The Hayne Royal Commission: What It Found and What Actually Changed

Royal commissions in Australia are the heaviest investigative instrument a government has, and the banking inquiry was resisted by the industry and the government of the day for more than a year before it was finally called. What made it devastating was not new law but public testimony: senior executives explaining, under oath and on television, practices that had been internally normalised. This article covers what it found, what changed, and what did not.

Why was the Royal Commission called?

Reluctantly, and after years of pressure. A sequence of scandals through the 2010s — financial planning failures at CBA, insurance claims handling at CommInsure, foreign exchange and interest rate benchmark manipulation, and repeated advice mis-selling across the industry — had accumulated into a political problem that regulatory reassurance could no longer contain.

The trigger was unusual: the major banks themselves eventually wrote to the Treasurer requesting an inquiry, calculating that a defined, government-run process was preferable to an indefinite campaign of parliamentary inquiries and a possible opposition-designed commission. The government established the commission in December 2017 with Kenneth Hayne, a former High Court justice, as commissioner.

That calculation proved badly wrong. A royal commission has powers of compulsion, and Hayne used them to obtain internal documents that no parliamentary committee would have extracted. The public hearings that followed were more damaging to the industry’s reputation than a decade of prior scandals combined.

What were the most damaging findings?

“Fees for no service” was the most straightforward and the most indefensible: institutions charging ongoing advice fees to customers who received no advice, sometimes for many years, in some documented instances continuing after the customer had died. It required no technical explanation to be understood as theft-adjacent.

Beyond that, the commission documented irresponsible lending practices, poor treatment of insurance claimants, misconduct in the sale of consumer credit insurance and funeral products including to vulnerable and Indigenous communities, and conflicts embedded in vertically integrated business models where the same institution manufactured a product, advised on it and charged for both.

The finding about regulators was arguably more consequential than the findings about banks. Hayne concluded that ASIC had too readily accepted negotiated outcomes rather than pursuing court action, and that APRA had focused on financial soundness while treating culture and conduct as secondary. Both were told, in effect, to litigate more and negotiate less.

Who lost their jobs?

Several of the most senior people in Australian financial services. At AMP, the chief executive resigned within days of testimony about misleading the regulator, followed by the chair and several directors. At NAB, chief executive Andrew Thorburn and chairman Ken Henry both announced their departures after Hayne singled out their evidence in the final report as showing insufficient recognition of the problems.

Westpac’s chief executive Brian Hartzer resigned in 2019, though the immediate trigger was a separate AUSTRAC action alleging more than 23 million breaches of anti-money-laundering law, including failures to monitor payments later linked to child exploitation offshore. Westpac ultimately paid a A$1.3 billion penalty, the largest in Australian corporate history.

The pattern is instructive. In almost every case the departure followed not the original misconduct but the institution’s response to being questioned about it. Boards that treated the inquiry as a communications exercise fared far worse than those that arrived with remediation already underway.

How did the banks restructure afterwards?

By exiting wealth management wholesale. Within roughly three years, CBA sold down its stake in Colonial First State, Westpac dismantled its BT wealth operations and sold its advice business, NAB sold MLC, and ANZ divested its pensions and investments and life insurance operations. The vertically integrated model — manufacture, advise, distribute — was abandoned by all four.

The commercial logic was that the conflict of interest at the centre of the model could not be managed at an acceptable cost. Once ongoing service fees were curtailed and grandfathered commissions banned, advice became a low-margin, high-liability business. Selling it was cheaper than fixing it.

The consequence for consumers is contested. Financial advice in Australia became more expensive and less accessible as adviser numbers fell sharply, which some argue simply moved the problem from mis-selling to non-advice. The industry has since spent years trying to design a lower-cost advice model that does not recreate the original conflict.

Did the Royal Commission actually change behaviour?

Partly. The clearest changes are structural: the wealth exits are irreversible, conflicted remuneration in advice was largely eliminated, the Banking Executive Accountability Regime was extended into a broader accountability framework across financial services, and the Australian Financial Complaints Authority consolidated a fragmented dispute-resolution system.

Enforcement culture also shifted, at least initially. ASIC adopted a “why not litigate?” posture, and the scale of penalties in Australian financial services rose by an order of magnitude. APRA became far more willing to impose capital overlays for governance failures rather than solely for financial risk.

What did not change is market structure. Hayne explicitly declined to recommend breaking up the majors or altering the four pillars policy, reasoning that structural intervention was not necessary to address the conduct he had found. The banks that emerged were more focused, better capitalised and just as dominant — arguably more so, having shed the businesses that were dragging on returns. Our analysis of the four pillars structure covers why concentration survived the inquiry intact.

What were the most important recommendations?

Of the 76 recommendations, a handful did most of the structural work. Conflicted remuneration in financial advice was to be eliminated, including grandfathered commissions that had survived earlier reforms. Mortgage broker remuneration was to shift toward a borrower-pays model, though this recommendation was ultimately not implemented in the form Hayne proposed after intense industry and political resistance.

The Banking Executive Accountability Regime was to be extended across the financial sector and jointly administered, creating personal accountability obligations for named senior executives. Insurance claims handling was to be brought within the definition of a financial service, closing a gap that had allowed poor claims practices to escape conduct regulation.

A single external dispute resolution body and a compensation scheme of last resort were recommended so that consumers with valid claims against collapsed advisers were not left uncompensated. Both were implemented, and the Australian Financial Complaints Authority now handles complaints that previously fell between three separate schemes.

What should boards take from the Hayne experience?

That the failure mode is almost never a single bad decision. Every major finding traced back to a system in which the information existed somewhere in the organisation, was reported upward in aggregated form, and was not treated as urgent because no individual metric looked alarming. Remediation programmes were often already underway internally — just slowly, and without board-level visibility.

The second lesson is about the gap between legal compliance and community expectation. Much of the conduct examined was not illegal at the time; it was defensible under contract and disclosure law and indefensible when described in plain language in public. Boards that test decisions only against legal advice are testing against the wrong standard.

The third is that how an institution responds to scrutiny determines the outcome more than the underlying conduct. Institutions that arrived with quantified problems, completed remediation and named accountable executives fared substantially better than those that disputed the framing. Hayne’s harshest language in the final report was reserved for witnesses he judged to have failed to accept the seriousness of what had occurred.

How does this compare with banking inquiries elsewhere?

Australia’s inquiry was unusual in scope and in method. Post-crisis investigations in the United States and United Kingdom focused principally on systemic stability, capital adequacy and the causes of near-collapse. The Australian banks did not collapse and did not need rescuing, so Hayne’s inquiry examined something different: how profitable, well-capitalised institutions treated their customers.

That difference explains why the remedies looked different too. Where the US produced Dodd-Frank and the UK produced ring-fencing of retail banking from investment banking, Australia produced conduct regulation, accountability regimes and a dismantling of vertical integration in wealth management. No structural separation of banking activities was recommended, because trading losses were never the problem.

The comparison matters for anyone benchmarking regulatory risk across jurisdictions. Financial soundness and conduct are separate risk categories, supervised by different bodies with different tools, and an institution can be exemplary on one and disastrous on the other. Australian banks were among the world’s best capitalised throughout the period in which the misconduct described by Hayne was occurring.

One final point is often lost in retrospectives. The commission was given a compressed timetable and a very wide remit, and Hayne repeatedly noted that he could examine only a sample of the conduct available to him. The case studies aired publicly were selected as representative, not exhaustive, which means the documented misconduct was a subset of what the compulsory document production had revealed. Institutions that concluded they had escaped because their name was not called in a hearing generally found that ASIC and APRA had the same documents and a longer timeframe.

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