“The damage done by that conduct to individuals and to the overall health and reputation of the financial services industry has been large. Saying sorry and promising not to do it again has not prevented recurrence. The time has come to decide what is to be done in response.”
What will be done, at least under the Coalition’s plan, is that 75 of the 76 recommendations will be implemented.
The exception is perhaps the most controversial recommendation around the banning of commissions to mortgage brokers â€“ where Hayne has suggested that borrowers, and not lenders, will pay to access a broker’s services â€“ which Treasurer Josh Frydenberg, per his pre-report warnings, wants to delay, so as to not disrupt competition in the softening housing sector.
Aside from this, the changes wrought by Hayne’s recommendations will be dramatic.
The world of insurance could be turned on its head, and is perhaps the biggest loser from the report.
The carve-out the sector won from legislation banning unfair contract terms is dead, as is the carve-out that means claims handling is currently not protected as a financial service. Selling insurance over the phone through cold calling â€“ known as hawking â€“ is over and the industry’s self-regulation systems will need to be dramatically toughened. Insurers will also be brought under a new executive accountability regime, like the one operating in banking
In financial advice, annual ongoing fees will be banned unless the client agrees each and every year.
Grandfathered commissions are gone, as are life insurance commissions.
Financial advisers will need to be registered, and face a much tougher disciplinary regime. Vertical integration does survive, although the pressure on firms to minimise conflicts will be ratcheted right up.
In superannuation, Hayne has borrowed from the Productivity Commission’s report to push for taxpayers to have a single, default super account, wiping out millions in annual fees across the sector. There are other clamps on fees too.
The changes are perhaps most mild in general banking.
Mortgage brokers will be made to explicitly work in the interests of borrowers, and not the banks that have paid them, until now. The definition of small business â€“ such a key battleground for the banks â€“ will be lifted to 100 employees and loans of $5 million, from $3 million now.
It’s telling that Hayne has already pre-empted the push-back that will come across the spectrum of financial services.
“Those who oppose change will appeal to real or supposed difficulty in altering present arrangements,” Hayne says. “Reference will be made to change bringing ‘unintended consequences’. That argument is easily made because it has no content; the ‘consequences’ feared are not identified.
“Saying only that there may be ‘disruption’ or ‘unintended consequences’ is nothing but a naked appeal to fear of the future.”
In other words: Enough is enough.
The battle that Hayne sees ahead in changing the cultures of the banks is also made clear in the final report.
Hayne’s big weapon is the BEAR â€“ the banking executive accountability regime â€“ an idea borrowed from Britain that was introduced by the Coalition as a sensible way of preventing the all-too-common occurrence of bankers apologising without taking personal responsibility.
Hayne wants this extended to all institutions that are regulated by the Australian Prudential Regulation Authority, even if this takes a little time.
It’s a sensible and important step in helping to shift the accountability in the financial services sector away from institutions and towards individuals.
Each bank will have their own governance statements, their own rules and their own compliance processes and systems. Greater levels of individual accountability should provide a way of buttressing culture across the sector.
But as Hayne points out, there is a more basic problem with culture â€“ the struggle some firms appear to be having in even recognising their “obligation to ensure that the relevant services are provided efficiently, honestly and fairly”, without first having the regulator agree with what the entity judges to be required in order to meet that standard.
“That is, there remains a reluctance in some entities to form and then to give practical effect to their understanding of what is ethical, of what is efficient, honest and fair, of what is the ‘right’ thing to do.
“Instead, the entity contents itself with statements of purpose, vision or values, too often expressed in terms that say little or nothing about those basic standards that underpin both the concept of misconduct and the community’s standards and expectations.”
The changes are perhaps most mild in general banking.Â David Rowe
This neatly circles back to Hayne’s point about making financial services laws clearer and more specific. Our banks need to specify, as much as possible, exactly what behaviours they want to see, not wrap their rules in meaningless motherhood statements.