Major lenders including Australia’s ‘big four’ banks – among the developed world’s most wealthy – have been under scrutiny in recent years (PETER PARKS)

Sydney (AFP) – A major shake-up of Australia’s massively profitable banking sector is on the cards as a landmark inquiry into abuses in the financial services industry releases its final report Monday.

Sweeping legislative and regulatory changes, a crackdown on the bulging pay packets of bankers and even criminal charges against senior executives could be among the recommendations issued by the royal commission.

Major lenders including the country’s “big four” banks — among the developed world’s most wealthy — have been under scrutiny in recent years, amid allegations of dodgy financial advice, life insurance and mortgage fraud.

Some unscrupulous brokers were found charging customers long after they were dead.

The wide-ranging inquiry was established in late 2017 to quell public anger over their misbehaviour, and a preliminary report released in September slammed the banks’ culture of greed.

“I think there will be some substantive changes… around strengthening the regulators and increasing the punishments (for misbehaviour),” RMIT University’s Warren Staples told AFP.

Australia’s conservative government has been cautious in committing to implement the report’s recommendations in advance, while the left-leaning opposition Labor Party said it would adopt the suggestions in full.

But with a federal election due by mid-May, the potentially explosive findings and recommendations are broadly expected to be embraced by legislators eager to cash in on the public’s anti-bank sentiments.

In the firing line will be the regulators, viewed as being too soft on corporations, and standards in the home lending, financial planning, insurance and pension sectors.

The commission’s hearings exposed poor behaviour by financial houses and executives with rules repeatedly breached, personal gains prioritised over clients’ interests and loans given to customers who could not repay them.

These sectors are expected to be reined in through tighter standards such as increased penalties for misconduct and greater oversight of behaviour.

The recommendations could go as far as banning certain types of sales practices and removing underperforming pension funds.

– ‘Over-inflated pay’ –

Regulators the Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) are tipped to be given more powers to chase wrongdoers, while also being subjected to performance reviews.

Shares in the major banks have weakened in recent days ahead of the report’s release, but Bell Potter banking analyst TS Lim said investors had priced in any potential bad news.

“I think it’s probably going to be a limited response… my belief is that they will increase the fines or penalties for companies that engage in misconduct,” Lim told AFP.

“I think there shouldn’t be too many new laws coming in.”

With the royal commission coming a decade after the global financial crisis, where rampant misbehaviour by senior banking executives went unchecked and mostly unpunished, Staples said the inquiry needed to go further and clamp down on a key root cause — performance-based pay.

“These banks have been wildly profitable… and I think a lot of the executives and staff within the banks have probably got used to over-inflated pay,” he said.

“If we don’t tackle that issue of performance-based pay and we then go back to rewarding staff primarily financially for their contribution to overall profitability, then I think there’s an enormous risk that the whole thing will fail.”

Analysts have said possible remuneration recommendations from the report could involve regulating incentives and pay.

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