Frydenberg outlines financial sector reform timetable


Michelle Grattan, University of Canberra

Treasurer Josh Frydenberg has issued a timetable for the government’s dealing with the recommendations from the royal commission into banking, superannuation and financial services, which aims to have all measures needing legislation introduced by the end of next year.

The opposition has accused the government of dragging its feet on putting into effect the results of the inquiry, which delivered its final report early this year.

“The need for change is undeniable, and the community expects that the government response to the royal commission will be implemented swiftly,” Frydenberg said in a statement on the timetable.

Fydenberg said that in his final report Commissioner Kenneth Hayne made 76 recommendations – 54 directed to the federal government (more than 40 of them needing legislation), 12 to the regulators, and 10 to the industry. Beyond the 76 recommendations, the government had announced another 18 commitments to address issues in the report.

The government had implemented 15 of the commitments it outlined in responding to the report, Frydenberg said. This included eight out of the 54 recommendations, and seven of the 18 additional commitments the government made. “Significant progress” had been made on another five recommendations, with draft legislation in parliament or out for comment or consultation papers produced.




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Frydenberg said that, excluding the reviews to be conducted in 2022, his timetable was:

  • by the end of 2019, more than 20 commitments (about a third of the government’s commitments) would have been implemented or have legislation in parliament

  • by mid 2020, more than 50 commitments would have been implemented or be before parliament

  • by the end of 2020, the rest of the commission’s recommendations needing legislation would have been introduced.

When the Hayne report was released early this year, the government agreed to act on all the recommendations.

But one recommendation it has notably not signed up to was on mortgage brokers.

Hayne found that mortgage brokers should be paid by borrowers, not lenders, and recommended commissions paid by lenders be phased out over two to three years.




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The government at first accepted most of this recommendation, announcing the payment of ongoing so-called “trailing commissions” would be banned on new loans from July 2020. Upfront commissions would be the subject to a separate review. Four weeks later in March Frydenberg announced the government wouldn’t be banning trailing commissions after all. Instead, it would review their operation in three years.

Releasing the timetable, Frydenberg said the reform program was the “biggest shake up of the financial sector in three decades” and the speed of implementation “is unprecedented”.

“It will be done in a way that enhances consumer outcomes with more accountability, transparency and protections without compromising the flow of credit and competition,” he said.

He undertook to ensure the opposition was briefed on each piece of legislation before it came into parliament.

“This will begin with the offer of a briefing by Treasury on the implementation plan. Given both the government and opposition agreed to act on the commission’s recommendations, we expect to achieve passage of relevant legislation without undue delays,” he said.

He said the industry was “on notice. The public’s tolerance has been exhausted. They expect and we will ensure that the reforms are delivered and the behaviour of those in the sector reflects community expectations.”The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

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

Broad mandate for financial services royal commission takes the heat off banks


Kevin Davis, Australian Centre for Financial Studies

It does seem anomalous that the major banks have now become supporters of the royal commission into financial services, given they have been the principal targets. But the alternatives are probably less palatable, particularly if the banks think that all past major issues of misconduct and immoral behaviour have already been brought to light. And the broadening of the terms of reference beyond banking may dilute the focus on the banks themselves.

The banks argue that ongoing speculation and uncertainty are creating unnecessary costs and distractions for them, and that is most likely the case. Even if the major banks were to spend A$100 million in dealing with the royal commission that is less than 0.3% of the annual profits of the majors – so it has little impact on shareholder returns.

And with annual interest expenses in the order of A$65 billion, a cost of A$100 million or so could be quickly offset by improvements in bank borrowing costs from resolution of uncertainty. Whether the government spending a similar sum of taxpayer money on a royal commission is worthwhile is another matter.

Terms of reference too broad

The draft terms of reference of the royal commission ask it to focus primarily on three issues involving financial service entities. One is the essentially legal issue of identifying past cases of misconduct in violation of regulations and laws, as well as what might be termed “misbehaviour” (legal but immoral or unethical or unfair activities).

One apparent omission in the draft terms of reference relates to credit – and lending has been a major problem area in the past. While bank lending is covered, the definition of financial services entities to be considered does not appear to include those (such as mortgage brokers and some lenders) who only require an Australian Credit Licence and not an Australian Financial Services Licence (AFSL). Likewise, some financial services entities are exempt from the AFSL requirement and that may prove problematic if the draft terms of reference are not amended.

The boards and senior management of the banks (and other entities) no doubt hope there are no hidden skeletons in the closets which may be uncovered to shock them, and that revisiting the known past problems will be a case of yesterday’s news.

Although the term “misbehaviour” strays into grey areas of defining consistency with “community standards and expectations”, identifying past misconduct is a task suitable for a royal commission. But it shouldn’t be needed. ASIC and other regulators have adequate powers (if not adequate resources) to identify and prosecute misconduct. The adequacy of those powers is also a topic for the commission.

The second major task of the royal commission is to identify whether misconduct and misbehaviour can be attributed to poor culture and governance practices. This is particularly problematic.

What evidence is to be used to show, beyond reasonable doubt, that there is a causal relationship from the amorphous, non-quantifiable, concepts of culture and governance to specific instances of, or general proclivity towards, misconduct? There’s also undoubtedly many positive behaviours and outcomes occurring within these institutions they could point to, which may imply that, on balance, the arrangements are not bad.

So, the third question the commission then faces, is what changes might be made to reduce these problems. Here, the danger is that it involves a step into the unknown – what would be the likely outcomes under any proposed changes.

In its task of making recommendations, the commission faces a number of other difficulties. There is a raft of regulatory changes in progress following on from the 2014 Financial Services Inquiry and other government policy initiatives.

Also relevant is the financial technology or “fintech” revolution creating new business models, products and services, and methods of customer interaction with financial services entities. These create potential for new types of misconduct and misbehaviour. How relevant lessons the royal commission draws from history will be for this new world is unclear.

The ConversationThe banks will no doubt be pleased that the scope of the royal commission encompasses most of the financial services sector rather than focusing primarily upon them. In particular, the reference to superannuation fund trustees and use of member funds would seem to bring the controversial issue of fund governance right to the fore and will partly distract attention from the banks.

Kevin Davis, Research Director of Australian Centre for FInancial Studies and Professor of Finance at Melbourne and Monash Universities, Australian Centre for Financial Studies

This article was originally published on The Conversation. Read the original article.