Royal Commission announced into the financial services sector

The Federal Government has announced a broad-ranging Royal Commission into misconduct in the banking, superannuation and financial services industries.

The scope of the Royal Commission will be significantly wider than the inquiry into the banking sector that many had been calling for. The Commission is expected to inquire into conduct by ‘financial services entities’, being:

• authorised deposit-taking institutions
• insurers
• AFSL-holders and authorised representatives and
• RSE licensees (and those connected to such licensees) of registrable superannuation entities (i.e. excluding self-managed superannuation funds).

The type of ‘misconduct’ which will be the focus of the Commission’s inquiry is expected to extend to misleading or deceptive conduct, breach of trust, unconscionable conduct and breaches of professional standards, and will not be limited to conduct which constitutes a criminal offence under financial services laws.

The Commission’s priority will be to consider matters which have greater potential for harm if not addressed expeditiously.

The draft terms of reference, which will ultimately form the basis for Letters Patent establishing the Royal Commission, require the Commission to inquire into the following matters:

1. The nature, extent and effect of misconduct by a financial services entity (including by its directors, officers or employees, or by anyone acting on its behalf).
2. Any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations.
3. The use by a financial services entity of superannuation members’ retirement savings for any purpose that does not meet community standards and expectations or is otherwise not in the best interest of members.
4. Whether any findings in respect of paragraphs 1(A), (B) and (C):
   1. are attributable to the particular culture and governance practices of a financial services entity or broader cultural or governance practices in the industry or relevant subsector and
   2. result from other practices, including risk management, recruitment and remuneration practices;
5. the effectiveness of mechanisms for redress for consumers of financial services who suffer detriment as a result of misconduct by a financial service entity
6. the adequacy of:
   1. existing laws and policies of the Commonwealth (taking into account law reforms announced by the Government) relating to the provision of financial services;
   2. the internal systems of financial services entities and
   3. forms of industry self-regulation, including industry codes of conduct; to identify, regulate and address misconduct in the industry, to meet community standards and expectations and to provide appropriate redress to consumers and businesses;
7. the effectiveness and ability of regulators of a financial services entity to identify and address misconduct by those entities;
8. whether any further changes to:
   1. the legal framework
   2. practices within financial services entities and
   3. the financial regulators are necessary to minimise the likelihood of misconduct by financial services entities in future (taking into account any law reforms announced by the Government) and
9. any matter reasonably incidental to a matter mentioned in the above paragraphs, (A) – (H).

The Commission is expected to submit an interim report to the Government by September 2018, with a final report (including findings and recommendations) due within 12 months.

Hall & Wilcox has significant experience assisting clients in the financial services sector in managing disputes and dealing with regulatory matters. Our relevant experience in Royal Commissions and other Commissions of Inquiry includes the provision of early strategic advice, assisting with responses to document production notices and appearances before the Commission, and preparation of submissions.