By Professor David Grant, Pro Vice Chancellor (Business), Griffith University

Prime Minister Malcolm Turnbull recently bowed to widespread pressure and called for a royal commission into Australia’s banking sector.

This reluctant yet auspicious move is one that undoubtedly will have been welcomed by a broad spectrum of stakeholders including, quite possibly, those at the Australian Prudential Regulation Authority (APRA), who will now likely escape the degree of scrutiny that would have otherwise fallen on them should the federal government have failed to act in this way.

It has been a difficult year for the Authority. Having previously established an inquiry into the Commonwealth Bank following accusations of breaching anti-money-laundering regulations — in addition to the bank’s history of previous missteps and controversies — APRA found itself the subject of scepticism from the ALP and crossbench MP Bob Katter with respect to its impartiality, particularly given the close ties to the financial sector held by members of the inquiry panel.

Of course, it is not inappropriate that the industry’s regulator should be populated by individuals with prior experience in the field; after all, the knowledge and tacit understanding they bring to the table is necessary for the effective operation of such an organisation in any context. But the public also holds these bodies to a high standard of impartiality given the responsibility placed upon them for ensuring that everyday people are not being treated cynically or unfairly by structures too large for them to personally hold accountable.

So it’s only natural, as the public has borne witness to repeat offences from the banks with few apparent consequences for those responsible, that such scepticism should arise. The parliamentary rumblings about APRA’s impartiality, or lack thereof, thus compounded an existing problem for the banking industry — namely, a growing sense of mistrust among the general public — and threatened to drag APRA into the fray as inextricable from, and ultimately tarnished by, the machinations of Australia’s financial institutions.

However, with the arrival of a royal commission, the responsibility of taking steps to more broadly help restore public trust in the banks no longer falls squarely on APRA’s shoulders.

Royal commissions are powerful in their symbolism. Despite the government’s reticence to call for such an inquiry, and its repeated insistence in the lead-up to its announcement that a royal commission wouldn’t necessarily result in the outcomes expected by the public, it is nonetheless a statement that some kind of action is being taken; that the concerns of the public are, at least on paper, being taken seriously.

“What will be needed are significant changes in governance and leadership, not a reorganisation of the deckchairs.”

Assuming that APRA continues to prosecute its inquiry into CBA, its board might well welcome the shift in focus given the widespread consternation in recent months over their ability to meaningfully deal with the embattled institution in such a way as to help restore a degree of public trust. However, it mustn’t become complacent about the broader expectations of leadership that are still held with respect to any recommendations that eventuate, given the flow-on effect they are likely to have for the financial sector at large.

Royal commission or not, for APRA’s inquiry to be successful, it needs to be seen to recommend actions that address the core problems at hand. The issues at CBA go beyond the walls of the bank itself, and are indicative of an overall problem across the financial services industry.

The key challenge for APRA — and, by extension, the government — in terms of answering the questions over its independence is to address the public’s frustrations in such a manner that significant impact is felt on a broad scale.

What will be needed are significant changes in governance and leadership, not a reorganisation of the deckchairs — and these are changes that will need to apply across the sector, not just at the CBA. Only then can APRA believably assert its independence and begin the process of mending the public’s wounded belief in our banks.