The Empire drafts back: Treasury releases proposed legislation in response to Hayne Royal Commission

gavel-imageOn Friday 31st January the Treasury released 22 separate draft bills and regulations for consultation, formally responding to 24 of the recommendations made by the Financial Services Royal Commission.  Whilst there’s an enormous amount of material to digest from this announcement, we wanted to first explain how this rollout may proceed as the amendments make their way through Parliament. We will provide a more detailed analysis of the proposed changes in the coming weeks.

Proposed timetable

The amendments are proposed to take effect from 1st July 2020. If this is the case, the financial services sector has been given a very small window to react. However, it’s important to note that these amendments are only proposed at this stage and are open for public consultation until 28th February 2020.
It’s also worth noting that during the initial industry consultation, the Treasury refused to make any changes to their proposed drafts. It’s this sort of move that suggests they intend to fulfil their promise to implement all the Royal Commission’s recommendations in full.

Once the consultation period closes, then the legislation will be tabled in Parliament. Then they will go through the political machinations of possible referrals to committees and negotiations with crossbenchers. But, given the bipartisan support for the Royal Commission’s Final Report and the current political landscape, we don’t expect any major changes to the drafts as proposed.

There are some transitional provisions, and ASIC may choose to provide additional transition periods to industry, to allow them time to implement process changes.

The proposed amendments

We’ve put together a summary of proposed amendments and what these might look like. 

Draft legislation FSRC Recommendation Summary
Breach reporting, reference checking and remediation requirements. 1.6, 2.7, 2.8, 2.9 and 7.2
  • More onerous breach reporting requirements for AFSLs and a new regime for credit licensees, together with greater transparency and public reporting requirements.
  • Compulsory reference checking scheme for financial advisers and mortgage brokers.
  • Formal investigation and remediation requirements for misconduct by financial advisers and mortgage brokers
Enforceability of industry codes. 1.15
  • Allowing ASIC to designate enforceable code provisions which, if breached, may attract civil penalties and create a new mandatory code of conduct.
Ongoing fee arrangements and disclosure of lack of independence. 2.1 and 2.2
  • New obligations for advisers’ management of OFAs (e.g. annual reviews and consent to deduct fees).
  • New record-keeping requirements (eg for opt-in notices).
  • A requirement for disclosure of lack of independence.
  • An additional fee disclosure requirements.
RSE Trustees hold no other role. 3.1
  • Prohibiting RSEs from having duties other than those arising from or in the course of performance of duties as a trustee.
Advice fees in super. 3.2 and 3.3
  • Prohibiting the charging of advice fees from MySuper accounts.
  • Requiring trustees to only charge advice fees from choice products where the fee is expressly consented to by the member.
No hawking of super or insurance. 3.4 and 4.1
  • Replace existing anti-hawking regime with a more comprehensive regime for all financial products available.
Super regulator roles. 3.8, 6.3, 6.4 and 6.5
  • Adjustments to APRA and ASIC’s roles whereby APRA is a prudential regulator and ASIC, a conduct and disclosure regulator.
  • Giving ASIC joint responsibility for enforceable provisions in the SIS Act.
  • Extend AFSL regime to super trustees.
Restrictions on the use of the terms ‘insurer’ and ‘insurance’. 4.2
  • Strict liability offences for businesses to describe a product or service as ‘insurance’ if it’s not insurance or their business as an ‘insurer’ where they’re not an insurer.
Deferred sales model for add-on insurance. 4.3
  • Introduction of a deferred sales model for the sale of all add-on insurance products, except for comprehensive motor vehicle policies.
Cap on vehicle dealer commissions. 4.4
  • Granting ASIC power to cap commissions for add-on insurance products and insurance-like products.
Replacement of duty of disclosure.  4.5
  • Implementing a duty to take reasonable care not to make a misrepresentation to an insurer for consumer insurance contracts (to replace an existing duty of disclosure).
Limits on trustee and director indemnities. 4.6
  • Placing limits on the ability of trustees and directors to indemnify themselves out of the assets of the fund for criminal, civil or administrative penalties as a result of a breach of law.
Financial regulator oversight authority. 6.14
  • Establishing an independent assessment authority to review the effectiveness of ASIC and APRA. 
ASIC directions power. 7.2
  • If ASIC has reason to suspect a contravention of financial services law, ASIC can make directions in relation to the contravention.

Watch this space

We’ll be providing a more detailed analysis of the amendments in due course. In the meantime, If you have any questions regarding the proposed amendments, reach out to us today. 

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