Banking royal commission: Key recommendations

At a glance | These are the Hayne royal commission’s key recommendations.

A copy of the Royal Commission report. Picture: Mick Tsikas/AAP

After seven rounds of public hearings over 68 days, financial services royal commissioner Kenneth Hayne last week handed his final report to the government. Treasurer Josh Frydenberg released the report to the public on Monday.

These are its key recommendations.

Banking

• Mortgage brokers: Required to act in the best interests of the intending borrower, not the bank providing the loan.
• Mortgage brokers: should be subject to the same laws financial advisers must adhere to when advising clients.
• Remuneration: Borrowers, not lenders to pay mortgage broker fees. Lenders to be banned from paying trail commission to mortgage brokers.
• Misconduct by mortgage brokers: Australian Credit Licence holding brokers should be subject to the same sharing and reporting procedures as financial advisers, and be subject to the same processes of informing telling and remediating clients if misconduct is discovered.

Financial advisers

• Annual renewal and payment: Amend laws to ensure ongoing fee arrangements must be reviewed annually by clients, with a written record of service provided and what fees will be paid.
• Review: In three years, a review by the Government and ASIC of the effectiveness of measures implemented to improve the quality of financial advice.
• Conflicts: Grandfathered provisions of conflicted remuneration should be repealed as soon as possible.
• Life risk insurance commissions: When ASIC conducts its review of conflicted remuneration relating to life risk insurance products, the cap on commissions should be reduced, ultimately to zero.
• AFSL licensees: All AFSL holders should be required to report ‘serious compliance concerns’ about individual financial advisers to ASIC on a quarterly basis.
• Disciplinary system: A new disciplinary system requiring all financial advisers who provide personal financial advice to retail clients to be registered; a single, central, disciplinary body; and serious compliance concerns reported to that body. It should also allow clients and other stakeholders to report information about the conduct of financial advisers to that disciplinary body.

Superannuation

• MySuper: No deducting advice fees from MySuper accounts
• Advice fees: Advice fees for non My-Super accounts prohibited in most cases.
• Choice accounts: Limits on deducting advice fees from choice accounts
• No hawking: Ban the unsolicited offer or sale of superannuation except to those who are not retail clients and except for offers made under an eligible employee share scheme.
• One default account: A single “default” super account for all workers, and the machinery or technology to “staple” a person to a single default account
• Penalties: Civil penalties for breach of covenants and like obligations
• Regulators: Adjust APRA and ASIC’s roles to increase accountability.

Regulation

• New authority: the “twin peaks” model of financial regulation should be retained, but with ASIC and APRA overseen by a new authority to ensure they are doing their jobs.
• Enforcement: ASIC should overhaul its approach to enforcement with a starting point of focusing on court action rather than infringement notices.
• Reporting: ASIC should expand its annual reporting of breaches to name companies as well as the type of breach.
• Roles: The roles of APRA and ASIC in relation to superannuation should be adjusted so APRA is responsible for establishing and enforcing Prudential Standards ensuring financial promises made by superannuation entities APRA supervises are met. ASIC’s role in superannuation primarily concerns the relationship between RSE licensees and individual consumers.
• Collaboration: The law should be amended to oblige each of APRA and ASIC to co-operate with each other, share information and notify the other whenever it forms the belief that a breach in respect of which the other has enforcement responsibility may have occurred.

Insurance

• Sales: Hard sells of insurance products banned.
• Funerals: Funeral expense insurance policies should be defined as a financial product, to bring it under the watch of ASIC.
• Commissions: Cap commissions that can be paid to car sellers for add-on insurance products.

Culture, governance and remuneration

• Front line: Annual revision and review of design and implementation of remuneration systems for front line staff to ensure that the design and implementation of those systems focus on not only what staff do, but also how they do it.
• Assessment: All financial services entities should, as often as reasonably possible, assess their culture and its governance, deal with any problems and determine if effective changes have been made.

Compensation

• Last resort: There should be a “compensation scheme of last resort” for those unable to be compensated by their institution.