Majors urged to ‘reconsider’ their ‘troubling’ banker bonuses

For the ongoing review, the committee held a series of hearings in 2023 and 2024 in which the CEOs of the major banks were questioned on a range of matters, including economic conditions and the experience of account holders, bank culture and conduct, the future of banking services and the payment system, and scams, among other topics.

In the 117-page report, the committee chastised the banks for reintroducing high banker bonuses and the apparent “reversal of some of the hard-won gains from the royal commission”.

Indeed, as discussed during hearings in August 2024, both CBA and NAB had hiked banker bonuses in a bid to stop bankers from becoming brokers, a move the committee called a “troubling” development.

The report said: “The committee remains deeply concerned about culture and conduct within the banking sector. The Hayne Royal Commission, only five years ago, exposed widespread misconduct driven by poor culture and governance, such as remuneration settings that incentivised harmful sales practices and neglect for customer welfare.

“The Royal Commission underscored the critical importance of maintaining a high standard of conduct and culture within the major banks.

“Five years after the Royal Commission, much progress has been made in implementing its recommendations, including improvements in governance, culture, risk management and accountability across most of the big four. However, certain recent developments are troubling.”

The committee said it was particularly concerned by “the resurgence of remuneration practices that may create inappropriate incentives that could result in inappropriate conduct and worse outcomes for consumers”.

In particular, it called out the major Australian banks for having increased (or considering increasing) the maximum variable bonus caps for lenders, which it said was undermining past progress on this issue, and had already drawn ire from regulators.

The committee said: “It is evident that any backsliding by one bank to gain a competitive advantage over outside mortgage brokers will be quickly implemented by the others.”

While it said that neither brokers nor non-bank lenders were subject to bonus caps (making it harder for banks to attract and retain talented lenders), the committee added: “[I]f banks now desire a legislated solution to enforce consistent bonus caps across both bank lenders and mortgage brokers, the ABA [Australian Banking Association] should make that wish clear.

“If not, it seems questionable for a major bank – specifically CBA, which was the first major bank to break ranks on this issue – to argue its hand has been forced by mortgage broker remuneration practices,” it said.

The committee urged the ABA to “re-launch an urgent dialogue with the peak bodies for non-bank lenders in Australia, to resolve this issue through ‘self-regulation’ and called on all major banks that had recently lifted their lenders’ bonus caps to reconsider these decisions, and to instead work through the ABA to achieve standardisation of remuneration arrangements across bank and non-bank lenders”.

The House standing committee on economics said: “If the decisions are not reversed, the committee will expect detailed reports on the results of monitoring and risk management arrangements around lending under the raised bonus caps, and the impact of these changes on customers.”

Moreover, the politicians said that if the banking industry is unable to self-regulate on this matter “within a reasonable timeframe”, the committee would recommend that the government “consider legislating standardised remuneration rules for both sectors”.

“The committee wishes to make clear that it is concerned by this reversal of some of the hard-won gains from the Royal Commission, suggesting that the harrowing testimony of victims of misconduct has become a dim memory in just five years. We must not become complacent,” the parliamentarians said.

Speaking after the release of the review report, the chair of the committee, Dr Daniel Mulino MP, said: “[The] committee remains concerned about ongoing cultural and governance challenges within the banks.

“Recent developments – such as the increase in variable bonus caps for lenders and ASIC’s investigation into alleged misconduct by ANZ – demonstrate that parliamentary scrutiny of bank conduct remains essential.”

The CEO of the Mortgage and Finance Association of Australia (MFAA), Anja Pannek, responded to the finding, stating: “Stepping away from self-regulation as we have seen sets a worrying precedent. And justifying this change to have to compete against brokers is questionable at best. Banks compete against other banks, not brokers.”

“It is important to recognise the highly regulated environment that mortgage brokers operate in when the topic of remuneration is raised. The industry operates within responsible lending, the mortgage broker best interests duty and regulations in relation to conflicted remuneration including net of offset requirements. This ensures robust and strong consumer protections and industry accountability," she said.

Aside from banker remuneration, the report delved into:

• The financial position of households and businesses amid ongoing economic pressures, as observed by the banks.

• The adequacy of the banks’ efforts to combat scams and protect consumers, particularly in the evolving social media landscape.

• The decline of cash services and concerning trends on branch closures and whether the banks are properly supporting Bank@Post as an alternative.

• The evolving payments landscape, including concerns over surcharging on card payments at a time when the cost of living is elevated and the banks’ influence in this space.

• The banks’ perspectives on housing affordability and supply challenges.

• The banks’ commitments to environmental, social, and governance initiatives and their progress in meeting these responsibilities.

[Related: Major bank CEOs slammed for calling for cap on broker commissions]