Key points:
- Royal Commission will have 12 months to investigate banks, super providers
- Inquiry will cost $75 million
- It will have 'no power' to recommend financial compensation for victims
- Labor says victims not consulted and alleges Commission was designed with banks' input
Mr Turnbull announced a Royal Commission to investigate banks, wealth managers, superannuation providers and insurance companies after the CEOs of the Big Four banks requested an inquiry to end 'uncertainty'.
"Cabinet has met this morning and determined that the only way we can give all Australians a greater degree of assurance is a Royal Commission into misconduct into the financial services industry," the prime minister said on Thursday morning.
"Only the government can ensure that a royal commission is created, established with respected and capable commissioners."
The Commissioner, once appointed, would have a fixed timeline of 12 months to investigate banks, wealth managers, superannuation providers and insurance companies.
Prime Minister Malcolm Turnbull arrives at a press conference at Parliament House in Canberra, Thursday, November 30, 2017 (AAP) Source: AAP
The prime minister said the inquiry would be given a budget of $75 million.
Treasurer Scott Morrison described the move as a "regrettable but neccesary action" to give the banks more certainty amid increasing political pressure. He said the government's political opponents were using the banks as a "political football".
Labor, the Greens and several in the Nationals have been pressuring the government to conduct a sweeping investigation into the banks. Maverick backbench Nationals MP George Christensen, who had threatened to cross the floor to vote for a Commission, said the government had been "dragged kicking and screaming".
On Thursday, the CEOs of the to ask the government to back the calls for an inquiry.
The CEOs maintained their long-held position that the inquiry was "unwarranted" but said the government needed to end the speculation that parliament would eventually force the issue.
"It is now in the national interest for the political uncertainty to end," the CEOs of the Commonwealth, Westpac, National Australia and ANZ banks told Treasurer Scott Morrison on Thursday.
"It is hurting confidence in our financial services system, including in offshore markets, and has diminished trust and respect for our sector and people."
Mr Turnbull said the Terms of Reference would not be "open ended" and would not "put capitalism on trial".
The Commission will focus on the extent of misconduct and mismanagement of customers' money, whether existing laws regulating the banks are adequate and whether customers have adequate redress.
But the prime minister stressed the inquiry would have "no power" to recommend compensation be paid to victims of bank rip-offs.
RELATED READING
Letter from banks to Treasurer calling for an inquiry
Labor accuses Turnbull of ignoring victims and working with the banks
Labor has lashed the timing of the government's announcement falling on the same day as the letter from the Big Four banks requesting an inquiry.
Labor has long advocated a Royal Commission into the banks and promised to set one up if elected.
But shadow treasurer Chris Bowen said the Turnbull Government could not be trusted to define the scope of the inquiry.
"It’s becoming clear that the Turnbull Government worked with the banks to help develop its terms of references, not victims or their representatives," Mr Bowen said.
He also criticised the slow response to calls from victims of banking scandals, who have been advocating an inquiry for well over a year.
"Now he doesn’t even bother talking to banking victims when he backflips. What an insult to these people who’ve fought so hard for justice," Mr Bowen wrote in a release.
The prime minister said the banks' letter to the treasurer had been a "voluntary" contribution, and insisted the government's decision was independent.
Labor leader Bill Shorten said he was concerned the government would appoint a bank-friendly Commissioner who would not conduct a thorough review.
"I have grave concerns that [Mr Turnbull] is the most reluctant conscript to a banking Royal Commission I've ever seen," Mr Shorten told reporters in Adelaide.
Move comes as Nationals were set to side with Labor and Greens
The Turnbull Government has long opposed a Royal Commission into the banks, but was facing pressure from some Coalition backbenchers who were preparing to cross the floor over the issue.
The prime minister said he did not "relish" the inquiry, but conceded there was a "sense of inevitability".
Earlier this week, Mr Turnbull said he remained strongly opposed to the idea, saying the existing banking regulators were already taking action on alleged misconduct in the sector.
"We have made it clear that we are not going to establish a Royal Commission, and the reason for that is simply because we want to get on with the job now," he said on Tuesday.
Nationals senator Barry O'Sullivan had been in discussions all week with Coalition colleagues, Labor and the Greens on his bill to set up an inquiry into the banking, superannuation, insurance and financial services sector.
Labor senator Doug Cameron had also given notice of a motion which would give Senator O'Sullivan's bill precedence over all government business, with the expectation that there would have been a vote to approve it next week.
Senator O'Sullivan welcomed the prime minister's announcement.
"I think you've got a prime minister who's listened," he said.
The government has long argued an inquiry would be a waste of money and would take too long to deliver any relief to customers already benefiting from government reforms.
Coalition Senator Matt Canavan last week said a Commission would be a "lawyers' picnic".
