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A Cautionary Tale: review of Banking Bad by Adele Ferguson

This article was originally published in the Conference 2019 Edition. Click here to log into the website and download your member copy on the GRC Institute News Page.

In 2014, investigative journalist Adele Ferguson hosted Banking Bad, an episode of ABC show Four Corners that looked at growing issues in the finance sector.

Now a book by Ferguson under the same title, Banking Bad takes an expansive forensic look at the behaviours and events that lead up to the Royal Commission into Misconduct in the Banking and Finance Sector’s final report, published in February of this year.

To set the scene, Ferguson’s tale opens with Senator John ‘Wacka’ Williams, whose rise to public office began with a trip to the Commonwealth Bank in 1995, where he was sold a Foreign Currency Loan that would have a profoundly detrimental impact on his life.ader with an overview not only of how conduct and culture in the financial services’ sector was being shaped, but also a picture of the how regulators and legislation was shaped—including how the Future of Financial Advice (FOFA) did not become the deterrent legislative tool it was intended to be.

Others have their stories included also—from tales of being sold inappropriate products, to other incidents of wrong-doing, including stories from whistle-blowers Jeff Morris (CBA) and Dr Benjamin Koh (CommInsure). Perhaps even more tellingly, especially when it comes to the current state of the financial sector and just how far it still has to go to restore the damage done over the past decade and more, others have contributed stories under pseudonyms for fear of retaliation. This is in spite of a publication date for the book that came several months after the release of the Royal Commission’s final report.

Searching for the root of the problem, Ferguson reaches all the way back to the late Bob Hawke and Paul Keating era—a period of deregulation intended to ensure Australian banks would remain internationally competitive.

At the time, notes Ferguson, the privatisation of the Commonwealth Bank of Australia (CBA) led to a kind of ‘personality change’ in banks that in turn led to a profit-focussed methodology that would ultimately prove detrimental to many consumers.

Ferguson is careful to not to attack privatisation as a chief cause; however, she writes:

In this new era of deregulation, Keating was becoming increasingly frustrated. He feared CBA couldn’t be a ‘gutsy competitor’ if it didn’t have enough capital. He became convinced it had outlived its time as a government-owned enterprise.

Yet, according to Ferguson, the CBA’s deregulation lacked the benefit of effective regulation and monitoring. Ferguson notes this as unfortunate, because it led to a push from the banks to go beyond being ‘gutsy competitors’, and the fallout brought about unintended consequences:

Although Keating was admired by the financial markets and was named Finance Minister of the Year in 1984 by magazine Euromoney, the regulators were weak, and the changes set off an era of irresponsible lending.

Much of the changes also had to do with the methodologies of foreign entrants to the Australian market, including the use of the Cohen Brown method, which Ferguson argues was/is a significant driver in sales-driven culture of banks from that point onwards:

Few disputed the impact of Cohen Brown on improving sales and increasing profits. But in the hands of Australia’s big banks, it was used to create a culture of aggressive selling that too often resulted in poor outcomes for customers.

The founder of Cohen Brown has never admitted the method leads to poor consumer outcomes. In the context of Senator John ’Wacka’ Williams’ own situation, however, Ferguson writes:

What Wacka didn’t realise was that Australian banks were in the process of transmogrifying themselves from service providers to sellers of products – with targets. It was a strategy that would change the way staff related to customers and shatter the special role of trust and respect bank managers had worked so hard to cultivate since Australia’s first bank, the Bank of New South Wales, opened its doors in 1817.

Interestingly, Ferguson includes her own experiences over the years while investigating the very things about which she is now writing, including many attempts both to stymie and discredit her by industry players, regulators and even other journalists.

Banking Bad is interesting piece of long-form journalism with a true-crime flavour. Not content just to point fingers at the ‘bad actors’, Ferguson’s book looks at the system as a whole and how a series of choices and factors came together to create the situations that led to the Hayne Royal Commission.

And of course, one might only wonder: if the tough questions posed by Ferguson’s book had perhaps been asked sooner, it might have led to sustainable answers without so detrimental an impact on consumers and the loss of public trust in a sector that once worked so hard to build that trust in the first place.

This article was originally published in the Conference 2019 Edition. Click here to log into the website and download your member copy on the GRC Institute News Page.

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