Consultation on draft legislation to implement Royal Commission recommendations

The Federal Government has released for consultation draft legislation to implement the 22 recommendations and two additional commitments from the Banking, Superannuation & Financial Services Royal Commission to enhance protections for consumers and small businesses and to strengthen the role of financial regulators.

This exposure draft legislation is now open for public comment until 28 February 2020. National Insurance Brokers Association (NIBA) CEO Dallas Booth, has confirmed that NIBA is going through the draft legislation with a fine-toothed comb, “We will be making a submission on behalf of brokers by the end of the month and invite our members to share any concerns they might have regarding the draft legislation.”

“Some of the legislation will be important for brokers, especially provisions on hawking of insurance products, the use of the word “insurance” and new obligations for breach reporting. We will also look at provisions regarding legal enforcement of codes of practice” Booth said.

The draft legislation is looking to implement the following:

  • Recommendation 1.15 to strengthen the existing code of conduct framework in the financial services sector to enable certain provisions of financial services industry codes to be made ‘enforceable code provisions’ which, if breached, may attract civil penalties, and to create a new mandatory code of conduct framework.
  • Recommendation 2.1 to enhance the existing ongoing fee arrangement provisions.
  • Recommendation 2.2 to require entities who are authorised to provide personal advice to a retail client to disclose in writing to the client where they are not independent and why that is so.
  • Recommendation 3.1 to prohibit superannuation trustees from having duties other than those arising from or in the course of the performance of their duties as a trustee of a superannuation fund.
  • Recommendation 3.2 to remove a superannuation trustee’s capacity to charge advice fees from MySuper products.
  • Recommendation 3.3 to remove the capacity of a superannuation trustee to charge advice fees to a member unless certain conditions are satisfied, including the new requirements outlined in relation to Recommendation 2.1 for ongoing fee arrangements.
  • Recommendation 3.4 to prohibit the hawking of superannuation products.
  • Recommendation 4.1 to prohibit the hawking of insurance products.
  • Recommendation 4.3 to establish an industry-wide deferred sales model for the sale of add-on insurance products.
  • Recommendations 4.4 to provide ASIC with the power to impose a cap on commissions for add-on insurance products and insurance-like products.
  • Recommendation 4.5 to implement a duty to take reasonable care not to make a misrepresentation to an insurer for consumer insurance contracts.
  • Recommendation 4.6 to add an extra condition for life insurers to show they would not have entered into a contract on any terms if they had known about the unintentional misrepresentation or non-disclosure.
  • Additional commitment in response to recommendation 4.2 to restrict use of the term ‘Insurer’ and ‘Insurance’ if the product or service is not insurance, in circumstances where it is likely that the product or service could mistakenly be believed to be insurance.

The Government is also looking at measures to strengthen and enhance the regulatory regimes for the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) by implementing:

  • Recommendation 2.7 to establish a compulsory scheme for checking references for prospective financial advisers.
  • Recommendations 2.8 and 7.2 to strengthen breach reporting requirements for Australian financial services licensees.
  • Recommendation 2.9 to require Australian financial services licensees to investigate misconduct by financial advisers and appropriately remediate clients affected by the misconduct.
  • Recommendation 1.6 will apply the new obligations under recommendations 2.7, 2.8, 2.9 and 7.2 to Australian credit licensees in relation to conduct by mortgage brokers. This will also introduce breach reporting requirements for Australian credit licensees more generally.
  • Recommendation 3.8 and 6.3 to adjust APRA and ASIC’s roles in relation to superannuation to accord with the principles that APRA is the prudential regulator and ASIC the conduct and disclosure regulator.
  • Recommendation 6.4 to give ASIC joint responsibility for enforceable provisions in the Superannuation Industry (Supervision) Act 1993 which have consumer protection as their touchstone.
  • Recommendation 6.5 to ensure that APRA’s role is unchanged. APRA remains responsible for prudential and member outcomes regulation in superannuation.
  • Recommendation 6.14 to establish the Financial Regulator Assessment Authority to independently review the effectiveness of APRA and ASIC, and report on its findings to the Minister.
  • Additional commitment in response to recommendation 7.2 to provide ASIC with powers to give directions to financial services and credit licensees consistent with the recommendations of the ASIC Enforcement Review Taskforce.

The exposure draft materials are available on the Treasury’s website here.