During the past eight years, subscribing banks worked with parties they funded or had a relationship with to implement arrangements they could rely on to keep bad banking news for the public. An earlier chapter notes that ANZ published advice it was receiving 40,00 complaints per year, supporting a proposition one million complaints resulted in one code breach between 2004 - 2008.
The code subscribing banks intended to have effective systems to keep code breaches concealed and out of the public domain. The thee strategies included:
Ambiguous wording introducec during McFarlane - Kelly period.
The bank CEOs constitution was introduced a few months later; and
Public relations funded by banks to conceal these practices.
To achieve this, the banks required contributors. These were people who reported to be banking industry experts and also willing to conceal the corrupt banking practices referred introduced from 2003, the McFarlane - Kelly period.
The code subscribing banks needed Code Compliance Monitors to be both.
However, on reflection, banks relied heavily on the FOS as they agreed to appoint or co-appoint the Code Compliance Monitors. The FOS had considerable experience in this field, acting as independent industry third parties who could investigate and rule on customer complaints in the wider banking and finance industry.
The subscribing banks, through the Australian Bankers Association the industry bodies, directly or indirectly funded contributors and industry experts. These experts carried out tasks when banks and the Australian Bankers Association had contractual or statutory duties to fulfill.
The Code Compliance Monitors
In March and July 2008, Code Compliance Monitors acted as whistleblowers and their revelations were set out in submissions sent to Code reviewer, Jan McClelland. The banks and the Australian Bankers Association rejected these views without any explanation. The bank also concluded it was not sufficiently damaging to address the allegations inferring directors of subscribing banks were acting in a misleading and deceptive manner, a potential breach of the Trade Practices Act.
The McClelland review in 2008 was a turning point that brought to light the existence of serious problems with self-regulated banking. The bank directors and Australian Bankers Association executives were concealing the existence of the bank CEOs constitution, introduced four years earlier in 2004.
Independence is Implicit (2004)
From 1 April 2004, when the Code Compliance Monitors were employed, they publishing information and memorandums promoting the values they believed were essential additions to the national banking landscape. Their 31 March 2005 Annual Report, noted:
Whilst the code does not explicitly use the word independent in describing the role of the Code Compliance Monitors, their independence is implicit. They must act independently in discharging their role because it is essential if the Code of Banking Practice is to be taken seriously and therefore be effective in achieving its purpose.
The appointment of the Code Monitors was therefore consistent with the industry's promise to provide better banking practices to customers. The newly appointed Chairman of the Australian Bankers Association was John Stewart, CEO, National Australia Bank.
At a time when National Australia Bank was undergoing great scrutiny due to the Catherine Walter efforts to expose corrupted senior managers and directors conduct, Mr Stewart made a public declaration that subscribing banks would provide better banking practices, stating 'the industry remains committed, first and foremost, to providing the highest quality services to domestic consumers....'
Code Monitors Annual Report (2004)
In 2004, the Code Compliance Monitoring Committee's Annual Report identified its members as being:
Anthony Blunn AO, Chairman from 17 November 2003 until January 2009. The subscribing banks and FOS appointed him jointly.
Ian Gilbert was the member with senior level banking experience. He was replace by Russell Rechner on 14 September 2004. They were appointed by code subscribing bank CEOs and the ABA.
David Tennant was the member with relevant experience and knowledge to represent individual and small business customers. The FOS consumer and small business members appointed him.
From April 2004 until October 2006, the Code Compliance Monitors were supported by Executive Officer, Barbara Schade. This meant CEOs of subscribing banks and the Australian Bankers Association, and contributors, the FOS, appointed the independent Code Compliance Monitors. When they were appointed in 2004, there were fourteen self-regulated subscribing banks that funded all of these parties, either directly or indirectly.
All bank directors and banks, and contributors knew that in 1991, the Martin Committee had pioneered the importance of implementing the Code of Banking Practice. The research suggests from the Code's inception, directors of subscribing banks acted in good faith to adopt many high practices in the Martin report. The recommendations led to the appointment of monitors with responsibilities to monitor subscribing bank compliance and to investigate any allegation and make a determination a subscribing bank beached the Code.
In late 2003 and early 2004, the subscribing banks and the FOS were involved in selecting and appointing the Code Compliance Monitors. David Murray and Gail Kelly would have watched over this during the early stage and John McFarlene and Gail Kelly at the later stage. They were, at that time, the senior Australian Bankers Association officers.
The FOS played an important role, appointing or jointly appointing Anthony Blunn, Chairman, and David Tennant.
Financial Ombudsman's Service
As stated earlier, apart from the Code Compliance Monitors other parties enjoyed a special relationship with the banks. First among this group was the FOS.
The FOS officers and staff worked hand in hand with the Australian Bankers Association and bank CEOs association. This relationship was required to create obstructions that meant the Code Compliance Monitors were unable to comply with their clause 34 commitments. Together, the subscribing banks and the FOS created many obstacles that have only recently been identified.
The research provided no insight into motives of the FOS, and its decision to support the appointment of Code Monitors once the bank CEOs constitution was introduced. The decision by subscribing bank directors and the banks to override code principles must have created great uneasiness. However, if it did create apprehension, there is no evidence of steps taken by the FOS officers to address this inconsistency unless the subscribing banks indemnified them.
The FOS Officers (2004)
Its Annual Report (2004) notes officers and senior FOS members, were:
Jillian Segal - Chair (appointed 1 Sep 2002 - 3 Sep 2004)
Michael Lavarch - Chair replacing Ms Segal (appointed 6 Sep 2004)
Jill Lester - Bank member representative (29 Aug 2001 - 28 Aug 2006)
Deborah Batten - Bank member representative (3 Jun 2002 - 21 Aug 2007)
Jeremy Griffith - Bank member representative (4 May 2003 - 19 Aug 2008)
Sujeetha Mahalingham - Consumer advocate (1 Sep 2002 - 28 Feb 2007)
Carolyn Bond - Consumer representative (30 Nov 2001 - 20 Feb 2006)
Roger Du Blet - Small Business Representative (1 Oct 2003 - 19 Aug 2008)
Colin Neave - FOS, Chief Ombudsman, 2004, and
Phillip Field - Banking and Finance Service Ombudsman in 2004.
The FOS Annual Report (2004) sets out details of its charter.
It has 30 bank and 17 non-bank members and its primary role is dispute resolution. It reported receiving 36,382 calls during that year and closing 6,117 cases. It stated the number of bank customers contacting the FOS was similar to the previous year.
The majority of FOS cases were received from subscribing bank customers, with the FOS reporting it closed 3,949 bank cases:
CBA received 1,105 complaints
ANZ Bank received 695
Westpac Bank received 664
National Australia Bank received 649
St George Bank received 193
Suncorp-Metway received 117
Bankwest received 105
Bendigo and Adelaide Bank received 104
HSBC received 56
Bank of Queensland received 38
Bank of South Australia received 24, and
ING Bank (Australia) received 21
There were apparently real differences between the banks complaints management practices and their investigation procedures. The FOS statistics suggested the Code Compliance Monitors and the FOS should have considered it was imperative to investigate the underlying connection.
Of equal interest were the Code Compliance Monitors statistics. The Code Monitors reported closing 10 cases in 2004-2005, with 1 determination. This sent a message to legislators and regulators that the system was corrupt. The banks were not referring customers to the Compliance Monitoring Committee because they id not need to have an investigation into any allegation it breached Code practices.
The advent of the bank CEOs constitution and changes to the application of the code, and the banks pledge to indemnify the Code Compliance Monitors would have alerted them to impending claims. This would also have concerned bank directors if they had formed deceptive arrangements intended to conceal ineffective practices by party's they appointed and paid to investigate compliance with the Code and allegation that they breached the Code.
More concerning is the likelihood that bank directors and banks were willing to cross the threshold and be tangled up in deceptive, dishonest conduct in order to conceal the banks corrupt practices without regard to the commitment by suitable bank officers to act in good faith.
The FOS provided a bank-friendly service. Banks supported the FOS investigating complaints because damages were capped. However, during the McFarlane - Kelly period, third parties investigating Code breaches could easily reveal more weighty problems with far greater penalties, and uncapped damages.
Therefore by late 2003, subscribing banks realised they could not allow the Code Compliance Monitors to investigate all Code breaches: They might well find directors and senior bank executives acted dishonestly or unlawfully. In such cases, damages flowing to bank directors and senior executives could prove ruinous.
Bank CEOs Constitution (2004)
In late 2003, after publishing the Code, banks weighed up the advantages of discretely introducing dual-contracts. To put this into practice banks needed to trim the powers and authority of Code Compliance Monitors. To achieve this outcome, banks required FOS support.
The bank CEOs crafted a constitution. It could override the Code, imposing controls on their compliance guarantees. Mallesons drafted the 20 February 2004 constitution and subscribing banks introduced shortly afterwards. By introducing the bank CEOs constituting, the banks seized control of the Code Compliance Monitors powers and authority, and the banks have continued to rely on the problematic constitution despite the whistleblowers bringing this to public's attention in 2008.
Therefore, by the time Code (2004) was published and adopted by banks they had solved the problems facing them by integrating the Compliance Monitors powers with the unpublished bank CEOs constitution. Despite FEMEG exposing this in 2005, the bank directors and banks took no action to rectify any misleading and deceptive arrangements.
The constitution was misleading and deceptive, and customer unfriendly. Banks could override the Code Compliance Monitors powers and return to pre-Martin days when banks could once again employ highly skilled and expensive lawyers, and use courts to conceal or resolve most customer complaints to their advantage. It was a matter of using an expensive forum that only one party could afford.
The banks, faced with being found to have breached the Code favoured the opt-out arrangement, thereby compromising the fairness of the bank- customer contract. This relied on Compliance Monitors agreeing to be bound by the unpublished bank CEOs constitution. This they did, and it solved the banks problems.
- cunning strategy to win customers trust
The banks use of the opt-out provisions relied on them concealing the constitution. It needed to be kept from the public, customers and their lawyers and courts. The banks must have considered sooner or later misleading and deceptive practices relying on customer signing contracts without access to the constitution was unconscionable. For almost nine years however subscribing banks have enjoyed the financial benefits from initiating the problematic arrangement.
Let there be no doubt, the researchers found evidence customers and their lawyers could check bank contacts before signing them and would have relied on banks not acting in bad faith or unconscionably. However, after 20 February 2004 constitution was introduced banks knew that customers signing contracts would experience no-joy under clause 35.7, when lodging complaints based on subscribing banks promise to investigate all complaints.
The customers were therefore in the no-win corner; unable to use the nations leading law firms, as banks could, because non-bank lawyers had no knowledge of the banks unpublished constitution. The subscribing banks publishing, adopting and promoting the Code (2004) was therefore nothing more than a cunning strategy by subscribing banks to win customers trust.
Senate Committee Report webpage (Sub No. 90): Click Here...