Banking Royal Commission: no commissions, no exemptions, no fees without permission. Hayne gets the government to do a U-turn



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The government is acting on all 76 of Justice Hayne’s recommendations.
Peter Martin, CC BY-SA

Peter Martin, The Conversation

Treasurer Josh Frydenberg was glossing over history when he said the final report of the banking royal commission “endorsed many of the themes and individual reforms the government is currently pursuing”.

In fact, on coming to office in late 2013, his government – through Finance Minister Mathias Cormann – did the opposite.

Instead of extending provisions in the law that financial service providers act in the “best interests” of their clients, it tried to remove them, pressing Senate independents to have them excised from the at-the-time unimplemented Future of Financial Advice Act.




Read more:
Six questions our banks need to answer to regain trust


It argued there would be greater certainty if advisers were merely required to fulfill a number of specific requirements rather than to act in the overall best interests of their clients.

It’s a checklist approach Justice Kenneth Hayne dismisses, saying it has encouraged advisers to pursue a “good enough” outcome “instead of the best interests of the relevant clients or members”.

“The more complicated the law, the harder it is to see unifying and informing principles and purposes,” the report says. “Exceptions and limitations encourage literal application and focusing on boundary‑marking and categorisation.”

What’s important is that the intent of the law is met, “rather
than merely its terms complied with”.

Hayne wants laws rewritten to draw explicit connections between their requirements and what they are trying to achieve.

Such rewriting will make it clear that “exceptions and carve outs like grandfathered commissions constitute a departure from applying the relevant fundamental norm”.

The Coalition fought hard to allow financial advisers to continue to receive some grandfathered commissions – commissions their customers were signed up to before laws outlawing commissions came into place.

Hayne wants all grandfathering to go “as soon as is reasonably practicable”.


Read the response: Government Response to Royal Commission final report


Frydenberg has agreed. From January 1, 2021 all grandfathering will go, and any previously grandfathered payments to advisers from clients accounts will be handed back to clients where they can reasonably be identified.

Ongoing fees taken from clients accounts will need to be specifically reauthorised each year, a proposal neither the Coalition nor Labor put forward in negotiations over the Future of Financial Advice Act, settling on reauthorisation every two years in order to avoid paperwork.

Frydenberg has accepted the recommendation, without a start date.

Hayne wants all commissions to mortgage brokers banned so that the borrower, not the lender, pays the broker a fee.

He wants the changes made over a period of two or three years, first by banning so-called annual trailing commissions that last the length of the loans, and then by banning upfront commissions.

Frydenberg will ban trailing commissions from July 1, 2020 and will ask the Council of Financial Regulators and the Australian Competition and Consumer Commission to review in three years’ time the implications of moving to full consumer-pays.

Hayne’s point is that buyers of financial products of all types often assume the person standing between them and the provider is acting in their interests. They need not be when they are being paid by the provider.

The interests of client, intermediary and provider of a product or service are not only different, they are opposed.

An intermediary who seeks to stand in “more than one canoe” cannot. Duty (to client) and (self) interest
pull in opposite directions.

Hayne’s three key themes are now government policy:

  • no conflicted remuneration

  • no exemptions, including grandfathered arrangements

  • explicit consent for payments.

Financial industry laws and regulations will apply more broadly than they have. Funeral insurance will no longer be exempted. Car dealers will face a limit on the fee they can get for selling add-on insurance.

And retailers won’t be able to sell add-on insurance at the same time as the products themselves. Frydenberg said that people buying mobile phones were being sold screen insurance that cost more than the replacement of the screens.

“Hawking”, unsolicited phone calls and pitches for superannuation and insurance and other products, will be prohibited. Lenders to farmers won’t be able to charge high default interest rates during droughts or when there is no realistic prospect of recovering the money.

Banks won’t be able to offer overdrafts on basic accounts without the formal approval of the accounts’ owners, they won’t be able to charge dishonour fees on basic accounts, they will have to value agricultural land used as security for loans independently of the people who decide whether to grant the loans.

Superannuation fund trustees won’t be able to work for other parts of the conglomerate that owns the fund giving them a conflict of interest, and trustees and directors will be subject to civil penalties if they fail to act in the fund members’ best interests.

Each Australian will be defaulted into (“stapled” onto) only one superannuation account once at the beginning of their working life instead of into several as they change jobs as is required by awards and industrial agreements. The Productivity Commission estimated these multiple accounts cost super fund members A$10 billion per year in unnecessary fees.

Australia’s much-criticised “twin peaks” model of regulation shared between the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, will stay, although they will be subject to a new independent oversight body that will report on their performance every two years. They will also need to prepare and maintain a joint co-operation memorandum.

In any investigation ASIC will have to have as a starting point the question of whether a case should be taken to court. Infringement notices should mainly be reserved for administrative rather than deliberate failings.




Read more:
Compensation scheme to follow Hayne’s indictment of financial sector


Hayne says too often, banks and other financial services entities that broke the law were not properly held to account.

Misconduct will be deterred only if entities believe that misconduct will be detected, denounced and justly punished.

Misconduct, especially misconduct that yields profit, is not deterred by requiring those who are found to have done wrong to do no more than pay compensation. And wrongdoing is not denounced by issuing a media release.

He says in almost every case, bad conduct was driven not only by the firm’s pursuit of profit but also by individuals’ pursuit of gain.

Providing a service to customers was relegated to second place. Sales became all important. Those who dealt with customers became sellers. And the confusion of roles extended well beyond front line service staff. Advisers became sellers and sellers became advisers.

Rewarding misconduct is wrong. Yet incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards. Rewards have been paid regardless of whether the person rewarded should have done what they did.

Frydenberg says he is taking action on all 76 recommendations.

He’ll set up an industry-funded compensation scheme able to payout over misconduct over the past ten years.

And 24 specific acts of misconduct have been referred to authorities, covering every big financial firm other than Westpac.The Conversation

Peter Martin, Section Editor, Business and Economy, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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EU Visit to Orissa, India Triggers Barrage of Accusations


Hindu nationalists protest delegation as Christians cite injustices.

NEW DELHI, February 8 (CDN) — A delegation from the European Union concluded a “fruitful” trip to India’s violence-torn Orissa state on Friday (Feb. 5) amid a swirl of protests by Hindu nationalist groups and cries of injustice by Christians.

The delegation was able to hold “open and frank” discussions with Kandhamal officials on the visit, said Gabriele Annis of the Embassy of Italy.

“We had a very good meeting with the Kandhamal district administration,” Annis told reporters. “It is fruitful. We had open and frank discussion. It helped us in understanding the situation and understanding happenings over the past 15 months.”

The delegation was led by Christophe Manet, head of Political Affairs of the European Commission delegation to India and consisted of members from Spain, Hungary, Poland, Ireland, Italy, Netherlands, the United Kingdom, Finland and Sweden. A delegation from five European countries had visited Orissa earlier in November 2009, but the government of Orissa denied them permission to visit Kandhamal district, where Christians say they continue to be threatened and destitute.

Archbishop Raphael Cheenath said on Saturday (Feb. 6) that despite the claims of the state and district administrations, life for the Christian victims of violence in August-September 2008 remains far from normal: thousands still live in makeshift shanties along roadsides and in forests, he said, and local officials and police harass them daily.

“The block officers have been playing with the facts, indulging in corrupt practices and cosmetic exercises whenever political and other dignitaries come to visit or inspect,” the archbishop said in a statement. “Innocent people are coerced into giving a false picture. The chief minister must investigate the role and functioning of the entire district administration . . . It is strange that officers in whose presence the violence took place and thousands of houses were burnt are still in office and are declaring that there is peace in the district.”

Following attacks in the area after Hindu extremists stirred up mobs by falsely accusing Christians of killing Hindu leader Swami Laxmanananda Saraswati on Aug. 23, 2008, more than 10,000 families were displaced from their homes by the violence. Since then, Cheenath said, an estimated 1,200 families have left the area. Between 200 and 300 families reside in private displacement camps in the district, and more than 4,400 families still live in tents, makeshift shelters or the remnants of their damaged houses, he said.

The number of attack victims who have received financial assistance from the government, churches or Non-Governmental Organizations (NGOs) is unknown, but is estimated at 1,100 families, Cheenath added.

He criticized Prime Minister Manmohan Singh and the Chief Minister of Orissa Naveen Patnaik saying, “Both of them had promised to provide adequate compensation for the damages caused during the 2008 communal violence. But the victims have not been adequately compensated.”

Cheenath said the state government had decided not to compensate any riot-affected religious institutions even though India’s Supreme Court had directed the government to compensate them for all damages.

“This is a national calamity and demands a special package for the affected people, which should include land, income generation, education and healthcare,” the archbishop said.

Extremist Makeover

Prior to the visit, Christian leaders expressed their shock at Kandhamal district authorities attempting a cosmetic makeover by evacuating nearly 100 Christians from G. Udayagiri.

In letters to the EU delegation, the state government and national human rights and minorities commissions, Dr. John Dayal of the All India Christian Council narrated the plight of the 91 members of 21 families from 11 villages who were living under plastic sheets along a road in the marketplace area of G. Udayagiri.

Dayal said the group included 11 married women, three widows, an elderly man with a fractured hip and thigh, and two infants born in the camp. They had faced almost daily threats, he said, as they had not been allowed to return to their villages unless they renounced their faith and became Hindus.

Soon after the decision to allow the EU delegation, the water supply to the makeshift site was cut off and police and civil officers drove away the residents, who had only plastic sheets to protect them from the cold, he said. The refugees said officers later gave them permission to come back at night but to keep the area clear.

“The families are in G. Udayagiri, they have moved in front of the road, and they are in a very bad state,” the Rev. Samant Nayak of G. Udayagiri told Compass. “They are literally on the road.”

He said that approximately 55 families were living in G. Udayagiri, where they had been given land, and a Christian NGO was helping to construct houses for them.

The Press Trust of India reported that Orissa officials were nervous about last week’s delegation visiting Kandhamal but finally gave permission under pressure from the central government. State officials finally allowed the visit with the pre-condition that the delegation would be allowed only to interact with people and not engage in fact-finding, according to a senior official in Orissa’s home department.

The Kandhamal district collector, Krishna Kumar, told Compass that all went well and “no untoward incidents took place,” but sources reported at least one minor disturbance in Bodimunda village. On Wednesday (Feb. 3), one house was reportedly damaged there in a scuffle that also resulted in two arrests by the local police.

During their Kandhamal visit, the EU delegation was reportedly forced to cancel a meeting with judges of Fast Track courts established in Phulbani, in Kandhamal district, to prosecute hundreds of those accused in the 2008 violence, due to protests from the local lawyers’ association.

Kumar, however, pointed out that the lawyers’ protest was secondary to the lack of clearance from the High court for the meeting with the judges. “The same was not informed to us prior to the visit,” he added.

Justice Denied

The anti-Christian violence in August-September 2008 killed over 100 people and burned 4,640 houses, 252 churches and 13 educational institutions. Archbishop Cheenath said justice is critical to long term peace.

“The two Fast Track courts, and the court premises, have seen a travesty of justice,” he said in the Feb. 6 statement. “Witnesses are being coerced, threatened, cajoled and sought to be bribed by murderers and arsonists facing trial. The court premises are full of top activists of fundamentalist organizations. The witnesses are also threatened in their homes with elimination, and even their distant relatives are being coerced specially in the murder and arson cases against Member of Legislative Assembly [MLA] Manoj Pradhan.”

Though some witnesses have testified on Pradhan’s alleged involvement in crimes in depositions, he has been acquitted in case after case, the archbishop added.

“We are demanding a special investigation team to investigate every case of murder and arson,” he said. “Similarly, there is also need for transferring the cases against politically powerful persons such as Pradhan to outside Kandhamal, preferably to Cuttack or Bhubaneswar.”

Cheenath said victims have filed 3,232 complaints at Kandhamal police stations, but officers registered only 832 cases. As many as 341 cases were in the G. Udayagiri area alone, 98 in Tikabali and 90 in Raikia, he said.

“Even out of this small number [in G. Udayagiri], only 123 cases were transferred to the two Fast Track courts,” he said. “So far, 71 cases have been tried in the two courts, and 63 cases have been disposed of. Of these, conviction occurred only in 25 cases, and even that is partial as most of the accused have not been arrested or brought to trial.”

Only 89 persons have been convicted so far in Orissa state, while 251 have been acquitted, supposedly for lack of witnesses against them, he said.

“Among them is Manoj Pradhan,” Cheenath said. “It is strange that in the case of 10 deaths by murder, nine cases have been closed without anybody being convicted, while there has been partial conviction in the case of one death. Who will bring justice in the case of the nine murder cases?”

The archbishop demanded that independent lawyers be allowed to assist overworked special public prosecutors.

Hindu Nationalist Protests

Protesting the delegation visit was the Vishwa Hindu Parishad (VHP) and other Hindu nationalist organizations. VHP State General Secretary Gouri Prasad Brahma had lamented on Jan. 31 that the visit would trigger tension and demanded their immediate withdrawal.

“There is no business of the outsiders in the internal matter of the state,” he said.

The delegation also faced the ire of the Hindu extremist Bajrang Dal on the day of its arrival in Bhubaneswar, capital of Orissa, on Tuesday (Feb. 2). Hundreds of its cadres met the delegation at the airport shouting loudly, “EU team, go back.”

Five Bajrang Dal members were detained for creating trouble, Deputy Commissioner of Police H.K. Lal told media on Wednesday (Feb. 3).

After the delegation had left, the Orissa Bharatiya Janata Party (BJP) heavily criticized the central and the state governments, with BJP state President, Jual Oram telling a press conference that the state had allowed the visit to “divide people on communal lines.” He said that the delegation had not met any Hindu leader during their visit to Kandhamal, which “exposed their communal agenda.”

Oram accused the delegation of violating protocol in trying to meet the judges of fast-track courts in Kandhamal, saying this “amounted to interference into internal affairs of a sovereign independent member state under the U.N.”

At the same press conference, BJP MLA Karendra Majhi said that allowing the visit was an attempt by the chief minister to win back the confidence of minority Christians. He alleged that the delegation had held secret meetings in a Catholic church at Phulbani with church leaders and select NGOs to facilitate conversions to Christianity.

“I have every reason to believe that the promised assistance of 15 million euros to Kandhamal by the EU delegation will be utilized for conversion activities,” Majhi said.

Report from Compass Direct News