The Australian Government has established a Royal Commission into the alleged misconduct of Australia’s banks and other financial services entities.
In a media release on the Government’s website, the Prime Minister and Treasurer said, “our approach to banking and financial services reform has focussed on ensuring that our financial system is resilient, efficient and fair” and that the Royal Commission will “further ensure our financial system is working efficiently and effectively”.
What kinds of institutions will be affected by the Royal Commission?
The Inquiry will consider the conduct of banks, insurers, financial services providers and superannuation funds (not including self-managed superannuation funds). There has been speculation that due to the broad nature of the draft terms of reference, the private equity and venture capital industry is likely to also be within the scope of the Royal Commission.
The commission will also consider how well equipped regulators are to identify and address misconduct, and the recent media release states that the Government has “significantly bolstered the Australian Securities and Investments Commission’s powers and resources”.
Terms of Reference
As per the draft terms of reference released in December 2017, the Commission must inquire into the following matters;
a) the nature, extent and effect of misconduct by a financial services entity (including by its directors, officers or employees, or by anyone acting on its behalf);
b) any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations;
c) the use by a financial services entity of superannuation members’ retirement savings for any purpose that does not meet community standards and expectations or is otherwise not in the best interest of members;
d) whether any findings in respect of paragraphs 1(a), (b) and (c):
i. are attributable to the particular culture and governance practices of a financial services entity or broader cultural or governance practices in the industry or relevant subsector; and
ii. result from other practices, including risk management, recruitment and remuneration practices;
e) the effectiveness of mechanisms for redress for consumers of financial services who suffer detriment as a result of misconduct by a financial service entity;
f) the adequacy of:
i. existing laws and policies of the Commonwealth (taking into account law reforms announced by the Government) relating to the provision of financial services;
ii. the internal systems of financial services entities; and
iii. forms of industry self-regulation, including industry codes of conduct; to identify, regulate and address misconduct in the industry, to meet community standards and expectations and to provide appropriate redress to consumers and businesses;
g) the effectiveness and ability of regulators of a financial services entity to identify and address misconduct by those entities;
h) whether any further changes to:
i. the legal framework;
ii. practices within financial services entities; and
iii. the financial regulators
are necessary to minimise the likelihood of misconduct by financial services entities in future (taking into account any law reforms announced by the Government); and
i. any matter reasonably incidental to a matter mentioned in the above paragraphs, 1(a) – 1(h).
Click here to view the full draft terms of reference
Key takeaways
The Government has decided to establish this Royal Commission to ensure that Australians are treated honestly and fairly in their dealings with banking, superannuation and financial services providers, with a view to being able to better resolve customer complaints, boosting banking and financial services competition for the benefit of customers and creating a framework to hold banking executives accountable for their actions.
The Inquiry is due to run for 12 months with the interim report to be delivered by September 2018 and the final report by February 2019.
