* Inquiry expected to recommend sweeping reforms of retail banking
* Australia bank shares down A$60 bln since inquiry start
* Financial regulation likely to play into May election
By Byron Kaye
SYDNEY, Feb 4 (Reuters) - The Australian government is due to release on Monday the final recommendations of the independent inquiry that exposed systemic wrongdoing in Australia's financial sector last year, likely leading to sweeping changes to the country's banking industry.
The big banks, insurers, pension funds and regulators who oversee the financial industry are bracing for a brutal summary of their misdeeds and weaknesses, and a list of tough recommendations including possible criminal charges.
The Royal Commission was a quasi-judicial independent body led by a former high court judge that was tasked by the government, reluctantly at first, with investigating financial sector misconduct following a string of banking scandals.
For 11 months its public hearings shocked the country and wiped more than A$60 billion ($43.4 billion) from the country's top financial stocks as investors factored in the prospect of tougher regulation, higher compliance costs and thinner margins.
Regulators were also grilled by the commission's barristers about why they seemed reluctant to crack down on wrongdoing and closed investigations with little more than a mildly worded press release.
"There will be nothing positive in the recommendations because the banks have clearly breached various obligations in the laws, and obligations to good customer service," said Matthew Wilson, a banking analyst at Deutsche Bank (DE:DBKGn).
The Royal Commission cannot directly order prosecutions or penalties. Rather, it will deliver a list of recommendations for the government to consider.
Among other things, analysts expect the inquiry will recommend tougher enforcement of responsible lending laws, an end to certain conflicted commissions paid to financial advisors, and limits to executive bonuses.
Its report will likely hang over an election campaign expected in May. The centre-left Labor party, which most polls expect will win, says it expects to adopt all the recommendations.
Conservative Prime Minister Scott Morrison, who initially dismissed opposition calls for a banking inquiry as a "populist whinge", has said he also expects to take up most of the recommendations.
But he has warned against overreaching and cutting off credit flows, a likely battle-line for the government as it fights for electoral survival. DONE
Though the final report goes public around 0510 GMT, the inquiry has already pushed out executives and prompted billions of dollars of customer remediation payments.
The most affected company, by headcount, has been financial planner AMP Ltd AMP.AX , which saw its CEO, chairwoman, chief lawyer and three directors leave following evidence its board doctored a supposedly independent report to a regulator.
AMP's shares have more than halved, the biggest decline among the large institutions, amid concerns about retirees pulling funds from the 170-year-old firm. The company, which has denied wrongdoing, issued a profit warning on Jan. 25. "Big Four" banks - Commonwealth Bank of Australia CBA.AX , Westpac Banking Corp WBC.AX , Australia and New Zealand Banking Group ANZ.AX and National Australia Bank NAB.AX - plus AMP have already committed to pay more than A$2 billion to wronged customers.
"What will the business look like going forward?" said Sean Sequeira, chief investment officer at Alleron Investment Management.
"Will it just be an infrastructure-style stock without any growth going forward, hampered by regulation? It's quite possible." ($1 = 1.3822 Australian dollars)
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