07 September 2018

Update on financial services Royal Commission

This article was written by Tim Bednall.

The financial services Royal Commission concluded its fifth round of hearings (superannuation) in August and is conducting its sixth round of hearings (general and life insurance) in September. Barring any extension, the sixth round will be the last sector-specific hearing block, with the Commission’s interim report to be delivered at the end of September, a final policy-focused round of hearings to take place in November and the Commission’s final report to be delivered by 1 February 2019.

The fifth round of hearings was notable for the fact that a number of directors were required to prepare witness statements and attend to give evidence, whereas in previous rounds financial services entities had largely been able to select their own witnesses (often from upper middle management). With this came a focus on how boards of directors are able to be satisfied that the business of their company is conducted lawfully, especially in circumstances where functions of that business are out-sourced or dispersed across a corporate group. This issue is likely to arise again in the final round of hearings in November, where the implementation of the BEAR reforms and responses to APRA’s Prudential Inquiry into the CBA are both potential avenues of inquiry. It is expected that a number of industry chief executives will be summoned to give evidence in that round and it is conceivable that Board chairs may also be called.

While it would be foolish to pre-empt the Commission’s findings, some key, related themes have emerged from the Commission’s work to date. In the March hearings, Mr Hayne identified industry attitudes to “the notion of obedience to the law” as an area of interest. This has continued to be a focus, especially in the Commission’s “fee-for-no-service” case studies. On more than one occasion, Mr Hayne has questioned whether industry participants pay sufficient regard to their strict legal obligations and has raised the possibility that those obligations may be obscured by:

  • a narrow-minded adherence to risk and compliance processes at the expense of legal substance;
  • hollow “customer-centric” marketing jargon setting up expectations at odds with the underlying commercial and legal relationship with customers; and
  • a regulatory regime which is unnecessarily convoluted and which could be boiled down to more basic precepts.
In addition to the focus on “fees for no service”, the Commission has also continued to examine “junk products”, and conflicts of interest (especially in the recent superannuation round).

The Commission is clearly considering whether such problems are fostered by remuneration and incentive structures, and whether the regulators have done an adequate job in responding to identified incidents of misconduct. A real scepticism has been shown to the approach of ASIC in seeking to achieve negotiated outcomes, and, in particular, the acceptance of enforceable undertakings in place of contested litigation. Both the adequacy of existing laws and the effectiveness and ability of regulators to identify and address misconduct are express subjects of inquiry set down in the Commission’s Letters Patent. These issues are likely to be the subject of considerable focus in the final round of hearings in November.

Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    The Federal Government has announced that it will direct the ACCC to conduct a market inquiry into the water markets operating in the MDB.

    06 August 2020

    Further to our alert published on 5 June 2020, the Attorney-General issued a statement on 22 July 2020 confirming that the Commonwealth will not be appealing the decision of Rares J of the Federal...

    24 July 2020

    With flexible working arrangements are on the uptick, some businesses are installing software on employees’ computers to monitor productivity. Organisations considering implementation of...

    17 July 2020

    This article was written by Will Heath. As we noted earlier, in late May, the Federal Treasurer made a welcome and significant change to Australia’s continuous disclosure laws using his COVID...

    07 July 2020

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.