Are you in the mortgage sector, insurance, banking or superannuation sector, a third party claims provider or provider of funeral expense policies, an intermediary or financial adviser, a credit provider or a motor vehicle dealer? If so, these reforms will impact on your business.

On 19 August 2019, the Australian Treasurer, The Hon Josh Frydenberg MP, announced the Government’s intended legislative response to the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. When releasing the Government’s ‘Implementation Roadmap’ the Treasurer described it as “a reform package that represents the largest and most comprehensive corporate and financial services law reform process since the 1990s when the Corporate Law Economic Reform Program began”.

The Treasurer announced that the Government has 24 separate work streams underway to implement the 76 Hayne reforms and an additional 18 Government reform initiatives involving 44 primary or subordinate law amendments to 15 different Acts and Regulations.

Restoring Trust in Australia’s Financial System Financial Services Royal Commission Implementation Roadmap August 2019 sets out the Government’s intentions:

• by the end of this year: more than 20 commitments to have been implemented or have legislation before the Parliament
• by mid-2020: more than 50 commitments to have been implemented or have legislation before the Parliament, and
• by the end of 2020: the remaining Royal Commission recommendations requiring legislation will have been introduced.

Implications for financial services and credit services sector

The Roadmap addresses three specific areas: Government Implementation Plan, Regulator Implementation Plan and Industry Implementation.

During this period there will be significant additional workload imposed on in-house counsel and compliance managers as the implications of each reform and the changes to protocols and procedures are worked through. It will also require input from product areas with changes to product elements, will impact on distribution channels and remuneration practices and will also require a rewrite of many insurance documents. Australian Financial Services (AFS) licences may be required for previously exempt providers and a new regulator is to be created.

If you were in the industry when the Corporate Law Economic Reform Program (CLERP) reforms were introduced, you will understand the implications of working through so many different issues at once and how reforms can impact on so many different areas of the business simultaneously. This is a time when legal project management and specialist teams are needed to take the pressure off internal teams already under stress dealing with day-to-day issues.

Translating law into practice is not as easy as Government Ministers and Regulators believe

We know the reforms are coming. It is not too soon to start working on an implementation timetable to match the Government's now we know which areas are going to have priority.

Our specialisation in the financial services sector has produced a number of very experienced senior practitioners who have worked in this reform environment before. This insight can help project teams work through these reforms in a methodical, practical and efficient way.

If you need help in working through the many reforms, please contact us. 

Implementation timetable

Legislation to be consulted on and introduced by end-2019

Measures to improve consumer protections

• Recommendation 1.2 – Mortgage broker best interests duty.
• Recommendation 1.3 – Mortgage broker remuneration.  
• Recommendation 2.4 – Ending grandfathered commissions for financial advisers (legislation introduced on
  1 August 2019).
• Recommendation 4.2 – Removing the exemptions for funeral expenses policies.
• Recommendation 4.7 – Application of unfair contract terms provisions to insurance contracts.
• Recommendation 4.8 – Removal of claims handling exemption for insurance.

Measures to strengthen financial regulators

• Additional Commitment – ASIC’s search warrants powers (ASIC Enforcement Review).
• Additional Commitment – ASIC’s telecommunications interceptions powers (ASIC Enforcement Review).
• Additional Commitment – ASIC’s licensing powers (ASIC Enforcement Review).
• Additional Commitment – ASIC’s power to ban people in the financial sector (ASIC Enforcement Review).

Legislation to be consulted on and introduced by 30 June 2020

Measures to improve consumer protections

• Recommendation 1.7 – Removal of point-of-sale exemption.
• Recommendation 1.15 – Enforceable code provisions for industry codes of conduct.
• Recommendation 2.1 – Annual renewal and payment for financial advice.
• Recommendation 2.2 – Disclosure of lack of independence of financial advisers.
• Recommendation 3.1 – No other role or office for trustees of RSE.
• Recommendation 3.2 – No deducting advice fees from MySuper accounts.
• Recommendation 3.3 – Limitations on deducting advice fees from choice superannuation accounts.
• Recommendation 3.4 – No hawking of superannuation products.
• Recommendation 4.1 – No hawking of insurance products.
• Recommendation 4.3 – Deferred sales model for add-on insurance.
• Recommendation 4.4 – Cap on commissions paid to vehicle dealers for sale of add-on insurance products.
• Recommendation 4.5 – Duty to take reasonable care not to make a misrepresentation to an insurer.
• Recommendation 4.6 – Limiting circumstances where insurers can avoid life insurance contracts.
• Recommendation 4.8 – Removal of claims handling exemption.
• Additional commitment in response to Recommendation 4.2 – Restricting use of the term ‘insurer’ and ‘insurance’.

Measures to strengthen financial regulators

• Recommendation 1.6 – Reference checking and information sharing for mortgage brokers.
• Recommendation 2.7 – Reference checking and information sharing for financial advisers.
• Recommendation 2.8 – Licensee obligations to report compliance concerns.
• Recommendation 2.9 – Licensee obligations where misconduct by financial advisers.
• Recommendation 3.8 – Adjustment of APRA’s and ASIC’s roles in superannuation.
• Recommendation 6.3 – General principles for ASIC and APRA to co-regulate superannuation.
• Recommendation 6.4 – ASIC as conduct regulator for superannuation.
• Recommendation 6.5 – APRA to retain current functions for superannuation.
• Recommendation 6.9 – Statutory obligation for APRA and ASIC to co-operate and share information.
• Recommendation 6.14 – A new oversight authority for APRA and ASIC.
• Recommendation 6.11 – Improving ASIC’s Board meeting procedures.
• Recommendation 7.2 – Implementing the ASIC Enforcement Review Taskforce’s recommendations to improve the breach reporting regime.

Legislation to be consulted on and introduced by end-2020

Access to redress and new disciplinary body

• Recommendation 2.10 – A new disciplinary system for financial advisers.
• Recommendation 7.1 – Compensation scheme of last resort.

Measures to strengthen financial regulators − executive accountability regime

• Recommendation 3.9 – Extending the Banking Executive Accountability Regime (BEAR) to RSE licensees.
• Recommendation 4.12 – Extending the BEAR to APRA-regulated insurers.
• Recommendation 6.6 – Joint administration of the BEAR.
• Recommendation 6.7 – Statutory amendments to facilitate co-regulation.
• Recommendation 6.8 – Extending the BEAR to all APRA-regulated financial services institutions.
• Additional commitment – extension of the executive accountability regime to non-prudentially regulated financial entities to be administered by ASIC.