Westpac misconduct shows banking compliance measures are not working

Westpac, one of Australia’s largest banking institutions has been fined A$113m and hit with six lawsuits after being found guilty of major breaches of compliance – most notably charging fees to deceased customers and duplicating insurance policies.

It is the second time in four years that Westpac has been heavily fined by the authorities, having paid $3.3m for attempting to fix bank bill swap rates in 2018.

Dr Angela Gallo, Senior Lecturer in Finance at Bayes Business School (formerly Cass) says regulations must be tighter to prevent such incidents from occurring.

“As in all misconduct cases, the immediate consequence is a rise in costumer mistrust, even more so in this case because it is Westpac’s second major misconduct event in under five years” Dr Gallo said.

“However, there are also other less immediate consequences worth noting, such as a reduction in lending caused by payment of such large penalty and the reputational spillover that threatens to impact the entire banking sector. Incidents like this could ultimately benefit other non-bank financial intermediaries that are perhaps less regulated but come with increasingly less stained reputations.

“In the UK, the Financial Conduct Authority (FCA) tried to address this in a direct way with its “Dear CEO” letter, but it is clear that ultimate responsibility lies with the corporate governance and lack of monitoring from the boardroom.”

Dr Gallo also supports tougher sanctions on banks found guilty of misdemeanours – especially if they have been previously reprimanded.

“The disciplining effect of sanctions seems very limited, unfortunately, and has clearly not worked as a deterrent for Westpac in the past.

“Efforts of regulators to investigate this kind of thing have increased enormously over the last 10 years, and one would have expected an initial increase in proven misconduct cases due to closer screening, followed by an overall reduction as sanctions come into play. This does not seem to have happened, and it has in fact had the opposite effect.

“Regulators must address bank culture in order to improve bank conduct. We can all agree on what is a proper bank conduct, and regulation is very clear on how to foster a better culture, so what is needed is a genuine intention to change the culture of the bank which can only come from within.”

All quotes can be attributed to Dr Angela Gallo, Senior Lecturer in Finance at Bayes Business School (formerly Cass).