With the Federal Government under pressure to show its mettle against the big banks, Treasurer Josh Frydenberg has stepped up with a promise to implement the bulk of Royal Commission recommendations by mid-2020.
The Banking Royal Commission report, led by Kenneth Hayne, was delivered in February 2019. It made 76 recommendations for reform in total, with 54 requiring Government action. The other 22 recommended actions are due to be enforced by regulators and other financial industry bodies.
Mr Frydenberg has promised that more than 50 of the Government’s recommendations will either be in force or sitting before Parliament by the middle of next year.
Examples include strong guidelines that will force mortgage brokers to operate in the best interest of borrowers. This will include removing exemptions for funeral expenses policies, so that they are subject to consumer protection laws. It’s the first major review of the industry in 30 years since the Corporate Law Economic Reform Program (CLERP) was introduced in the 1990s.
However, while there has generally been a positive response to the legislative timeline, the Government has also been accused of pandering to the financial industry, with its rejection of a ban on commission payments to mortgage brokers. They have instead committed to a review of broker commissions after another three years.
Restoring Public Confidence
The Government has shown its teeth to an extent. They have launched a review of the Australian Prudential Regulation Authority (APRA), plus introduced legislation to regulate superannuation funds with more diligence.
Frydenberg also reiterated that the remaining four of the recommendations would be put before Parliament before the end of 2020, with a commitment to institute an independent review of all implementations in three years’ time. He did not, however, specify who would be conducting that review.
Frydenberg underscored how big an impact these reforms would have on the moribund banking industry.
“There is no understating the importance of the royal commission and its findings to the critical task of restoring trust in Australia’s financial institutions,” said the Treasurer.
There is also no doubt that the Australian public’s confidence in the banking sector has been poorly shaken and is at an all-time low. With a pervasive lack of trust, the Government’s response to the royal commission is being touted as the most comprehensive reform program for the financial services sector in three decades.
“Industry is 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.”
Banking Industry Welcome Reforms
The response from both the banking industry and consumer groups to the Treasurer’s announcement has been extremely positive. Australian Banking Association CEO Anna Bligh applauded the introduction of a timeline that would give both consumers and the industry more peace of mind.
With industry aware of the timeframe for legislation going before Parliament, they can start initiating mechanisms to make the required changes.
Consumer Groups Warn Against Industry Pushback
Leading consumer group Choice are happy with the timeframe but did caution the Government to hold firm against expected pushback from the financial sector. CEO Alan Kirkland has previously warned against the banking sector using the complex legislative process to slow down reform.
“For the Government to come out and set a really clear timeframe around a lot of legislation in Parliament this year, and ALL of it by the end of next year, I think really helps to send a signal that they’re not going to put up with that pressure from industry,” says Kirkland.
Labour Pulls No Punches
In contrast, the Labour opposition party have been less enthused about the promised implementation. Shadow Treasurer Jim Chalmers accused his counterpart of ‘doing nothing’ in the six months since the royal commission report was handed over.
He pointed out that to keep victims of banking misconduct waiting for another 15 months is a very disappointing resolution. The Government’s key defence against these accusations is that Parliament has only been in session for 21 days since the report was delivered in February.
Frydenberg issued a statement assuring the public that extra Government resources had been requested and allocated to expedite the implementation of the reforms. This includes 24 streams of work, plus an additional $9.3 million in conjunction with the $12.1 million from the May budget.
The treasurer also defended the timeline by pointing out that many other reviews have had more extended legislative periods, including the Future of Financial Advice and the Cooper Review into the superannuation system.
ASIC Investigates Potential Criminal Breaches
Meanwhile, the Australian Securities and Investment Commission (ASIC) is pursuing an investigation into possible criminal breaches in the report. If found, cases will be referred to the Commonwealth Director of Public Prosecutions.
With much-needed change demanded, all eyes will be on Frydenberg as he implements the Royal Commission findings over the next 15 months.