Kenneth Hayne's Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, brings into play ideas surrounding collective humanistic values and goals, and natural law principles based on commonly understood ethics and moral standards.
In his introduction, Hayne notes that the central task was to report on 'whether any conduct of financial services entities might have amounted to misconduct and whether any conduct, practices, behaviour or business activities ... fell below community standards and expectations'. The conduct identified and described in the report has often 'broken the law. And if it has not broken the law, the conduct has fallen short of the kind of behaviour the community not only expects of financial services entities but is also entitled to expect of them' (emphasis mine).
What is striking about the report is how the banking, superannuation and financial services industry has dehumanised consumers, particularly marginalised consumers, and those individuals within the industry providing the services at the frontline. Greed and self-interest — whether at a corporate or individual level — motivated much of the misconduct detailed in the report.
Some of the worst examples, from the multitude of cases surveyed, include the charging of 'fees for no service' (deducting fees from consumer accounts, including superannuation fund accounts, for services that were not received, including fees charged to deceased customers for life insurance); one of the Big 4 banks selling 'junk insurance' products to tens of thousands of customers, including dole recipients; and Indigenous people and people from lower socio-economic groups being subjected to high-pressure selling of 'junk insurance' or funeral products, and high-interest loans.
Meanwhile, rural customers had the terms of their loans amended without notice or consultation, their properties revalued or foreclosed and subjected to forced sales without due consideration of their specific circumstances (such as the timing of key harvests); and problem gamblers or those suffering lingering credit card debt were offered credit limit increases or additional cards.
The report outlines a staggering 76 recommendations arising out of the inquiry. Some of the more critical recommendations for retail consumers, particularly marginalised consumers, include the following.
Mortgage brokers: a new 'best interests duty'
At present, mortgage brokers are generally remunerated by way of an upfront commission from a lender as well as a trail commission based on the size of the relevant loan, giving rise to conflicts of interest between brokers and the consumers they ostensibly act for. The report recommends a new duty for mortgage brokers to act in the best interests of borrowers (any breach being made subject to a civil penalty) and that trail commissions and other inappropriate forms of lender-paid commissions should be banned on new loans over the next two to three years.
"The report offers hope for the next generation of banking, superannuation and financial services consumers, but no guarantee that a more human-centred industry will emerge out of the royal commission bonfire."
The report also recommends that mortgage brokers be regulated by the law applicable to financial advisers.
Annual review of ongoing fee arrangements
The report recommends that the law should be changed to provide that ongoing fee arrangements (whenever made) must, among other things, be renewed annually by the client.
Superannuation
The report recommends that deduction of advice fees from a MySuper account should be prohibited, that the hawking (the unsolicited offer or sale that is not initiated by the target) of super products to retail consumers should be banned, and that new employees should have only one default super fund account. However, the legislative machinery for 'stapling' a person to a single default account has yet to be developed.
Insurance
Consistent with the recommended prohibition against the hawking of super products, the report recommends prohibition of the hawking of insurance products. Regarding life risk insurance products, the report also recommends commissions be ultimately reduced to zero and that commissions relating to general insurance products and consumer credit insurance products be reviewed.
The report recommends that the law should be amended to bring funeral expenses policies within the definition of 'financial product' in the Corporations Act 2001 (Cth) and to clarify that the consumer protection provisions of the Australian Securities and Investments Commission Act 2001 (Cth) apply to those policies.
It also recommends that the corporate regulator, ASIC, should impose a cap on the amount of commission that can be paid to car dealers for the sale of any add-on insurance products (except policies of comprehensive motor insurance) and that this should be implemented as soon as is reasonably practicable.
Establishment of a 'compensation scheme of last resort'
The report recommends that a compensation scheme of last resort (CSLR) be created for financial services consumers who suffer detriment as a result of misconduct by financial services entities, to be funded by financial services licensees. The CSLR should be targeted to cover services where there is clear evidence of recurrent problems with uncompensated losses.
Recommendations vital to rural consumers
Importantly, for rural consumers often subjected to forced sales without regard to their specific circumstances, the report recommends that valuations of agricultural land taken as security should be independent of loan origination, loan processing and loan decision processes, and be done in a manner that will recognise (to the extent possible) the likelihood of external events affecting that land's realisable value, and the time that may be taken to realise the land at a reasonable price.
The report further recommends that the Banking Code should be amended to provide that, while a declaration remains in force, banks will not charge default interest on loans secured by agricultural land in an area declared to be affected by drought or other natural disaster.
In addition, when dealing with distressed agricultural loans, the report recommends, among other things, that banks should ensure that those loans are managed by experienced agricultural bankers, offer farm debt mediation as soon as a loan is classified as distressed, recognise that appointment of receivers (or any other form of external administrator) is a remedy of last resort, and cease charging default interest when there is no realistic prospect of recovering the amount charged.
The report further recommends the establishment of a comprehensive national scheme for farm debt mediation. Currently only New South Wales, Victoria, Queensland and South Australia have legislated farm debt mediation schemes in place, while Western Australia operates a voluntary scheme.
More inclusive practices for Aboriginal and Torres Strait Islander (ATSI) and remote consumers
While not the subject of a specific recommendation, Hayne commented on the importance of continuing to develop innovative solutions to address barriers to access to financial services for ATSI people and others living in remote areas. In doing so, he referred specifically to the CBA's Indigenous Customer Assistance Line, and how it provides support for geographically isolated ATSI customers in 90 remote communities by providing free balance inquiries, replacement cards, access to funds and other general support.
While the Treasurer has declared that a Morrison government would 'take action on all 76 recommendations' and his Labour counterpart has declared 'in principle' Labour support for the recommendations, it remains to be seen whether all or any of the recommendations will be implemented. The report offers hope for the next generation of banking, superannuation and financial services consumers, but no guarantee that a more human-centred industry will emerge out of the royal commission bonfire.
R. P. Lim is a published author, editor, legal commentator and diversity advocate with a background in commercial law, and has written extensively on tech trends, fintech, sustainability, financial services and digital skills.
Main image: Robert Cianflone/Getty Images