Retail banking practices don't carry "significant systemic risks" that deliver poor customer outcomes, an independent review has found.
Some current practices however, are promoting unacceptable behaviours inconsistent with good customer outcomes and should be changed urgently. These are the latest findings as part of the Sedgwick Review, and form an extensive investigation between staff remuneration and products sold to retail and small business customers.
The report highlighted the importance of rewarding retail bank staff, in particular mortgage brokers and sellers, to no longer receive incentives based directly or solely on sales performance.
Personal incentive payments should not be dominated by sales, rather assessed on an individual's contribution across a range of measures, said former Australian Public Service Commissioner Stephen Sedgwick. He was appointed by the Australian Bankers' Association to lead the independent review of product sales commissions and product-based payments in retail banking.
Sedgwick said his proposed 21 recommendations promise to address the "trust deficit" in the banking industry and "signal a sharp break with the past."
"Changing remuneration alone is not enough. Each bank should address the issues holistically. This means many banks should also revise their target setting, performance management, leader development and, most importantly, culture; and ensure they are aligned with the ethical, customer - centric philosophy that underpins my recommendations," Sedgewick said.
National Australia Bank said it is committed to implementing the final recommendations.
NAB chief customer officer, consumer banking and wealth Andrew Hagger said: "These recommendations are a significant step for the industry and will require focus, discipline and strong leadership to implement them."
"We want our customers to be confident that every time they deal with their bank, they are receiving products and services that best suit their needs and we want to ensure bankers continue to be rewarded for doing the right thing," he said.
As an example, NAB moved away from performance-based, fixed pay increases for customer service and support staff; they instead will receive a standard pay rise of 3% per year under an enterprise agreement.
With respect to third parties such as mortgage brokers and aggregators, NAB said it does not pay volume-based incentives on residential mortgages to mortgage brokers, and agreed with the recommendations that any changes to such remuneration structures should be "viable" and "competitive."
ANZ also welcomed the findings and confirmed its commitment to implementing its recommendations, including working with both the broker industry and relevant regulators.
ANZ group executive Australia Fred Ohlsson said: "This review is an important step for the industry to continue to restore community trust and we are committed to implementing these recommendations as quickly as possible."
"While we have already taken significant steps to improve our remuneration structures, we know there is real concern in the community about the sales culture within banks and I'm confident these meaningful reforms will provide better outcomes for all customers," Ohlsson said.
Sedgewick urged all banks to "quickly implement these proposals" irrespective of what competitors adopt, and have until 2020 to do so.