Lawyers at odds on banking system
Australia’s legal sector has split over how the government should respond to the scandals enveloping the banking industry, with Victorian lawyers telling the financial services royal commission there should be more regulation in some areas as their counterparts elsewhere call for across-the-board simplification.
And a high-powered group of markets and regulation lawyers has poured cold water on the need for any simplification of Australia’s financial services laws, saying the nation’s system is already far less complex than those in other countries.
The submissions are in response to an interim report released in late September by royal commissioner Kenneth Hayne, who is due to hand his final report to Josh Frydenberg in a little over a fortnight, on February 1.
Law Council of Australia president Arthur Moses SC said laws covering banking, superannuation and financial services needed simplification and “there would be no gain in adding new laws to what is already a complex regulatory regime”.
“Any simplification must ensure the laws are clearer for consumers, striking a balance between clarity and the cost to business in meeting core compliance obligations,” he said.
“We don’t need more royal commissions or laws.
“What we need is more legal aid funding for people to pursue their existing rights and hold banks accountable.”
In its submission to Mr Hayne’s inquiry, the Law Council called for simpler rules that focused on principles already in the law, such as the overriding obligation of financial services companies to provide their services honestly, efficiently and fairly.
The submission, signed off on by Mr Moses but prepared by the council’s business law section, which is headed by Freehills mergers and acquisitions partner Rebecca Maslen-Stannage, cautioned against extending the obligation to act in a customer’s best interests from areas such as financial advice to sales channels including mortgage brokers, saying it should instead be made clear to clients they are being sold to.
It said “radical simplification” that increased costs to customers and business should be avoided, and the Australian Law Reform Commission should be commissioned to develop proposals for simpler laws.
However, the submission also reveals significant differences of
opinion within the profession, especially between the peak bodies of Victoria and NSW.
It noted that the Law Institute of Victoria wanted new regulations that require mortgage brokers to act both in the best interests of borrowers and in good faith.
In addition, the LIV wants new laws requiring clients to be told when an adviser or intermediary is sacked for fraud.
The LIV also wants tighter regulation of lending, contrary to the Law Council’s position.
Meanwhile, a high-powered team of lawyers at the University of NSW, led by former NAB customer advocate Dimity Kingsford Smith, has told the commission that “by comparison with other countries, Australia’s regulatory structure is relatively simple”.
The submission, from the university’s Centre for Law Markets and Regulation, contrasts Australia’s national approach with the fragmentary, state-by-state approach of some other jurisdictions.
It points to the reduction of regulators from “at least 10” to just two, the so-called “twin peaks” of the Australian Securities & Investments Commission and the Australian Prudential Regulation Authority, as a result of 1997’s Wallis Inquiry.
“Because Australian financial regulation is national and because the Wallis architecture removed a host of institutional regulators, Australia’s regulatory structure is relatively simple internationally,” the centre’s submission said.
“Detachments from ASIC’s remit would damage the regulatory design of the twin peaks model: it would add coordination costs and would not provide savings.”