Key implications from the Hayne Royal Commission Final Report

The Actuaries Institute has identified key areas and recommendations from Hayne’s final report that should be considered by actuaries working across general insurance, life insurance, superannuation, risk and banking.

The Actuaries Institute welcomed the final report from the Royal Commission into Australia’s banking, superannuation and financial services industry.

Commissioner Hayne outlined six key principles that financial institutions should abide by.

  1. Obey the law

  2. Do not mislead or deceive

  3. Act fairly

  4. Provide services that are fit for purpose

  5. Deliver services with reasonable care and skill

  6. When acting for another, act in the best interests of that other

The Institute’s CEO Elayne Grace said in a media statement:

“The Institute fully supports the cultural change that has been advocated by the Royal Commission. The Actuaries Institute looks forward to assisting the Financial Services Reform Implementation Committee facilitate a smooth introduction of Commissioner Hayne’s recommendations.”

The report examines some enormously complex issues and the Institute will take measured steps to assess the recommendations and determine how the actuarial profession can help industry achieve better outcomes for consumers. Key recommendations are outlined in the following table.

Practice Area

Recommendations

General Insurance and

Life

Insurance

  • Unfair Contract Terms provisions should apply to insurance contracts. The duty to act in utmost good faith should operate independently.
  • The duty of disclosure should be replaced with a duty to take reasonable care not to make a misrepresentation to an insurer.
  • A Treasury-led working group should develop an industry-wide deferred sales model for add-on insurance (except policies of comprehensive motor).
  • ASIC should impose a cap on commission that may be paid to vehicle dealers for add-on insurance.
  • The handling and settlement of insurance claims, or potential insurance claims, should no longer be excluded from the definition of ‘financial service’.
  • The Banking Executive Accountability Regime (BEAR) should be extended to all APRA‑regulated insurers.
  • Hawking of insurance products should be prohibited.
  • Exemptions for funeral expenses policies should be removed.
  • Unfair Contract Terms provisions should apply to insurance contracts. The duty to act in utmost good faith should operate independently.
  • The duty of disclosure should be replaced with a duty to take reasonable care not to make a misrepresentation to an insurer.
  • Grandfathering provisions for conflicted remuneration should be repealed as soon as is reasonably practicable, including that the arrangements made at the time of the Future of Financial Advice (FoFA) reforms should end.
  • ASIC should consider further reducing the cap on commissions in respect of life risk insurance products. Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.
  • The handling and settlement of insurance claims, or potential insurance claims, should no longer be excluded from the definition of ‘financial service’.
  • Additional scrutiny for engagement with a related party, including independent certification it is in the best interests of members.
  • The BEAR should be extended to all APRA‑regulated insurers.

Super

  • A person should have only one default account. To that end, machinery should be developed for ‘stapling’ a person to a single default account.
  • The practicality, and likely pricing effects, of legislating universal key definitions, terms and exclusions for default MySuper group life policies should be investigated.
  • Deduction of any advice fee (other than for intra‑fund advice) from a MySuper account should be prohibited. Such fees from other super accounts must be renewed annually by the client and in written records.
  • A trustee should be prohibited from assuming any obligations other than those arising from or in the course of its performance of the duties of a trustee of a superannuation fund.
  • Insurance in Super Voluntary Code of Practice should be made enforceable.
  • Provisions modelled on the BEAR should be extended to all RSE licensees.

Banking

  • Recommendations around intermediated mortgage lending including: mortgage brokers must act in the best interests of the intending borrower; the borrower, not the lender, should pay the broker; and mortgage brokers should be subject to same law as financial planners.
  • Recommendations on how banks should deal with distressed agricultural loans.
  • The Banking Code of Conduct should be amended, including obligations on banks for basic bank accounts, identification processes for people who identify as an ATSI person, definition of small business, and charging of default interest on loans secured by agricultural land. 
  • A national scheme of farm debt mediation should be enacted.
  • Extension of the BEAR – Within each ADI subject to BEAR there should be a responsibility for all steps in the design, delivery and maintenance of all products.

Risk

  • All financial services entities should, as often as reasonably possible, take proper steps to assess the entity’s culture and its governance, identify any problems, deal with those problems and determine whether the changes it has made have been effective.
  • APRA’s supervisory program should focus on building culture that will mitigate the risk of misconduct, including by assessing cultural drivers, conduct risk and governance.
  • Recommendations around ASIC enforcement, including that it take as a starting point whether a court should determine the consequences of a contravention.
  • Extension of BEAR as noted above. 
  • Support for the key recommendations of a separate review to establish a compensation scheme of last resort.
  • A new oversight authority for APRA and ASIC, independent of Government, should be established to assess the effectiveness of each regulator.

 

The report has highlighted that the role of professions is critical in delivering a fair, secure and sustainable financial system that meets consumer expectations.

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