1. So did banks get off the hook?

Not really. While the industry’s worst fears didn’t materialize in Commissioner Kenneth Hayne’s final report, released Feb. 4, banks had already made some sweeping changes. Most are seeking to sell their financial advice and wealth management units, where many of the problems occurred. Pay and bonuses have been overhauled to focus more on customer satisfaction than sales targets. The regulator has curbed some risky (and more lucrative) home lending, while banks are spending hundreds of millions of dollars upgrading outdated IT systems and forking out hundreds of millions more to compensate ripped-off customers. A few heads have rolled — most prominently the CEOs and chairmen of National Australia Bank Ltd. and 170-year-old wealth manager AMP Ltd. The government also took advantage of public anger at the industry to pass a bank levy in 2017 that will cost the big four lenders and Macquarie Group Ltd. A$6.2 billion ($4.4 billion) over four years.

2. Will anyone be charged?

Possibly. Executives from three unidentified companies could face criminal charges over the “fees-for-no-service” scandal. If regulators find enough evidence, they will pass it on to prosecutors who decide whether to go to trial. Taking money for nothing is dishonest, Hayne wrote. And he specifically noted that engaging in dishonest conduct in relation to a financial product carries a maximum penalty of 10 years in prison under the Corporations Act. Hayne referred a further 22 instances of alleged misconduct by firms including National Australia, Commonwealth Bank, AMP, Suncorp Group Ltd. and IOOF Ltd. to regulators for investigation, which also could lead to civil or criminal charges.

3. Are the regulators up to the job?

To be determined. Hayne put a lot of the onus of cleaning up the mess on the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority — the same organizations he lambasted as too timid. He urged ASIC to think first about prosecution, not negotiation. And the Federal Court will be given expanded jurisdiction over financial crime to make it easier to launch cases. At the same time, former competition regulator Graeme Samuel will conduct a capability review of APRA, and the government will set up an independently chaired oversight body to report on the two regulators’ performance.

4. So what’s the outlook for banks?

Relief that banks dodged what could have been hammer blows — forced breakups or tighter lending rules — sparked the biggest rally in financial shares in a decade. But it’s not all rosy. On top of more muscular regulation, the sinking housing market and rising costs for compliance and to compensate customers are putting profits under pressure. Compensation alone may eventually top A$1 billion, ASIC’s then-deputy chairman Peter Kell told the inquiry. “The Royal Commission is just a sideshow for the events unfolding in the real economy,” said Eleanor Creagh, Saxo Capital Markets’ Australia strategist.

The Reference Shelf:

  • The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry final report.
  • Treasurer Josh Frydenberg’s response to the Royal Commission.
  • Bloomberg Opinion’s David Fickling explains why the banking overhaul looks like a dud.
  • The Sydney Morning Herald on how banks haven’t escaped unscathed.