An independent review of retail banking product commissions and payments has described the change in culture and practices as a "substantial achievement" that will improve outcomes for customers.
The Australian Banking Association commissioned Mr Stephen Sedgwick AO in 2016 to undertake a large scale review of remuneration practices for frontline staff. This review, delivered in 2017, recommended comprehensive reforms and outlined a 3-year process for banks to implement the reforms.
The Australian Banking Association commissioned Mr Sedgwick in late 2020 to undertake an independent assessment of the scale and effectiveness of implementation of the reform program. The ABA welcomes the final Sedgwick Review into product sales commissions and product-based payments in retail banking in Australia.
"This final review by Stephen Sedgwick clearly demonstrates that banks have kept their promise to stop poor remuneration practices and put the customer first"
ABA CEO Anna Bligh
The final Review found the industry's polices have changed in line with earlier recommendations. A survey of retail staff conducted as part of the Review showed they believe their bank typically to be more customer than sales-centric, implying that the revised policies are generally being applied in practice.
Mr Sedgwick said: "Although the scale of change required varied between banks, the industry has accepted and delivered against my 2017 Recommendations that mutually reinforcing reforms were generally required to the culture, management and remuneration of retail bank staff. Substantial change has been achieved, which needs to be supported as time passes by continued vigilance of bank management, boards and regulators."
The main findings of the final review include:
- Links between remuneration and sales are now rare and, where present, only indirect.
- Toxic mechanisms like accelerators linked to sales have gone.
- Performance assessments of employees and access to variable rewards are now typically assessed on a 'whole of role' basis, including 'how' results are achieved, as opposed to sales performance.
- Both the "what" and the "how" are assessed to minimise the risk that good sales secured by poor behaviour is rewarded
- Many banks have invested heavily in refreshing their values, consequence management framework, cultural expectations and leader, manager and staff capability to strengthen the focus on the customer.
The Hayne Royal Commission Recommendation 5.5 that "Banks should fully implement the recommendations of the Sedgwick Review" is now complete with this final review confirming that the reforms have been implemented and real change has occurred.
Anna Bligh, Chief Executive Officer at the ABA, said the new findings are testament to the significant changes the banking industry has made since the Review was first commissioned in 2016.
"Several years ago, I said don't judge banks by their words but by their actions. Today, as seen in this final review, I believe banks are demonstrating they have heard the community and have moved to change the culture of banking," Ms Bligh said.
"These are substantial achievements, supported by substantial investments by many banks to better articulate a customer-centric ethos"
Stephen Sedgwick
"While there is always work to be done, the banking industry has come a long way since 2017 in earning back the trust and confidence of Australians."
"Real trust is earned when organisations do what they say they will do. This final review by Stephen Sedgwick clearly demonstrates that banks have kept their promise to stop poor remuneration practices and put the customer first." said Ms Bligh.
Since the start of the Review, banks have introduced a number of measures and changes, including:
- A new Code of Practice, independently monitored and enforced
- No longer paying retail bank staff bonuses based directly or solely on sales
- Where incentives are paid, they are based on an overall assessment against a range of measures such as excellent service and good focus on customer needs (with financial targets not the main component)
- Incentives paid are not crafted to encourage the sale of one product over another (e.g. one type of credit card over another)
- Refocussing workplace culture and leadership capability to ensure a focus on the customer is paramount.
While the final report notes that a sustained customer-centric focus will require continued efforts and monitoring by the sector, no further recommendations have been made to change remuneration practices.
"As suggested by Mr Sedgwick, the ABA and its member banks will now consider an appropriate mechanism to regularly monitor the sustained and ongoing adherence to these improved remuneration practices across the industry," Ms Bligh said.
Stephen Sedgwick added: "These are substantial achievements, supported by substantial investments by many banks to better articulate a customer-centric ethos and to build leader and manager capability in support of it.
"The risks of mis-selling and poor outcomes for customers in retail banking are substantially reduced," Mr Sedgwick said.
This report concludes the ABA Retail Banking Remuneration Review.
