SYDNEY (Reuters) - Australia’s ANZ said it would quit paying bonuses to financial planners for selling its products, becoming the country’s first major lender to change business practices in response to a powerful inquiry that has unmasked widespread misconduct in the sector.

FILE PHOTO: A man uses his mobile phone in front of an ANZ bank branch in central Sydney, Australia February 20, 2018. REUTERS/Daniel Munoz/File Photo

The move by Australia and New Zealand Banking Group Ltd highlights how the Royal Commission has started to refashion an industry central to the world’s 12th largest economy, just three months into what is scheduled to be a year-long run.

“The world of financial services, particularly for individuals, will look very, very different in two years’ time,” said Michael McCarthy, chief strategist at CMC Markets.

“The Royal Commission is playing a key part in it.”

The barrage of banking headlines continued on Monday with Commonwealth Bank of Australia hit by a cut to its ratings outlook that cited potential ramifications from the Royal Commission and other inquiries as a key factor. The industry’s regulator also gave its first restricted license to an online bank which aims to take on the sector.

And in the past month, AMP Ltd, Australia’s biggest wealth manager, has seen its CEO and chairman depart over allegations aired in the inquiry that it charged fees for financial advice without actually giving it.

The judge-led inquiry reports back to the government with recommendations in early 2019, but the industry’s biggest players are already scrambling to control the fallout.

ANZ’s decision to scrap sales bonuses for financial planners came after witnesses employed by the company told the inquiry 5 percent of the bank’s financial planning product sales were deemed inappropriate.

“We know it has taken too long for changes to occur, so where we see solutions we will act,” Chief Executive Shayne Elliott said in a statement, which did not mention the Royal Commission.

“That is why we are getting on with these initiatives now.”

By comparison, the UK banned commission-based advice by financial advisers in 2012 in an upheaval dubbed “death of the salesmen” at the time.

“The removal of remuneration that both is conflicted, or that is perceived to be conflicted, is a positive step,” Dante De Gori, chief executive of the Financial Planners Association of Australia, said in an email.

Moves in the United States to shift to fee-based advice for retirement accounts, which began in 2017, from commission-based advice are currently being challenged in the courts.

CBA SEEN AT MORE RISK

ANZ’s action comes as many of Australia’s big lenders are cutting back their exposure to financial planning - part of a sectorwide push to simplify business structure and reduce exposure to a highly competitive market.

ANZ is selling most of its planning businesses to IOOF Holdings Ltd, while CBA and National Australia Bank are seeking to exit from wealth management.

Westpac Banking Corp is the only “big four” lender without plans to sell out of wealth management, reaffirming its commitment to its unit at an earnings call on Monday.

But Westpac, which posted a better-than-expected profit in the first half, also warned it expected to sell fewer mortgages, saying tighter lending standards would squeeze growth. That echoes predictions of slower revenue growth in the wake of the inquiry by ANZ last week.

CBA, Australia’s biggest lender, saw Fitch Ratings cut its issuer default rating for the bank to “negative” from “stable”, citing the risk that it may be hit with tougher regulations than its peers.

In addition to the Royal Commission, CBA is facing a federal lawsuit accusing it of more than 50,000 breaches of anti-money laundering protocols. The Australian Prudential Regulatory Authority (APRA) has forced the bank to carry an extra A$1 billion in cash provisions as punishment.

“We believe the initially identified shortcomings of CBA, being risk appetite as well as management and strategy, are more widespread than we had incorporated into the previous assessment of these factors,” Fitch said in a statement.

In another blow to the status quo, APRA granted online-only lender volt bank Ltd the country’s first “restricted authorised deposit-taking institution” license as part of a push to encourage competition in the sector.

The license lets volt, founded by former staffers at Barclays and Westpac subsidiary St George, test its platform and gather A$2 million ($1.5 million) in deposits while it works on getting a full banking license.

“The trust between many Australians and their banks has been broken and the path to repair starts with new market entrants who are willing to do things differently,” volt CEO Steve Weston said in a statement.