Gilbert + Tobin's roundup of the Royal Commission

Law firm Gilbert + Tobin summarise the findings of the Hayne Royal Commission final report.

Regulators:

14 recommendations

• Increased use of litigation as enforcement strategy.
• Retention of the “twin peaks” model of prudential (APRA) and conduct (ASIC) regulation.
• No material changes to ASIC’s remit. Independent oversight body to review regulators.

Remuneration, culture and governance:

7 recommendations

• Remuneration structures perceived as a key limb of the root causes of misconduct.
• No mandated changes to remuneration models, but annual reviews by entities and more active oversight by APRA recommended.

Consumer lending:

8 recommendations

• No changes to the responsible lending framework, including the use of assessment benchmarks such as the Household Expenditure Measure (HEM).
• Significant changes to the mortgage broker industry, including the introduction of a “best interests” duty, abolition of trail commissions, and requiring the borrower, not the lender, to pay a broker’s fees.
• Removal of the point-of-sale exemption to responsible lending laws for retail dealers in the auto finance industry.

Small business lending:

8 recommendations

• Change the definition of small business to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million. No changes to the way guarantees are taken or enforced.
• The National Consumer Credit Protection Act should not be extended to small business lending.

Financial advice:

10 recommendations

• Reform ongoing advice fee arrangements – annual “opt in”. “Fee for no service” issues heavily criticised.
• Review and repeal of exceptions to prohibitions on conflicted remuneration.
• No mandated structural separation of vertically integrated financial services firms recommended.

Superannuation:

9 recommendations

• No prohibition on retail superannuation funds or structural separation between product manufacturers and distributors.
• Prohibit “dual regulated entity” structures (where one entity is a superannuation trustee and MIS responsible entity).
• Significant restrictions on deduction of advice fees and unsolicited sales practices.

Insurance:

15 recommendations

• Expansion of anti-hawking provisions.
• Application of unfair contracts regime to insurance, and removal of claims-handling exemption from section 912A of the Corporations Act.
• Tighten life insurance avoidance provisions. Deferred sales model for add-on insurance.

Other:

5 recommendations

• Financial services laws should be simplified and identify “fundamental norms” of behaviour.
• Require regulator approval for all industry codes.
• Establish compensation scheme of last resort.