The royal commission will investigate misconduct in the financial services sector. For NIBA’s purposes, a financial services entity includes every general insurer, life insurer and reinsurer, and all holders of an AFS licence and their authorised representatives.
In his announcement, Prime Minister Malcom Turnbull said: “It will cover the nation’s banks, big and small, wealth managers, superannuation providers, insurance companies. It will be a comprehensive inquiry.”
NIBA CEO, Dallas Booth has said, “The commission is going to be big, it is not clear to me how exactly brokers will be affected. It will impact all AFS license holders, which includes brokers and the terms of reference are very broad.”
Who’s going to be in charge?
The Government has appointed former High Court judge Kenneth Hayne to run the royal commission. Hayne has spent more than 17 years on the bench at the nation’s top court and several years before that as a judge of the Victorian Supreme Court.
When does it start and end?
The royal commission will start early this year and have 12 months to complete its inquiries, with a final report expected to be delivered by February 1, 2019.
The key elements of the Royal Commission’s Terms of Reference that you should know:
Misconduct includes conduct that constitutes an offence, is misleading or deceptive, is a breach of trust, breach of duty or unconscionable conduct, or is conduct that breaches a professional standard or a recognised and widely adopted benchmark for conduct.
The commission will also examine whether any conduct, practices or behavior or business activities falls below “community standards and expectations”.
“Community standards and expectations” are not defined in the terms of reference. It will be a matter for the Royal Commissioner to determine what might be considered reasonable community standards and expectations.
(2) Culture and remuneration
Whether any misconduct or poor conduct is attributable to culture and governance practices in a financial services entity, or in the relevant industry or industry sector.
Whether the misconduct or poor conduct results from other practices, including recruitment and remuneration practices, of a financial services entity or the relevant industry or industry sector.
Redress in this context could include civil claims for damages for breach of statutory or common law duties to the client, or external dispute resolution processes such as FOS. The role of insurance broker professional indemnity insurance arrangements is highly relevant here.
(4) Regulatory framework
The adequacy of existing laws, forms of industry self regulation (including industry codes of conduct) and internal systems within entities to identify, regulate and address misconduct, in order to meet community standards and expectations and to provide redress to consumers.
Note: this item covers both misconduct and conduct that does not meet community standards and expectations.
This item places the Insurance Brokers Code of Practice, and NIBA’s commitment to professionalism in insurance broking, directly within the terms of reference of the Royal Commission.
“The adequacy of existing laws” could include an examination of the Government’s professionalism legislation, which mandates minimum education standards, codes of ethics, industry codes of practice and the like. General insurance was excluded from this package of reforms.
(5) Regulator effectiveness
The effectiveness and ability of regulators to identify and address misconduct.
Note, this item only refers to the regulation of misconduct (breaches of the law or legal duties – see above), and not conduct that does not meet community expectations.
(6) The need for further reform
Taking into account law reforms already announced by the Federal Government, whether any further changes are necessary to minimize the likelihood of misconduct. Changes might include –
· The legal framework
· Practices within financial services entities
· The operations of financial regulators.
(7) There are a number of additional elements worthy of note:
· An interim report is to be provided by 30 September 2018, and a final report is to be provided no later than 1 February 2019;
· Priority must be given to matters that “have greater potential for harm if not addressed expeditiously”;
· The Royal Commissioner can decide to not look into particular matters even if they fall within the Terms of Reference – presumably this is intended to allow the Royal Commission to meet its deadline.