Banking Royal Commission only exposes the tip of the iceberg: Deakin law expert

Deakin Law School's Professor Gill North, who has a background as a chartered accountant and financial analyst, as well as doctorate in law, said the Royal Commission would not fully address the broader impact of financial misconduct.

"Australians are horrified now by what they're learning from the Royal Commission, but news on the finance sector is set to get much worse, with likely catastrophic consequences," Professor North said.

"Systemic risks across the financial sector are already much higher than most people realise, and these risks are being exacerbated by the concentration of the sector, lax lending standards, high levels of household debt, and the heavy reliance of the economy on the health of the residential property market.

"As levels of household debt and financial stress rise, disparities between those who have considerable income, savings and wealth buffers and those who don’t will only become starker.

"The true resilience of the financial institutions, their consumers, and the broader economy will be tested and put under extreme pressure at some point – much of Australia is in for a bumpy and uncomfortable ride."

Professor North is co-director of the analyst firm Digital Finance Analytics and has worked in senior executive positions at multinational corporations and investment banks in major financial centres including London, Tokyo, New York and Sydney.

She said the Royal Commission was shining a light on the most powerful corporations in Australia, but the investigation so far had been predominantly restricted to the most significant examples of non-compliance with the law by the largest financial institutions.

"The dirty linen of these entities and the practices they've gotten away with for many years are finally being effectively challenged," Professor North said.

"The Commission is expected to have a profound and long-lasting impact on the sector, however the many governance and systemic concerns that flow from the identified misconduct are unlikely to be fully examined and addressed."

Professor North said the Commission's recommendations could include changes to consumer lending, while opening the door to future litigation.

"Changes to the consumer credit regimes under the National Consumer Protection Act are inevitable, including the way loan brokers can be remunerated and the processes used by lenders to verify information provided by consumers and intermediaries," she said.

"The Commission has provided additional information and admissions that corporate regulator ASIC could use in actions against lenders, credit assistance providers, financial advisers, and directors.

"But future litigation in this space won't be limited to regulators – actions by consumers who were issued loans or provided financial advice in breach of the law are likely to accelerate, and become a flood of litigation as the circumstances in Australia deteriorate and household financial stress levels climb to new records."

The third round of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will be held in Melbourne from 21 May, with a focus on the conduct of small and medium enterprises.