Written by Blair Campbell, Senior Associate, Commercial Litigation
Australians have long had a love-hate relationship with their banks, but the honeymoon is over following the shocking revelations exposed during the hearings conducted by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
On Monday 4th February 2019, the Treasurer the Hon. Josh Frydenberg provided the Federal Government’s response to the report. The Treasurer needed to walk the tightrope of addressing the substantial deficiencies in the financial sector’s behavior, while not wanting to spook the financial sector and completely cut off the flow of credit. The highlights of the Government’s response are:
- The Government would accept all 76 recommendations of the Royal Commission
- The Government’s response would come under four broad categories:
- Expanding protections for individuals, small business and remote and rural customers
- Increasing accountability in the financial sector
- Enhancing the effectiveness of regulatory bodies, and
- Providing remediation for those harmed.
- Some more specific measures under these headings included the following:
- The imposition of a ‘best interests’ test for brokers
- Trailing commissions and volume bonuses to be reviewed in 18 months
- New superannuation customers to have only one account
- Prohibiting hawking for superannuation and insurance products
- Banning the sale of add-on insurance products – with the Treasurer citing the example of screen protection insurance being sold with mobile phones
- There was focus on the rural sector and agricultural loans with the following mentioned:
- A national farm debt mediation scheme
- No default interest on farm loans when a disaster has been declared
- Distressed agricultural loans to be managed by people with agricultural experience
- Receivers to be appointed to farms as a last resort
- Valuation of farm properties to be independent
- Bank board members and senior executives to be held personally responsible for the conduct of institutions under their control with the Bank Executive Accountability Regime (BEAR) to be expanded to insurance and superannuation.
- The government’s current bill to extend civil penalties to directors of superannuation funds will be expanded to also include fund trustees
- Oversight of financial advisors to be strengthened, with better reporting and a single regulatory body
- A new Chair and two Deputy Chairs have been appointed to ASIC, and more resourcing being provided
- A three-person oversight body for APRA and ASIC is to be established, with that body reporting directly to parliament
- The Federal Court, rather than each State Court, is to handle corporate criminal misconduct
- A compensation scheme of last resort is to be established to ensure that compensation orders made by AFCA are paid
- A task force will be established within Treasury to implement all of the measures.
- The Treasurer thanked the Commissioner for his work, and emphasized that, while the financial sector is vitally important to the country, misconduct cannot be tolerated.
- Several questions focused on the credit squeeze and queried what impact this response was likely to have. The Treasurer replied that he believed this would end any uncertainty in the sphere, and borrowers would benefit from knowing that the institutions they were dealing with were worthy of their trust.
Having been reluctant to commence the Royal Commission the Government has responded to it positively. Only time will tell whether the proposed new measures will create the type of financial system that Australia wants, and deserves, or whether the financial sector will loosen the purse-strings, or clamp down again, further damaging a weakened property sector.
This article is the first in a two-part series on the Royal Commissions findings.