Asking the right questions but rarely answering then, Kenneth Hayne's interim report for his royal commission into banking and financial services will unsettle Australia's finance sector for as long as it takes for offenders to measure and accept culpability for misconduct.
Commonwealth Bank, NAB and AMP are the three financial institutions most exposed to the wrath of Hayne, whose final report next year will unleash follow-up work sufficient to occupy regulators and litigants well into the 2030s. ANZ and Westpac and a handful of other entities copped criticism in the interim report, but for now it's modelling the costs facing CBA, NAB and AMP that will most interest bank stakeholders.
Is structural change in the industry necessary? Hayne raises one of the most vital of all topics in the closing line of the first volume of his interim report, released on Friday. But he raises the topic in the closing line of the first volume of his interim report and supplies only narrow commentary around this theme.
Hayne's most potent questions in his interim report zero in on the practice and judgements of financial regulators over the last decade, most of all their inclination to negotiate punishments rather than haul miscreants before the courts.
On questions of industry structure, Hayne at least directs readers where his final report may land.
As ever, asking a question to air his thinking, Hayne writes: "Do the events that have happened suggest that manufacturers of financial products and the related entities of manufacturers should not be permitted to provide, whether by employee or authorised representative, personal financial advice in relation to products of a kind it manufactures?"
Hayne explained that "the conduct that has been identified and is criticised in this report directs attention to questions about the structure of financial services entities.
"In considering these issues it is important to recognise that legislative regulation of the structure of the banking industry is not unknown", he wrote, citing the US Glass Steagall Act of 1933 and the UK Financial Services (Banking Reform) Act of 2013, the latter, he noted, "requiring banks to 'ring-fence' certain 'core activities' by 2019."
Hayne qualified that "these references are not … to be read as my suggesting that either of these laws could be, or should be, directly imported and applied here.
"But the point of immediate relevance is that structural regulation of banking activities is not novel."
Hayne said that "too often conflicts between interest and duty are 'managed' in a way that coincides with the interests of the party who owes some conflicting duty or has some conflicting interest."
Noting firm-level reforms that in part are reactions to the controversies triggering his inquiry, Hayne said "three of the four large banks are withdrawing, or have withdrawn, from some or all aspects of the financial advice business.
"CBA is disposing of its interests in Aussie Home Loans, the mortgage broker. Other changes in the structure of the financial services industry are underway.
"Do the events that have happened raise any issue about business structures? More particularly, do they provoke examination of how and to what extent conflicts of interest and duty arising from the structure of the business can be managed? "
Hayne has a deadline of 1 February 2019 to submit his final report.
For now, the only further round of hearings announced is one described as being "to consider the policy questions arising from the first six rounds". This will be held in November 2018 and feature industry CEOs.
Hayne's final report may not prove the effective end of this inquiry, even if the probe evolves into one staffed by other commissioners.
"There is a strong case to consider extending the banking royal commission in order to hear from more people, more victims in more parts of Australia," Tanya Plibersek, deputy leader of the Labor Party said on Friday. Plibersek and her Labor comrades will have the power to restart the royal commission (assuming opinion polls predict the outcome of the 2019 election correctly) and probably will.
Consumer finance activist Denise Brailey, an early advocate for a banking royal commission and a supporter of a much lengthier commission, said "we have barely scratched the surface of mortgage fraud, which Hayne could only spend six days on, covering two pre-settled bank cases gleaned from bank files."