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