A review of the Additional Government measures as recommended by the Royal Commission, with a focus on how these recommendations specifically impact licensees and planners.
Following is a wrap-up of some of the key recommendations made by Commissioner Kenneth Hayne relating to Additional Government measures as outlined in the Royal Commission’s Final Report.
The FPA’s full response to the Royal Commission’s Final Report can be accessed by clicking here.
Additional Government measures
Additional measure – Federal Court jurisdiction in relation to criminal corporate criminal
What this means: The Government will expand the Federal Court’s jurisdiction in relation to criminal corporate crime.
The Royal Commission has emphasised that effective deterrence through judicial decisions relies on the timely institution of proceedings and punishment of misconduct. The Government agrees, and has already provided an additional $70.1 million to boost ASIC’s enforcement capabilities and supervisory approach, and $41.6 million to the Commonwealth Director of Public Prosecutions (CDPP) to prosecute briefs from ASIC.
Extending the Federal Court’s jurisdiction will boost the overall capacity within the Australian court system to ensure the prosecution of financial crimes does not face delays as a result of heavy caseloads in the courts.
The Federal Court has considerable expertise in civil commercial matters and is well‑positioned to accommodate the conferral of a greater corporate criminal jurisdiction, which will help to increase the speed with which such matters are dealt with.
FPA Comment: The FPA supports the expansion of the Federal Court’s jurisdiction in relation to criminal corporate crime.
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Additional measure – Funding for financial counselling
What this means: The Government agrees with the suggestion by Commissioner Hayne that there is a need for predictable and stable funding for the legal assistance sector and for counselling services.
Financial counselling services play an important role in supporting consumers and the challenges faced by parties delivering these services include increasing demand, inconsistent and short-term grant‑based funding streams, and fragmented delivery across jurisdictions.
The Government will review the co‑ordination and funding of financial counselling services. This immediate review will be led by the Department of Social Services, in consultation with Treasury and the Department of the Prime Minister and Cabinet. The review will consider gaps and overlaps in current services and the adequacy of, and appropriate delivery models for, funding.
FPA comment: The FPA supports this additional measure and the role financial counsellors play, particularly in assisting consumers, who are experiencing financial hardship, to understand their options and to get back on track. The FPA Pro-Bono programs are an extension and support for financial counselling services offered by charities where consumers have immediate financial advice needs.
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Additional measure – Extension of legislation for PIP/DDO
What this means: The Government agrees with the suggestion by the Commissioner to extend the proposed Design and Distribution Obligations (DDOs) to apply to NCCP Act products and ASIC Act products, and the ASIC Product Intervention Powers (PIP) to apply to ASIC Act products.
The extension of the DDOs will benefit consumers by ensuring issuers of credit products and ASIC Act financial products identify in advance which consumers their products are suitable for, and direct sales to that target market, rather than promoting products to all consumers. These obligations will complement responsible lending obligations that apply to those offering credit.
The extension of the PIP to all ASIC Act products will empower ASIC to intervene in relation to a wider range of products, where ASIC identifies detriment or potential detriment to consumers.
The Government recognises that the extension of the DDOs may have a significant impact on many businesses and will carefully consider how these reforms are implemented.
FPA comment: The FPA supports this additional measure to extend the Design and Distribution Obligations (DDOs) and Product Intervention Powers (PIP) to credit products. The FPA will work with the Government to ensure the enacting legislation does not impede the ability of financial planners to provide financial advice that meets their client’s needs.
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Additional measure – Superannuation binding death benefit nominations for indigenous people
What this means: The Government will consult with Aboriginal and Torres Strait Islander peoples and relevant representative bodies, as well as the superannuation industry, about difficulties in using binding death benefit nominations.
FPA comment: A question arose in the course of the Commission’s proceedings about whether the law, as it now stands, permits Aboriginal and Torres Strait Islander peoples to make binding death nominations in respect of their superannuation that reflect the kinship structures of the peoples concerned, and urged consultation to address this issue.
The FPA supports this additional measure, noting the broader issues in relation to binding death nominations and current norms in relation to family structures.
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Additional measure – Review of the effects of vertical and horizontal integration in the financial system
What this means: The Government agrees that understanding the longer term market implications of integration is an important component of promoting competition in the financial system, and supports the ACCC considering integration issues where they are identified as part of its market studies work.
This also responds to the Productivity Commission’s report, Competition in the Australian Financial System, which recommended that the ACCC should undertake five yearly market studies on the effect of vertical and horizontal integration on the financial system.
FPA comment: It is important to acknowledge Commissioner Hayne’s discussion on vertical integration in his Final Report and his consideration of the inherent conflicts of interest of vertical integration. Noting that the changes to the industry, as many vertically integrated firms sell parts of their business, the Commissioner made the following conclusions:
“Ultimately, whether there should be a separation between the manufacture or sale of financial products and the provision of financial advice will depend on whether the benefits of such a separation would outweigh the costs.” (page 192)
“The industry is already undergoing significant change. Many of those changes – both those already in train, and those recommended in this Report – should improve the way that conflicts of interest are managed by financial advisers, and help to eliminate some of those conflicts. Further changes will follow as the industry adjusts to these and other changes – including, perhaps, a continued shift away from vertically integrated institutions, which would help to reduce or further eliminate conflicts of interest.
“Enforced separation of product and advice would be a very large step to take. It would be both costly and disruptive. I cannot say that the benefits of requiring separation would outweigh the costs….I observe, however, that the Productivity Commission recommended, and I agree, that commencing in 2019, the Australian Competition and Consumer Commission (the ACCC) ‘should undertake five yearly market studies on the effect of vertical and horizontal integration in the financial system’.” (page 195)
The FPA has long held the view that it is necessary to have a separation of advice and product to maintain the independence of the advice providers. The reason for our position is the strong tension between the professionally constrained interests of advice businesses and the commercial interests of product businesses. Unless advice businesses are protected from undue pressure from product businesses, the tension between product and advice may not serve the interests of consumers.
The FPA agrees with Commissioner Hayne’s view that regulatory and market changes currently in train and to be implemented from the Royal Commission recommendations, will impact the existence and management of conflicts of interest and therefore, the effect of vertical integration on consumers seeking financial advice.
The FPA supports the recommendation for the ACCC to undertake five yearly market studies on the effect of vertical and horizontal integration on the financial system.
Please note: Due to space restrictions, this article only outlines the key recommendations from the Final Report that specifically impact licensees and planners in relation to ‘Additional Government measures’. To read the FPA’s full response to the Royal Commission’s Final Report into ‘Misconduct in the Banking, Superannuation and Financial Services Industry’, click here.
