With Australia’s top bankers and insurers sitting around nervously wondering if their heads are going to finish up on poles, and indignant borrowers and policyholders hoping for exactly the same outcome, it’s worth parsing the tealeaves a bit to see what Commissioner Kenneth Hayne’s Royal Commission is actually going to come up with in its final report.

A basic word of advice here is, don’t expect miracles.

It’s due to lob on Governor General Sir Peter Cosgrove’s desk by February 1,  which is a seriously tight timeframe, for a start.

It was only commissioned on December 14 of 2017, or just over a year ago, and of course the hearings proper didn’t get going until February of last year.

Just to remind you of what a massive remit it has, its official title is the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Which means, he’s been given less than a year to clean the Augean stables of our financial system. It’s worth remembering that the Royal Commission into Institutional Responses to Child Sexual Abuse was established as far back as January 2013 and it provided its final report in December of 2017, very nearly five years later.

That’s not to say Commissioner Hayne’s report will be Once Over Lightly: it won’t.

He made it abundantly clear in his interim report that he believed regulators ASIC and APRA had failed to use the many legal powers at their disposal, to crack down on some of the egregious things that institutions were doing, such as taking money from people for non existent services. 

(It was a stroke of genius, by the way, on his part, to require the institutions to provide a list of their sins. A big part of the scandalous material aired at the Commission came straight out of the documents provided by the banks and insurers and each time counsel assisting Rowena Orr SC blew up some minion after saying “let me take you to a document”, she was reading from a document or email provided by the institution, and on which the poor sap had not been properly briefed).

APRA’s defence to the Commissioner’s inquiries was basically that it was responsible for making sure the institutions didn’t collapse financially, and they certainly didn’t, but in his interim report he pointed out that not once did APRA actually take an institution to court. That doesn’t sound like a ringing endorsement.

Particularly when APRA’s charter goes significantly beyond merely being the prudential regulator. Its own website says that it is “an independent statutory authority that supervises institutions across banking, insurance and superannuation” as well as promoting financial system stability in Australia. It’s interesting that the Commission’s remit covers almost exactly those three types of financial services organisation.

All of which suggests the Commissioner will demand a review of which “twin peaks” regulator looks at which breaches. That is a long way from Heads on Poles but it’s very relevant.

In his Interim report in September, the Commissioner was however quick to whack down any suggestion of making kneejerk changes to the law, so we won’t be seeing any general raves about rewriting Australia’s federal legislation.

“Passing some new law to say again, ‘do not do that’ would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?” the Commissioner asked rhetorically. 

Where most pundits expect action in the wake of the February report will be in a new emphasis by ASIC (and presumably APRA) on using the courts to exact much more swingeing fines and concessions from the financial miscreants.

That’s certainly been the impression given by the Commissioner, who in his interim report poured scorn on the “wet lettuce” punishments levied by ASIC on miscreants, by way of negotiated settlements.

“When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done,” he wrote.

He said ASIC “rarely went to court to seek public denunciation of and punishment for misconduct,” and then dropped that bucket on APRA for its failure to use the courts.

“Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct.

“Infringement notices imposed penalties that were immaterial for the large banks,’ he stated, adding that any so called ‘community benefit payment’ imposed was far less than the penalty that ASIC could properly have asked a court to impose.

That sort of colourful summary will most likely be at the core of what the Commissioner is likely to call for. Much as he would like to, he cannot lay charges against anyone but he can recommend both civil and criminal action against individuals and organisations. The former is the issue he’s already been sceptical about, making it clear he thinks negotiated civil outcomes don’t have the desired punitive effect, so he may lean towards specific criminal charges…which means courts.

There are two areas where there may be unintended consequences of his report. 

The first, which is no one’s fault, is that the certain criticism of the banks will cause them to pull up the lending drawbridge further than they have already pulled it. That’s been heavily canvassed by commentators but let’s remember that when the banks ease up on lending, they don’t make so much money. There’s an argument that the market will sort that issue out, if not in the short term, then certainly in the long term.

The other comes back to Regulators and the courts. Senior people at ASIC still wince at the mention of the Jodee Rich case, which blew up in ASIC’s face in 2009 and cost it an estimated $40 million in time, effort and legals. In simple terms, ASIC took a short cut using an expert for two different purposes, and Justice Robert Austin threw ASIC’s civil case out.

Old hands will remember that Mr Rich was a founder of telco One.Tel that collapsed in May of 2001, eight years previously, so you can see how much ASIC resources were spent on that particular fiasco.

That’s not to say ASIC will lose many future cases that badly, but it won’t win them all either.  That’s the unenviable debate many ASIC people are going to have in the washup of the Commission, which is sure to push for more use of the court system. The political pressure to punish individuals and organisations at a higher level than previously will be enormous.

We may see more villains getting pelted in the stocks, but it probably won’t be cheap, which is where the Government’s Department of Treasury  comes in. Unless the regulators are given enough financial resources to launch more cases  and inevitably lose a few, not a lot is going to happen.  And the Commissioner knows that, which suggests he may push for more financial resources. Given how erratic the flow of Government support for regulators has been in recent years, that might represent serious progress.