FdeOn 28 September 2018, Commissioner Kenneth Hayne handed down the interim findings in relation to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Interim Report).
The Interim Report covers policy related issues arising from the first four rounds of hearings; consumer lending, financial advice, loans to small and medium enterprises, and issues affecting Australians who live in remote and regional communities.
The Banking Royal Commission has identified that small business are people and not smaller versions of big business with boards to assist in making decisions. It also identified that small business may have limited access to financial and legal advice and lack the bargaining power and resources of larger entities. Small business are individuals and families who are running businesses, employing people and contributing to the community. Some small business have been let down by a system that has dehumanised process and communications.
For agricultural businesses, the banks seem to have no real understanding of the issues that the industry faces. The Commissioner questioned how lenders deal with the consequences of uncontrollable and unforeseeable external events.
The report found that both misconduct and conduct that falls below community standards and expectations.
Why did the misconduct occur?
Quite simply, Hayne found the failings of the system, illustrated through the use of case study examples discussed above, point firmly towards the simple conclusion: "Too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty.
Will this mean more red tape?
The Commissioner commented that he does not recommend adding a new layer of law or regulation as this will increase complexity and cost of compliance. Commissioner Hayne has expressed a preference for simplification of the existing legal framework rather than additional regulation.
This is all well and good, however in reality small businesses’ access to finance will become more difficult. The banks are already putting things in place in response to the Royal Commission. Reduction in ability to obtain interest only loans, ensuring they are dotting their i’s and crossing their t’s. Gone are the days of having a bank manager make a judgement about your business and working with you. The banks will be too scared to move outside of their lending boundaries. Business owners looking to obtain finance for a home loan will also find things difficult.
I believe things will get worse before they get better. There are further public hearings in November 2018, at which time the Commissioner will consider policy related issues raised in the Interim Report. The Final Report is due to be released no later than 1 February 2019.
If you are in small business and have finance, I recommend working with your accountant to ensure your business can survive the tightening of the financial environment. A positive out of the Banking Royal Commission is that it will force small business to limit their reliance on finance and improve their business so that growth more reliant on funding from profits or other areas.