Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 295

Inside view: Will the Hayne Report bring real change?

Australia's Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry certainly lived up to its name.

Across 68 sitting days, with 130 witnesses and 10,000 public submissions, ongoing revelations of systemic misconduct and unethical behaviour were rife.

Exposed was a toxic culture of customers being ripped off, as if they were acceptable collateral damage in a shameless pursuit of short-term profits and shareholder returns. Disadvantaged customers were particularly vulnerable and even dead clients were charged fees.

Commissioner Kenneth Hayne, normally so understated and forensic, appeared exasperated by the extent of rampant greed and blatant conflicts of interest.

His three-volume final report includes 76 recommendations for reform and refers 24 cases to regulators for civil and potentially criminal breaches of the law.

Pamela Hanrahan, a professor of commercial law and regulation at UNSW Business School, was an expert adviser to the commission. She reflects on her experience.

What exactly was your role?

I was the author of three of the background papers published by the commission – one on financial services, one on superannuation, and one on foreign financial regulation.

Which of the many revelations did you find most disturbing?

They were all pretty disturbing. I think the most shocking aspect of it wasn't just a question of people being engaged in sharp practices, or behaving in a way that with the benefit of hindsight you might not think was the best way to behave, but actually that there was widespread failure to comply with legal requirements.

Are the existing rules of conduct too complicated to follow?

They are not too complicated to follow, but they are unnecessarily complicated and there are lots of special exceptions and special qualifications to the regulations and that diminishes the normative force of the rules. The Commissioner thinks the law would benefit from being simplified. So, being less technical and more focused on the actual forms of behaviour that you want to encourage.

How has the sector got itself into this mess, again?

The Commissioner says it's because it has been too focused on performance, both at the corporate level and also at the level of individual incentives, and has lost sight of the fact that they need to achieve that result in a way that is compliant with law and serves the interests of customers.

Many financial services now provided to households are not that old and have really emerged during the past 25 years. The industry has grown very rapidly. We now have a situation where there are big organisations and big systems and it has got away from us.

How likely are prosecutions from the 24 cases referred to regulators?

I think it's likely that there will be prosecutions because, aside from everything else, there's significant community and political pressure on regulatory agencies to take that option wherever it's available.

What are the suggested new powers for the regulators, ASIC and APRA?

ASIC has already been promised significant new powers and that legislation has been in the parliament since July last year. It's likely that will pass, strengthening the penalties and giving them more options. ASIC has also received additional resources and personnel during the past year.

They have new powers to come, but it's less an issue of not having adequate powers rather than not having exercised them. I think that's the clear finding in the report. So in order to whip them into shape, the Commissioner has recommended establishing a three-person oversight body.

He could have recommended the establishment of an independent board for each agency, which is used in other places. But he's gone in the direction of three part-time members, with a quite specific mandate to assess effectiveness and performance and report to government. You have to wonder how effective that's going to be in practice.

Why do you think Hayne did not mandate a structural separation between financial products and advice?

He does talk at length about a conflict that is very difficult to resolve, which inclined him to think that maybe we ought to require structural separation, and he talks about different options. And then he says that almost none of the submissions, including from ASIC, recommended separating product and advice, and that it would cause very significant disruption.

So, consistent with the rest of the report, which is conservative in nature, he takes the view that unless he's persuaded that the benefits of separation would outweigh the costs, he should leave the reforms already in train, and industry restructuring, to run their course.

Mortgage brokers will lose trailing commissions in three years’ time. Why were they singled out?

They face the same problems that financial advisers faced and which was attempted to be addressed in the Future of Financial Advice (FOFA) reforms five years ago, where the commissions were banned for them. So it's the same issue in that you've got intermediaries, clients go and see them, ask for assistance in selecting the best financial products and believe, perhaps naively, that the mortgage broker is there to negotiate the best deal for them. But the product issuers are paying the mortgage brokers to do it and that creates a potential conflict of interest.

I think the Commissioner has concluded that existing arrangements around mortgage broking are detrimental to the community overall and they need to change.

Bank stocks and profits have soared since the release of the report. Will its implications just be a cost of doing business?

No, the banks will have to change their approach. Of course, from bank shareholders' point of view, the report could have been much more radical than it was. And I think that had been built into the market price.

Regardless of the recommendations, it's the forensic process of examining their businesses and their business models that will have the most long-term impact. But this is the 70th inquiry that we've had in 10 years. Are we going to learn the lessons this time?

Banks are stubborn. They are very large, very powerful and are very resistant to change. They have complex systems. It's like turning around the Queen Mary. So it's going require a lot of effort – right from boards, which will have to think very carefully if they've got the right CEO, and the right business – because we can't go through this again. And what they'll find, if they don't respond, is that they will just end up being overtaken by new business models and disruptive technologies and so on.

The biggest difference is that, hopefully, their customers will realise that the bank is not there to help them and they have to be vigilant in their own interests. And that would be a significant improvement.

 

Pamela Hanrahan is a Professor of Commercial Law and Regulation, and Deputy Head of School (Research) at UNSW’s School of Taxation & Business Law.

This article is sourced from UNSW Business School’s BusinessThink (an Alliance of Cuffelinks) and reproduced with permission.


 

Leave a Comment:

RELATED ARTICLES

8 problems the Royal Commission missed

Royal Commission Final Report highlights

How banks may have saved their wealth businesses

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Latest Updates

Shares

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Superannuation

When you can withdraw your super

You can’t freely withdraw your super before 65. You need to meet certain legal conditions tied to your age, whether you’ve retired, or if you're using a transition to retirement option. 

Retirement

A national guide to concession entitlements

Navigating retirement concessions is unnecessarily complex. This outlines a new project to help older Australians find what they’re entitled to - quickly, clearly, and with less stress. 

Property

The psychology of REIT investing

Market shocks and rallies test every investor’s resolve. This explores practical strategies to stay grounded - resisting panic in downturns and FOMO in booms - while focusing on long-term returns. 

Fixed interest

Bonds are copping a bad rap

Bonds have had a tough few years and many investors are turning to other assets to diversify their portfolios. However, bonds can still play a valuable role as a source of income and risk mitigation.

Strategy

Is it time to fire the consultants?

The NSW government is cutting the use of consultants. Universities have also been criticized for relying on consultants as cover for restructuring plans. But are consultants really the problem they're made out to be?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.