On Thursday (12 November), the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 was introduced into Parliament.
The package of legislation addresses 20 recommendations and one additional commitment from the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The bill includes the new obligation for credit licensees and representatives that are providing credit assistance to a consumer – including mortgage brokers – to investigate reportable situations that may affect consumers and has reasonable grounds to suspect that the affected consumer has suffered or will suffer loss or damage as a result of the reportable situation and has a legally enforceable right to recover the loss or damage from the licensee.
Under the new legislation, an investigation into such matters must be commenced within 30 days after the licensee/representative has been made aware of it. It also “must be completed as soon as is reasonably practicable after it is commenced”, according to the bill.
The investigation must:
- identify the conduct that gave rise to the reportable situation;
- quantify the loss or damage that there are reasonable grounds to believe the affected consumer has suffered or will suffer as a result of the reportable situation;
- he affected consumer has a legally enforceable right to recover from the licensee; and
- do anything else prescribed by the regulations.
“Reasonable steps” must then be taken to notify the affected consumer of the outcome of the investigation, which must also be issued in writing within 10 days after the investigation is completed.
Failure to meet the above new obligations comes with a penalty of 5,000 penalty units (approximately $1.1 million).
Mortgage brokers will also now be subject to the reference checking and information-sharing protocol, in generally the same manner as they relate to Australian financial services licensees.
The amendment aims to ensure that there is consistent practice throughout the industry, and that employment information will be available about all financial advisers and mortgage brokers.
This would mean that any past misconduct conducted by a licensee that is moving from one industry to another (for example, a financial planner that then seeks to become a broker) can be ascertained more readily than currently.
It also ensures that AFSL and ACL holders who fail to undertake reference checking and information sharing regarding a prospective employee are subject to a civil penalty.
The bill also aims to increase protections for consumers by:
- strengthening the unsolicited selling (anti-hawking) provisions, including for superannuation and insurance products, to prevent pressure selling to consumers;
- introducing a deferred sales model for add-on insurance products, to promote informed purchasing decisions and prevent inappropriate sales of add-on insurance;
- making the handling and settlement of insurance claims a ‘financial service’, which will require insurers to behave honestly, efficiently and fairly and comply with other licensing obligations, to improve claims handling practices;
- prohibiting the trustee of a superannuation fund from having a duty to act in the interests of another person, other than those arising from their duties as trustee of a superannuation fund; and
- allowing provisions in financial services industry codes to be enforceable, with breaches attracting civil penalties, ensuring better adherence by industry and certainty for consumers.
Speaking after the legislation was introduced, Treasurer Josh Frydenberg commented: “This legislation is another major step forward in completing the implementation of the Hayne royal commission...
“These changes will be complemented by providing further clarity regarding the role of the regulators and enhancing the requirements of financial institutions reporting breaches of the law, which will ensure significant misconduct is reported and investigated sooner.
“With the introduction of these recommendations, the government is now focused on completing implementation of the remaining recommendations of the Hayne royal commission consistent with the updated implementation roadmap issued following the onset of COVID-19.”
The CEO of the Australian Banking Association said that the banks were “ready for the next phase of implementation of royal commission recommendations”, adding: “Australian banks have already been acting on the findings of commissioner Hayne and remain fully engaged for this next phase.”
“Banks have partnered with the government during the pandemic to support customers and the economy and look forward to continuing that engagement as the royal commission legislation is considered,” she said.
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.