Banking Bad
The reporting that forced the Royal Commission into financial misconduct.
Summary
Ferguson, an Australian investigative journalist, wrote about the misconduct in Australian financial services that led to the 2018 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The reporting began with the Commonwealth Bank's financial planning arm, where advisers placed clients into inappropriate high-risk products, forged signatures and destroyed savings, and where the bank's internal response was to conceal the extent and to under-compensate victims. Ferguson's reporting, with whistleblowers who approached her, forced a Senate inquiry and eventually the Royal Commission.
The broader catalogue the Commission established includes charging fees for services never provided, including to deceased customers; insurance sold to people who could never claim under the policy's terms; life insurance claims denied using outdated medical definitions; lending to borrowers who could not repay, with income and expense verification that did not occur; superannuation funds charging members for advice they did not receive and investing in ways that served the parent bank; and the regulators' practice of negotiating with institutions rather than prosecuting them.
Ferguson's structural argument is that vertical integration was the mechanism: banks that owned advice businesses, product manufacturers and superannuation funds had every incentive to direct customers into their own products, and the remuneration structures made this automatic rather than requiring individual dishonesty.
The book is journalism written by the person whose reporting produced the inquiry, and it centres her own role. It is specific to Australia and the regulatory framework described is that jurisdiction's. The structural analysis of vertical integration in financial advice applies more widely, and the pattern of regulators negotiating rather than prosecuting is not unique to Australia.
Key takeaways 7
- Financial institutions charged fees for services never provided, including to customers who had died.
- Vertically integrated banks owning advice, products and superannuation had automatic incentives to direct customers into their own products.
- Remuneration structures produced the misconduct without requiring individual dishonesty at the point of sale.
- Life insurance claims were denied using medical definitions that had not been updated as diagnosis improved.
- Lending decisions were made without verifying borrowers' income and expenses despite regulatory requirements to do so.
- Regulators negotiated settlements with institutions rather than prosecuting, which set the price of misconduct below its profitability.
- Whistleblowers and journalists rather than regulators or auditors uncovered the conduct that produced the Royal Commission.
Who should read it
Operators and regulators in financial services who want a documented case of how vertical integration and remuneration structures produce systematic customer harm.
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