Commonwealth Government announces Royal Commission into misconduct of financial services providers30 November 2017
The Turnbull Government announced today that it will establish a Royal Commission into the alleged misconduct of financial services entities such as Australian Deposit-taking Institutions (banks, credit unions and building societies), insurers (life, general and reinsurance), Australian Financial Services Licensees and authorised representatives, and superannuation funds (excluding self-managed superannuation funds).
The Inquiry will investigate conduct that:
- constitutes an offence against a Commonwealth, state or territory law concerning the provision of a financial service, as at the time of the alleged misconduct
- is misleading and/or deceptive
- indicates a breach of trust/duty or unconscionable conduct, or
- breaches a professional standard or a recognised and widely-adopted (conduct) benchmark
The Commission must inquire into the following matters:
- 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)
- any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations
- 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
- whether any findings concerning the above three matters:
- 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
- result from other practices, including risk management, recruitment and remuneration practices
- the effectiveness of mechanisms for redress for consumers of financial services who suffer detriment as a result of misconduct by a financial services entity
- the adequacy of existing Commonwealth laws and policies (taking into account law reforms announced by the Government) relating to the provision of financial services, the internal systems of financial services entities and 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
- the effectiveness and ability of regulators of a financial services entity to identify and address misconduct by those entities, and
- whether any further changes to the legal framework, practices within financial services entities and the financial regulators are necessary to minimise the likelihood of misconduct by financial services entities in the future (taking into account any law reforms announced by the Government).
The Royal Commission will not inquire into other matters of a prudential nature such as financial stability or the resilience of our banks.
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".
Various industry groups have been quick to respond given the range of the financial services sector that is affected. The Australian Private Equity & Venture Capital Association Limited (AVCAL) issued the following statement to its members about the Commission: "Given the draft terms of reference are very broad – including covering financial services license holders – the private equity and venture capital industry is likely to be within the scope of the Royal Commission".
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. View the draft terms of reference here.