The Royal Commission into misconduct in the banking, superannuation and the financial services industry holds its first public hearings commencing 13 March 2018.
Set up after pressure from the media, the Opposition and in the end, the banks themselves, the terms of reference are very broad and yet the timelines and resources to produce a report are very limited.
Commissioner Ken Hayne has been charged with looking into the conduct of banks, life and general insurers, superannuation funds, financial advisers and credit providers. After an outcry, mortgage brokers and small lenders were added to the mix.
The Commissioner will examine whether the conduct falls below community standards and expectations, a phrase very much open to interpretation.
What are the terms of reference?
The terms of reference do specify that the Commission will investigate the adequacy of consumer protection laws, industry codes of practice and dispute resolution schemes and, somewhat controversially, the use of members’ savings by superannuation funds.
The Commission will recommend any necessary law reform and can refer any misconduct for criminal prosecution.
The regulators are also in the spotlight with the performance of ASIC and APRA in identifying and addressing misconduct to be examined.
The timelines for investigation and reporting are very tight
To fully investigate all the problems in the financial industry would take years. But therein lies the problem for Mr Hayne - the government has only given him until 1 February 2019 to provide his report and, worse still, only until 30 September 2018 to provide an interim report.
The terms of reference do allow him to exclude consideration of matters that are before the courts or have been dealt with in other inquiries. The Commission has indicated it will only consider conduct from 2008, which coincides with the GFC.
There is also a general exclusion for matters related to “macro prudential policy” which itself is very broadly defined to include policies or regulations that have implications for the industry as a whole.
Accordingly, the Royal Commission could be as broad or as narrow as the Commissioner determines.
However, Australians need a Royal Commission which will thoroughly investigate the problems that have blighted the financial services industry and left tens of thousands of victims out of pocket. Many lost their retirement nest eggs from poor financial advice. Others took out loans that they couldn’t afford and with crushing penalty interest rates, whilst many unwittingly purchased junk insurance or had claims denied.
Issues such as conflicted remuneration, vertically integrated sales and advice practices, irresponsible lending practices and excessive fees and charges have been examined by other inquiries and government committees but remain unresolved.
The Royal Commission got off to somewhat of a rocky start after calling for written submissions only to later put out a warning that they may breach confidentiality agreements. Some banks have agreed to waive confidentiality, but some uncertainty remains.
Are consumers represented adequately?
There has been concern expressed about the lack of consumer representation at hearings, compared to the conga-line of expensive lawyers and QCs who have been hired by banks and industry associations.
The lack of a consumer voice in hearings is reflected in the list of parties granted leave to appear at the hearings next week. Of the 12 organisations granted leave, only one represents consumers and one is a union. All four of the big banks will be present and their barristers will be able to cross-examine the victims called to give evidence.
Limited funding for consumer representation
The lack of funding for representation by the organised consumer movement is very troubling. The heavy lifting has been done by Choice and the Consumer Action Law Centre, whose resources are monstered by the cashed-up banks, insurers and industry associations.
The timelines and limited funding represent major challenges for the Royal Commission in what is a very important review of an industry that has suffered major reputational damage over recent years.
As the hearings kick off next week, Australian consumers will be watching very closely.
Berrill & Watson Lawyers