Five Minute Guide

THE customer can no longer come second to profit— this is the theme guiding Commissioner Kenneth Hayne’s landmark report intomisconduct in banking, superannuation and other financial services.

Below are his key recommendations and findings. The government will back all but one of the recommendations, which it supports in part. The Opposition, which pushed hard for the inquiry in the first place, is backing all recommendations.

BANKING

» In arguably the biggest shift, Mr Hayne said the home-loan borrower should pay the mortgage broker for finding a loan. At themoment the lender pays the broker via commissions. The Government isn’t endorsing this switch in its entirety, but Labor likely will. Commissioner Hayne said the first step would be to get rid of trail commissions over two or three years, which the Government does support.

» Mortgage brokers must be made to act in the best interests of the borrower.

» Car dealers offering finance should be covered by consumer credit protections.

» Banks must do a better job of providing access to services for people in remote areas and thosewho strugglewith English. » Ban dishonour fees on basic accounts. » During a drought or other natural disaster, default interest is not to be charged on loans secured by farmland.

» Banks need to ensure distressed agricultural loans are managed by experienced agricultural bankers, with ‘enforcement’ to be treated as the worst outcome

FINANCIALADVICE

» Each year provide in writing the services to be received and total fees to be charged.

» Any ongoing conflicted remuneration — pay which influences advice — currently permitted should be axed as soon as possible. The government supports this.

» Consider reducing the cap on life insurance commissions, with the goal of ‘ultimately’ getting to zero.

» Look at having a blanket ban on conflicted remuneration for general insurance and consumer credit insurance products.

» When a business offering financial planning is confident an adviser has engaged in misconduct, clients should be told and compensated promptly.

» Set up a new disciplinary system for financial advisers.

SUPERANNUATION

» Change the ‘machinery’ of the superannuation industry so people only have one default account. » Ban advice fees on MySuper accounts. » The unsolicited sale — ‘hawking’ — of superannuation should be stopped.

REGULATION

» The recently established Banking Executive Accountability Regime (BEAR), which is a system of checks and penalties for lenders’ leaders, should be extended to big super funds.

INSURANCE

» Hawking of insurance should be banned. » Funeral insurance should be subject to consumer protection laws.

» Cap the commission car dealers can earn on add-on insurances.

» Claims handling should be considered a financial service under the law, which means it would need to be provided ‘efficiently, honestly and fairly’. In giving this the tick, Mr Frydenberg said ‘inappropriate claims handling practices can cause significant consumer detriment’.

» The BEAR should also cover insurers.

PAY

» The regulator of banks and insurers, APRA, should not only watch for financial risk but also misconduct and compliance risks.

» Those regulated by APRA must build pay systems that ‘encourage sound management of non-financial risks … and reduced the risk of misconduct’.

» Force APRA-regulated companies tomake rules that allow for claw back of pay in ‘appropriate circumstances’.

» APRA should focus on building cultures ‘that will mitigate the risk of misconduct’.

» Frontline staff should be paid not only for what they do but ‘how’ they do it.

REGULATORS

» Retain APRA and the corporate regulator, ASIC, but there needs to be a new authority — e d nt ofo vernern t — to oversee the ‘twin peaks’.

» ASIC’s starting point on enf f be ‘whether a court should consequences’ rather than i notices, especially if the alle behaviour was by a large co

» By law, APRA and ASIC sh u do more to co-operate and s h ha information.v

EXTERNALDISPUTE RESOLUTION

» Set up a compensation scheme of last resort.