Banking CEOs must be wondering what's happened to upturn their world in the past few years.
Just four years ago, they were facing a Financial System Inquiry chaired by one of their own – former CBA CEO David Murray – probably feeling pretty secure about their place in the world. But that's where it all started to fall apart. Murray ended up recommending major changes to financial regulation, including new powers for ASIC to ban dangerous products, and obligations for financial institutions to make sure their products are suitable for consumers.
Since then we've had a whirlwind of other regulation, with stronger laws for financial advice, reforms to life insurance commissions and tougher credit card laws. And that's before the royal commission started.
This has me thinking about which other industries might be next. The electricity market stands out. In the states that have retail competition, what should be a simple, commoditised service has been turned into a series of complex deals that are impossible to compare. This is all built on the assumption that if we ensure there's lots of competition, consumers will go out and find the best deal.
Even if that were possible, there are some consumers who simply can't do this; whether it's because they've got limited literacy or numeracy or are just focused on trying to make ends meet until the next pay day.
There is meant to be a mechanism to look after these consumers – the standing offers that you are put on if you don't choose your own energy plan. The only problem is that they tend to be the most expensive deals on the market. Some people on standing offers are paying more than $1000 a year more than they would if they were on the best available deal.
That's right – we've built a safety net that's designed to catch people who are vulnerable or disadvantaged. But when it does, it drops them into the deals that are most likely to rip them off.
This sounds awfully like the case studies we've heard of financial advisers recommending investments that consumers didn't understand, banks giving mortgages to people who could never repay them, and insurers hawking policies on which customers would never be able to make a claim.
If I were an energy company CEO, I'd be worried. Because in the court of public opinion, I think they're next.
Alan Kirkland, CHOICE CEO