April sees the industry continuing to work through the fallout from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. While any substantive legislation will be delayed by the upcoming election, the Government has moved to commence the process of implementing the Commissioner’s recommendations. A number of consultations are underway—or already concluded—on the Government’s proposed response to specific recommendations.
APRA capability review
The final report from the Royal Commission recommended that APRA and ASIC should each be subject to at least quadrennial capability reviews, with a capability review to be undertaken for APRA as soon as reasonably practicable (recommendation 6.13).
In its earlier responses to the report, the Government accepted the recommendation, committed to a capability review of APRA in 2019, and appointed a review panel chaired by Graeme Samuel AC. The Government indicated that it anticipated the panel would specifically consider APRA’s capability to regulate superannuation entities for the benefit of members.
In mid-March the review panel released its terms of reference, seeking submissions from interested parties. The terms of reference state that the objectives of the review are to:
- assess APRA’s capability to deliver upon its statutory mandate under the Australian Prudential Regulation Authority Act 1998 and relevant industry acts
- undertake a forward-looking assessment of APRA’s ability to respond to an environment of growing complexity and emerging risks for APRA’s regulated sectors
- identify recommendations to enhance APRA’s future capability, having regard to the changing operating environment and any relevant organisational initiatives which are already underway.
The terms of reference require the review panel to evaluate the extent to which a number of factors support APRA to deliver its statutory mandate. These include:
- strategy, decision-making and culture
- internal governance arrangements, resource allocation and staffing
- processes and outcomes across APRA’s core supervision, policy and resolution functions
- appropriate engagement with Australian financial sector regulators
- fit-for-purpose statutory powers.
The panel is also required to take into account relevant recent reviews and reports as they relate to APRA. Submissions close on 10 April and the review panel will report to the Government by 30 June.
Enforceability of financial services industry codes
The Royal Commission recommended that certain provisions of financial sector codes should be ‘enforceable code provisions’ and that ASIC should have additional powers to approve and enforce code provisions (recommendation 1.15).
In its response to the Royal Commission, the Government agreed to take action in relation to ‘enforceable code provisions’, and supported industry and ASIC acting on the other recommendations concerning existing industry codes.
Treasury has released the consultation paper Enforceability of financial services industry codes: Taking action on recommendation 1.15 of the Banking, Superannuation and Financial Services Royal Commission. The paper sets out a series of questions which will inform the development of legislation to enact the Government’s commitment to implement recommendation 1.15.
The paper also sets out further information on the current code framework and Government-mandated codes, and deals with the recommendations of the ASIC Enforcement Review Taskforce and the other Royal Commission recommendations in relation to codes. Submissions close on 12 April.
AFCA: extension of remit for ‘legacy complaints’
The Royal Commission recommended that the Government establish a compensation scheme of last resort for the financial services industry (recommendation 7.1). The Government accepted that recommendation but has not yet provided any further detail about its proposed compensation scheme. The Government’s initial response did, however, commit to requiring the Australian Financial Complaints Authority (AFCA) to consider disputes dating back to 1 January 2008, which had not actually been recommended by the Commission.
In late February the Government made the AFCA Scheme (Additional Condition) Amendment Authorisation 2019 to commence the process of extending AFCA’s remit to consider these ‘legacy complaints’. The direction requires AFCA to permit an eligible person to make a complaint if that complaint:
- relates to a compulsory member of the AFCA scheme who is a member of the AFCA scheme at the time the complaint is made
- is not an ‘excluded complaint’
- is not otherwise excluded by the AFCA rules (other than because of a time limit in the scheme rules)
- is made to AFCA during the period 1 July 2019 to 30 June 2020.
The definition of ‘excluded complaint’ specifically excludes complaints about conduct that occurred and ended before 1 January 2008, as well as complaints in relation to which a decision or determination has been made by a court or tribunal or under a predecessor scheme or AFCA. Importantly, the definition also excludes “a complaint in relation to a superannuation death benefit”, but no other types of superannuation complaints (for example, disability complaints).
In mid-March, AFCA released a consultation package comprising a consultation paper, proposed change to its rules to extend its remit, and a draft update to its operational guidelines. The latter confirms that some superannuation complaints will be eligible to be considered as legacy complaints under AFCA’s expanded remit. Submissions close on 12 April.
Insurance claims handling
The Royal Commission recommended that the definition of ‘financial service’ be expanded to specifically include handling and settlement of insurance claims (recommendation 4.8) and stated that it should not be unreasonable to ask an insurer to handle claims efficiently, honestly and fairly.
The Government accepted this recommendation but acknowledged there are industry concerns with the removal of the exemption leading to a number of unintended consequences — for example, claims handling staff may be deemed as providing personal financial advice.
During March, Treasury sought submissions on a consultation paper, Insurance claims handling – taking action on recommendation 4.8 of the Banking, Superannuation & Financial Services Royal Commission. The paper addressed a number of questions relevant to the recommendation. Submissions closed on 29 March.
Ending grandfathered conflicted remuneration
The Royal Commission recommended that the grandfathering arrangements for conflicted remuneration in relation to financial advice provided to retail clients should be removed as soon as is reasonably practicable (recommendation 2.4). The Government announced that it would end grandfathering of conflicted remuneration to financial advisers effective from 1 January 2021.
Treasury has conducted a consultation on draft legislation to achieve this outcome. The draft legislation:
- removes the grandfathering arrangements for conflicted remuneration and other banned remuneration from 1 January 2021
- enables the regulations to provide for a scheme under which amounts that would otherwise have been paid as conflicted remuneration are rebated to affected consumers.
Submissions closed on 22 March.
The Government’s response to the Royal Commission also indicated it would commission ASIC to monitor industry renegotiation of current arrangements to remove grandfathered conflicted remuneration to ensure that any benefits flow through to clients ahead of 1 January 2021. The Australian Securities and Investments Commission (Investigation into Grandfathered Conflicted Remuneration for Financial Advice) Direction 2019 has been issued to give effect to this response. The Direction commences on 1 July 2019.