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Media release: Financial Rights response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Final Report.

Tuesday, 5 February 2019

All quotes are attributable to Financial Rights Legal Centre CEO, Karen Cox.

Financial Rights’ overall impression of the Hayne report:

“There is a lot for consumers to love in Hayne’s landmark report including closing many of the regulatory gaps & loopholes, addressing conflicted remuneration, and putting culture, consumer protection and misconduct risk at the heart of both industry self reflection and regulatory oversight.  We are disappointed that some recommendations did not go far enough, such as improving remedies for breaches of responsible lending law and banning junk products.

“We are extremely pleased to see support for improved funding for financial counselling and legal assistance services. These services are vital to even the playing field for consumers when faced with financial industry misconduct. The Government meet this recommendation fully.

“Overall it’s a solid blueprint for reforming a sector that has held consumers in contempt for too long.”

Implementing the final report recommendations:

“We expect bipartisan support for this once in a generation chance at reforming the financial services sector to ensure that the consumer interest, not corporate mega-profits are front and centre of a new regulatory regime.

“Government must implement the spirit of the report – not just implement the recommendations alone.

“Experience has shown us that the lobbying of the banks, insurers and other financial services have watered down previous attempts at reform. That’s a big part of how we have got to where we are. The banks and insurers need to step back to enable Government to put the consumer interest front and centre of any reforms.”

Enforcing self-regulation:

“For far too long, the industry’s approach to self-regulation and compliance have seen their codes as ‘aspirational’, and not minimal benchmarks to lift standards. While we consider industry has little credibility left to effectively self regulate – ensuring that designated provisions of the Codes are enforceable at law and bolstering sanction powers are two important steps that go a long way to improving consumer outcomes.

“It is critical that financial services entities be held accountable to the standards they set themselves.”

Responsible lending – updating the law in line with community expectations:

The Hayne report has gone a long way to recommend a series of strong consumer protections and the closing of a number of loopholes and gaps in the law. We fully support these recommendations as well overdue.

“However we do not believe that the Hayne report has gone far enough with its recommendations with respect to responsible lending laws. While the Hayne report clearly supports recently reported moves by industry to tighten up compliance with responsible lending laws, he has not made any clear recommendations to ensure that these tighter processes remain the norm, beyond general provisions aimed at improving overall regulator performance and industry culture. There are also no recommendations with respect to boosting remedies when Banks do not meet their obligations. This is disappointing. Improving remedies for consumers has the potential to both better remediate customers and provide further incentive for compliance. The regulator, no matter how well empowered and resourced, can never be everywhere at once.”

Regulation – ASIC and toughening the ‘Cop on the beat’:

“The Hayne report has not sought to radically overturn the regulator model. The Commissioner has made a number of recommendations to ASIC’s approach to regulation to strengthen their hand and reign-in the sector. Taking court action as their starting point and recognising that infringement notices are in most cases inappropriate are both sensible and appropriate.

“We are also glad ASIC and APRA will oversee an extended BEAR regime. We expect the government to ensure that ASIC’s budget is increased significantly to build a stronger and more proactive regulator.

“We applaud the Government taking up the Report’s suggestion to extend ASIC’s proposed Product Intervention Powers (PIP) and Design and Distribution Obligations to credit products and other financial products. We have been arguing for this extension for some time and we expect it will help improve responsible lending standards by improving the design of credit products in the first place.”

Conflicted remuneration and best interests duties – Tackling cultural problems:

“The Commissioner has listened to consumers and has made strong recommendation with respect to conflicted remuneration of intermediaries like mortgage brokers.

“Consumer groups have long argued for the introduction of a best interests duty and the full removal of all conflicts of interested and conflicted remuneration. While the report has not called for the complete removal of these – it has made a number of positive recommendations (accepted by the Government) to tackle the most egregious problems including:

  • Requiring mortgage brokers to act in the best interests of borrowers.
  • Removing conflicts of interest between brokers and consumers by banning trail commissions immediately and the staged transition to a fee based model.
  • Ending the ‘grandfathering’ of the conflicted remuneration provisions.
  • Requiring that any grandfathered conflicted remuneration at this date be rebated to clients.
  • Applying the BEAR to all APRA regulated entities.
  • Extending the BEAR from being restricted to financial stability risk to covering: consumer protection; and misconduct and compliance risks, including oversight of remuneration structures.”

Compensation for victims:

“Consumers who have been subject to the worst excesses of the financial services sector have been crying out for a last resort compensation scheme for years. Hopefully with this report they will see it come to fruition and have the opportunity to be remunerated. We support the government extending the scheme beyond disputes in relation to personal financial advice failures and ensuring many of those harmed in the last decade will have access to the scheme.”

Insurance – Sales culture and junk products:

“Some of the most impactful testimony at the hearings was that relating to the despicable sales tactics of the insurers and their agents to incredibly vulnerable consumers. We are therefore pleased that the Government is accepting the Report’s recommendation to remove the ability for insurers to hawk their products on unsuspecting consumers.

“We also support the introduction of deferred sales for add-on products and the capping of commissions. Reviewing commissions in life and general insurance must take place as soon as possible, as recommended by Hayne. We see no justification for retaining these commissions at all.

“Removing the exemption for regulating funeral expenses insurance policies is a small, but important step to address serious systemic exploitation. It is time for this sector to be cleaned up.

“Ensuring ASIC has powers to regulate claims handling too is much needed. Insurers have been getting away with delays and other poor behaviour for far too long.

“We believe that all funeral insurance and other junk products should be banned. The Hayne report does not go this far but we believe that if implemented the recommendations above will go some way at addressing the issues we see on a daily basis on the insurance law service.”

Insurance – Unfair contract terms:

“Insurers have long benefited from an exception to the unfair contracts regime. Removing this glaring exception and ensuring that insurers can no longer include unfair contracts is a win for consumers. We however call on the government to fully implement the Report’s recommendation – that is ensure that the main subject matter is defined as the thing that is being insured. Without this, any regime would be next to useless.”

Financial counselling and legal services:

“Financial Rights is pleased that the government has agreed to undertake a review of funding for the financial counselling sector but must ensure that the legal assistance sector be included in this review as recommended by Hayne. Financial counselling and legal advice and assistance are vital services that need stable and ongoing funding to assist consumers to even the playing field in disputes when they are effected by financial industry misconduct.”

Contact us:

For further information contact Peter Vincent Communications and Campaigns Officer peter.vincent@financialrigths.org.au or 02 8204 1372

About Financial Rights

The Financial Rights Legal Centre is a community legal centre specialising in helping consumers understand and enforce their financial rights, especially low income and otherwise marginalised or vulnerable consumers. We provide free and independent financial counselling, legal advice and representation to individuals about a broad range of financial issues. We operate the Insurance Law Service which provides advice nationally to consumers about insurance claims and debts to insurance companies. Financial Rights also operates the National Debt Helpline, which helps NSW consumers experiencing financial difficulties. Financial Rights took over 25,000 calls for advice or assistance during the 2017/2018 financial year.

Our phone services:

National Debt Helpline 1800 007 007

Insurance Law Service 1300 663 464

Mob Strong Debt Help 1800 808 488

About Karen Cox:

Karen Cox has been involved in the community law movement for nearly three decades and has been the Chief Executive Officer of the Financial Rights Legal Centre (formerly the Consumer Credit Legal Centre) since 2002. She was the first witness called at the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, in May, where she provided an overview of the problems faced by consumers. She is a current member of ASIC’s Consumer Advisory Panel.

A solicitor by training, Karen began at the Campbelltown Legal Centre in 1991, specialising in supporting and assisting vulnerable women, especially in relation to domestic violence and related  issues.

Last updated: February 5, 2019.