If big banks forge documents or charge for a service they don't deliver, Australians wait an average of five years before getting a refund.
When ANZ was ordered to pay $10 million in refunds and penalties earlier this year, it was for 320 fraudulent loans written from 2013.
When NAB reprimanded 52 employees for forging 2300 car loans late last year, it was for loans written in 2013.
And when the Commonwealth Bank announced refunds of $89 million last week, it was for activity dating back to 2007 when it began charging 62,000 customers for annual financial advice which it didn't provide.
ASIC deputy chair Peter Kell told the banking royal commission that these examples highlight a systemic issue in the financial industry, where banks are slow to respond to misconduct, causing customers financial harm.
It takes banks an average of 1552 days – more than four years – to identify misconduct, another 120 days to investigate and a further 217 days before the first refunds are issued to victims.
This means that if someone discovered their bank was engaged in misconduct today, they wouldn't receive a refund until April 2023.
ASIC launched a review into breach reporting in June 2016, but it won't be complete until mid-2018.
Fruits of the crime
The banks' disregard for the law creates a ripple effect that stops ASIC from addressing misconduct, identifying serial offenders and launching enforcement action such as court proceedings, Kell says.
Banks are meant to report significant breaches of the Corporations Act to ASIC within 10 business days. On average, it takes them 123 days.
Many argue the penalties under the Act aren't high enough. The maximum penalty a bank can face for not reporting a breach is $52,500. For individuals, it's $10,500.
There's also a $105,000 maximum penalty for misleading ASIC, though a 2017 government review of the corporate watchdog's powers recommended lifting the cap to $1.26 million.
For major financial institutions, the fines simply represent the cost of doing business, says Xavier O'Halloran, campaigns and policy team lead at CHOICE.
"The corporate regulator needs a bigger stick to prevent the delays in reporting and outright deception during investigations," he says.
"That it's taking an average of four years to resolve problems due to the banks dragging their feet is unacceptable and leads to consumer suffering."
Larger fines in wake of banking royal commission
The bigger stick appears to be on the way. New reforms announced last week will see banks who break the law facing fines as high as $210 million and equip the corporate regulator with stronger enforcement powers.
Whether fines will be applied in the case of late reporting remains to be seen.
Treasurer Scott Morrison and financial services minister Kelly O'Dwyer says stronger criminal and civil penalties should deter the kind of financial misconduct being exposed in the ongoing banking royal commission.
The reforms represent the biggest increases to some penalties in more than 20 years.
The increased penalties for corporate and financial misconduct are:
- Corporations: the larger of a $9.45 million fine, three times the benefits gained or loss avoided, or 10% of annual turnover.
- Individuals: a fine of $945,000, or three times the benefits, whichever is larger; and/or 10 years imprisonment.
- Corporations: fines of $10.5 million, three times the benefits gained or loss avoided, or 10% of annual revenue, whichever is larger.
- Individuals: fines of $1.05 million, or three times the benefit gained or loss avoided, whichever is larger.
ASIC has also been granted stronger powers to keep the rate of corporate misconduct in check. It will be able to refuse, revoke or cancel financial licences, and ban employees from working in finance companies if they're found to be unfit, improper or incompetent.
It will also be able to use seized material and intercepted phone communications under revised search warrant powers.
The reforms are based on the findings of the same government review launched in late 2016. The government plans to put 30 recommendations into practice, while another 20 will be considered once the royal commission delivers its final report in February 2019.