The Financial Services Royal Commission’s interim report was released on 28 September 2018.
The interim report focuses on why problems developed in the financial services industry and what steps should be taken to overcome the problems.
On the question of why the main reason identified was greed; the drive for short term profit at the expense of basic standards of honesty. When misconduct was revealed ASIC and APRA did not do enough to punish misconduct. This then leads to the question of what can be done differently or better.
The report identifies many problems in the financial services industry which were summarized in terms of issues, causes and responses.
- a) Is there sufficient access to banking services in Australia?
- b) Intermediaries: intermediaries are persons who operate between the consumer and the credit provider and assist to organize credit. The Commission identified widespread confusion regarding the role of intermediaries including the following:
- For whom do intermediaries act?
- Who should they be acting for?
- If intermediaries act for consumers what duty do they owe/should owe?
- Who is responsible for the defaults of intermediaries?
- How should intermediaries be paid?
- Do external dispute mechanisms operate effectively?
- Should there be a form of compensation of last resort?
- c) Responsible lending issues:
- Is the current not unsuitable assessment effective?
- How should unsuitability be assessed?
- Should there be a different assessment process for home loans?
- Should the National Consumer Credit Protection Act 2009 apply to some forms of business lending?
- What business lending should the Banking Code of Practice apply to?
- Should agricultural lending be treated differently?
- Is the current regulation of guarantees effective?
- Should the terms regarding exiting a loan change?
- d) Regulators
- Have ASIC and APRA responded to identified misconduct appropriately and in a way which will encourage deterrence?
Main causes of the misconduct identified include:
- conflict of interest;
- culture and governance; and
- regulatory oversight.
What should be done about the problems identified in the financial services industry? Questions coming out of this include:
- Should the law be changed/simplified?
- Should carve outs and exceptions be reduced or eliminated?
- How should compliance obligations be managed?
- How should ASIC and APRA participate in the management of compliance obligations?
- Are the regulators effective? Should ASIC/APRA be reviewed? Should any tasks be taken from them? If so, who should perform these tasks?
- What is the appropriate place for industry codes of practice in the regulation of the industry? Should they be committed to legislation?
- Should intermediaries be able to recommend/sell/ a financial product provided by their employer or body they represent?
- Is any structural change necessary?
The complete report is available here: