From the last journalist standing at Domainfax:
Staff fraudulently activating school kids’ bank accounts to earn bonuses isn’t a victimless crime. Nor is the practice of faking customer referrals to meet performance hurdles and generate kickbacks – no matter how big or small.
But that’s just what’s been going on inside Commonwealth Bank. It speaks volumes about the culture and the conflicts of interest associated with targets and bonuses.
The meddling with kids accounts didn’t cause customer detriment as fees weren’t charged, but that isn’t really the point. Here we had parents filling in forms for their children to open bank accounts but some didn’t follow up and deposit money. When they didn’t staff couldn’t count it as a sale and therefore couldn’t earn rewards.
The point is some parents might have changed their minds. The bank tellers didn’t know what was in the minds of the parents but activated the accounts regardless. Using bank money to do that was fraudulent.
The scam was uncovered in 2013 and instead of taking punitive action, the bank did nothing except send an email reminding staff that it was unacceptable behaviour.
CBA is on the front foot these days:
Commonwealth Bank released a statement on Saturday confirming it had taken action to stamp out the practice in 2013.
The bank’s new chief executive, Matt Comyn, said the practice did not financially harm any customer. But he conceded it was a breach of their trust.
“For that I’m deeply sorry,” Comyn said. “As CBA’s new chief executive, my number one priority is to expedite changes that will prevent any behaviour that undermines our customers’ trust in us – and to remove any CBA employee who knowingly does the wrong thing.”
It wasn’t shut down in 2013 and it was under Matt Comyn’s direct watch at the time.
Adam Creighton has decent ideas about how to treat the rogue bank:
● First, why not give regulatory staff bonuses for successful prosecutions of corporate crime? The bonus culture has led to a highly attuned focus on making money in the private sector, so let’s align incentives in the same way at ASIC.
● Second, financial regulators should be barred from working for financial institutions in the future. This might require sizeable increases in pay for regulators (because the prospect of making a lot more in the future is part of their “package”). But it would remove any compunction regulators might have against rocking the boat for personal career reasons.
● Third, and most importantly, rules should encourage whistleblowers to come forward. How can we expect public servants sitting in office towers, however well-meaning, to enforce the law inside financial firms, day to day? It should be financially worthwhile to dob in colleagues who are breaking the rules. Large institutions often have their own processes for dealing with whistleblowers, but these rarely reward the whistler and at best result in dismissal of staff, who can simply pop up elsewhere.
● Finally, pay structures in banks appear to be leading to sub-optimal outcomes that erode public support for banks, distracting management from broader considerations.
All good ideas. But CBA looks beyond fixing to me. Corruption is rife at every level.
In the past year it has been exposed for:
- predatory lending;
- poor risk controls;
- fraudulent insurance;
- fraudulent financial advice;
- charging fees to dead people;
- manipulating BBSW;
- manipulating forex;
- money laundering for mafia and terrorists;
- exploiting children for personal profit;
- losing 20 million accounts to god knows who, and
- failing to report most of it to regulators.
The inheritance of one hundred years of institutional trust has been destroyed. A little bit of regulatory blow back is woefully short of the response required.
Labor is bleating but about as potent as whining dog:
“These are appalling revelations and unfortunately also the sort of behaviour Malcolm Turnbull wants to reward with a $17 billion tax handout,” Opposition Finance spokesman Jim Chalmers said.
“Labor wants to see the victims compensated for the rorts and rip-offs which are being uncovered, the Liberals want to compensate the perpetrators. Banks shouldn’t be rewarded for fiddling with kids’ bank accounts, they should be punished for it.”
Either withdraw public guarantees or slap on a giant Tobin Tax until it has proven itself capable of civilised behaviour.
Meanwhile, the legendary Adele Ferguson lays out what’s next:
As the Commonwealth Bank reels from a school banking scandal where thousands of children’s bank accounts were fraudulently activated by staff as part of a widespread scam to meet aggressive performance targets and earn bonuses, its reputation is set for another battering in round three of the royal commission.
Over the next two weeks the royal commission will turn to the way banks, including CBA, treat small and medium sized enterprise (SME) customers, including farmers.
As Small Business and Family Enterprise Ombudsman Kate Carnell told The Australian Financial Review in January: “The pub test is whether the public will find the actions of the banks unreasonable, unethical or even unconscionable.”
I’m pretty sure rorting kids does not pass the pub test let alone SMEs.
Given the CBA chart is one bad news item from entering technical free fall in a giant bearish descending triangle pattern:
It might be a good time to be cautious about (or short) bank shares…
