The Banking Royal Commission's Recommendations in a Nutshell

The banking royal commission’s hefty final report contained 76 recommendations designed to shake up Australia’s banking, superannuation, insurance and financial advice sectors.

It followed 68 days of public hearings, 134 witnesses and more than 10,000 public submissions.

Here’s a whistle-stop guide to some of the key recommendations contained in Commissioner Kenneth Hayne’s final report which became public on Monday 4 February 2019.

Mortgage brokers

The report cracked down on Australia’s $1.6 trillion mortgage market, recommending that a “best interest duty” for mortgage brokers be introduced. This would mean mortgage brokers would need to act in the best interests of borrowers and if this was breached, brokers could face a civil penalty.

To address conflicts of interest, Commissioner Hayne recommended that the borrower, not the lender, should pay the mortgage broker. Hayne proposed that commissions be banned over a period of two or three years.

Firstly, the report recommended a ban on lenders paying trail commissions to brokers – that is, where an annual fee is paid over the life of a product – and secondly, a ban on lenders from paying commissions to brokers altogether. In response, the government has indicated it will ban lender-paid commissions from 1 July, 2020.

Next, the report recommended that mortgage brokers be subject to and regulated by the same law that applies to financial advisers. The reason for this, Hayne explained, is that consumers go to mortgage brokers for home loan advice, so they should be treated in the same way as financial advisers.

Financial advice

One of the biggest scandals uncovered by the banking royal commission was the charging of fees for no service to clients. Notably, the Commonwealth Bank of Australia subsidiary Count Financial was found to have charged fees to a customer who had been dead for over a decade. Off the back of this, Commissioner Hayne recommended that ongoing fee arrangements be renewed annually by the client and that clients be told each year what services they’ll be entitled to receive and the total fees that will be charged.

To further tackle conflicts of interest, the report proposed that financial advisers be legally required to disclose any lack of independence to clients and clearly explain to clients why they’re not independent, impartial and unbiased.

In terms of life insurance products, the report recommended commissions be ultimately reduced to zero. It also recommended general insurance and consumer credit insurance commissions be reviewed.

Commissioner Hayne also recommended a new approach to regulating and disciplining financial advisers. He proposed that each financial adviser be individually registered and that a new disciplinary body be established.

Super

Addressing Australia’s $2.6 trillion super industry, the report has recommended banning MySuper accounts from charging advice fees and limiting advice fees for choice accounts.

In his report the Commissioner said he agreed with the Productivity Commission that default super accounts should only be created for new workers or those who don’t have an existing super account and noted that around 40% of Australians held more than one account as at June 2017.

To combat this, the report recommended that each person should only have one default super account and a mechanism should be developed to ‘staple’ a person to a single default account.

Further, the report suggested banning “hawking” (aka unsolicited selling) of super products.

The report also shone the spotlight on super trustees and recommended that they be banned from “treating employers”, that is doing anything that may influence an employer to nominate the trustee’s super fund as the default fund for their employees.

In addition, it recommended the Banking Executive Accountability Regime (BEAR), a scheme which makes senior bank executives responsible for specific activities carried out by their institution, be extended to super trustees.

Insurance

During the royal commission hearings, it was revealed that life insurer ClearView cold called people over 300,000 times, targeted lower socio-economic groups and even sold people insurance without their clear consent.

Commissioner Hayne has recommended banning hawking of insurance products and amending the law so that funeral expenses policies are no longer exempt from the legal definition of a “financial product”.

It has also been recommended that ASIC impose a cap on the amount of commissions that can be paid to car dealers in relation to the sale of add-on insurance products.

Regulators

ASIC and APRA were heavily criticised during the investigation for failing to punish misconduct and impose penalties. The final report has referred 24 cases of misconduct to the regulators for further investigation, with all major banks except Westpac being named.

Commissioner Hayne has recommended that the current “twin peaks” financial regulation model be maintained but said there should be a clearer distinction between the roles of the two regulators.

Hayne also recommended that a new oversight authority be created to assess the effectiveness of ASIC and APRA. He said this independent authority is to be made up of three part-time members and a permanent secretary.

Other recommendations

Commissioner Hayne has additionally recommended that a compensation scheme of last resort be created.

In response, the government has stated it intends to pay $30 million in compensation owed to almost 300 consumers and small businesses for the unpaid determinations of the Financial Ombudsman Service and the Credit and Investments Ombudsman.

Image Source: Krasula (Shutterstock)

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