those that support a Royal Commission into Banks.
- The ALP
- One Nation
- Nick Xenophon
- The Greens
- Jacqui Lambie
- Some Government MPs
It is pretty clear that a Senate inquiry is a near fait accompli. While the Senate numbers are not yet clear, a combination of the non-Government parties will have a majority in the Senate with the power to establish a Senate inquiry.
What Can a Senate Inquiry Do?
A Senate inquiry in and of itself cannot change a thing. But it provides a public platform whereby company/industry perceptions are managed, created, enhanced or damaged.
Remember the Senate inquiry into financial planning scandals? It left the financial planning industry without a reputation to speak off and now facing a wholesale legislative and regulatory makeover.
The Senate inquiry into corporate tax avoidance similarly has embedded multinational tax avoidance in the public’s consciousness such that being called a multinational company is now almost synonymous with being a corporate tax cheat.
Likewise, a crackdown on multinational tax avoidance is now a game of one-upmanship between the Opposition and the Government.
A long running and high profile Senate financial services inquiry has the capacity to inflict lasting damage to the reputation of the industry at the very time they will be looking to the Government to lead on some key reforms.
Let’s not forget the Financial Systems Inquiry conducted by David Murray. To date none of the recommendations have been implemented and major reform will require legislation.
The industry could well be under the spotlight of a Senate inquiry at the same time the Government will be looking to legislate major changes.
How willing will the incoming Senate crossbench be to support reforms of potential benefit to the banking and financial services industry?
Imagine their response when they hear from witness after witness, regaling them with personal stories of poor treatment at the hand of their financial service provider?
Crossbench Senators like Jacqui Lambie, Pauline Hanson (who may have between 2 and 4 Senators) and Nick Xenophon (with 3 Senators) could use the Senate inquiry to argue potentially for more regulation and certainly not less.
The new Senate crossbench likely starting position will be to oppose reforms that could be of benefit to banks and other financial service industry participants.
This will be the challenge facing the industry.
The question will be what position will the ALP take?
Are they looking to play a constructive role in policy reform or will they harden their call for a Royal Commission into Banks?
Realistically, the only chance of major legislative reform being achieved in this Parliament will be dependent upon what path the ALP decide to take.
The banking industry can expect to face a Senate inquiry and the broader financial services industry could be included as well.
Labor has promised a Royal Commission into Banks and this has been supported by a number of both existing and soon to be new Senate crossbenchers.
With the Government yet to legislate any of the recommendations of the Financial Services Inquiry, the Murray Review, a cacophony of background criticism led by consumers and others (who are not fans of the big banks), puts meaningful reform at risk.
The looming Senate inquiry into banking could do to the banking industry what the Senate inquiry into corporate tax avoidance did to multinationals.
Just as big business and being a multinational has just about become synonymous with being a corporate tax cheat, a Senate inquiry into banking will only stiffen the resolve of non-Government minor parties not to support any measures of benefit to the industry.
Given the Governments narrow majority in the House of Representatives and the expected crossbench antagonism to big banks in the Senate, it will be the Opposition that will play a crucial role in whether proposed reforms succeed or fail.
Strap yourself in, because for the banking industry and financial services industry – it’s going to be one hell of a ride!!
For more information in regards to this or any other public affairs issue you may require assistance with please don’t hesitate to contact me or visit the Insight Strategy website www.insightstrategy.com.au