Banks 18 months away from key remuneration changes
It is likely to be the end of next year before the banking industry has in place appropriate measures to deal with product sales commissions to banking staff, according to the first Independent Governance Expert Report resulting from a process initiated by the Australian Banker's Association (ABA).
The report, the first in a series to be issued by the ABA's independent expert, Ian McPhee, has come at the same time as a Money Management survey which has identified vertical integration as being viewed as a major factor in calls for a Royal Commission into the banking and financial services industry.
And the report has made clear that while the banking industry may have the new remuneration-related principles in place by December next year, actual implementation may take longer due to "practical considerations, such as alignment with performance reviews and other workplace-related matters".
The process put in place by the ABA is intended to address a range of consumer concerns about the banking industry with McPhee's role to report on progress with respect to implementation, but his first report makes clear that dealing with product sales and commissions and removing individuals from the industry for poor conduct "will be amongst the more demanding initiatives to implement effectively".
Outlining the approach to product sales and commissions, the report said that, "building on the ‘Future of Financial Advice' reforms, the industry has committed to immediately establishing an independent review of product sales commissions and product based payments with a view to removing or changing them where they could lead to poor customer outcomes".
"A key element of this initiative is working with regulators to implement changes, and where necessary, seek regulatory approval or legislative reform to better enable implementation of that review's findings," it said.
The report said the industry's objective for the initiative was to strengthen the alignment of remuneration, incentives and customer outcomes not that, in addition, each bank had committed to ensuring it had overarching principles on remuneration and incentives to support good customer outcomes and sound banking practices.
"It is expected these principles will be in place by December 2017, however, changes and communication of the changes may require additional time due to the potential impact on agreements and contracts and other practical considerations, such as alignment with performance reviews and other workplace-related matters," the report said.
At least two banks have already signalled initiatives to remove the link between salaries and sales targets, with the most recent being National Australia Bank.
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