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Royal Commission Final Report highlights

The Final Report of the Royal Commission will not force radical changes to the financial services landscape, such as separating wealth and insurance from banks or merging regulators, but it does include many recommendations with wide-ranging implications.

Commissioner Kenneth Hayne started his Report by saying financial institutions and their staff focus too much on the pursuit of profit and personal gain:

"Providing a service to customers was relegated to second place. Sales became all important. Those who dealt with customers became sellers. And the confusion of roles extended well beyond front line service staff. Advisers became sellers and sellers became advisers."

The Final Report makes 76 recommendations, and both the Government and Opposition have already promised to 'take action' to implement all of them, with one exception. The Treasurer said the Government would not immediately accept the ban on upfront commissions paid by banks to mortgage brokers, due to competitive implications.

Here are some highlights of Hayne's recommendation:

Mortgage brokers and best interests duty

The law should be amended to provide that mortgage brokers must act in the best interests of the intending borrower. The obligation should carry a civil penalty provision.

The borrower, not the lender, should pay the mortgage broker a fee for acting in connection with home lending.

Changes in brokers’ remuneration should be made over a period of two or three years, by first prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, then prohibiting lenders from paying other commissions to mortgage brokers.

After a sufficient period of transition, mortgage brokers should be subject to and regulated by the law that applies to entities providing financial product advice to retail clients.

Financial advice ongoing fees

The law should be amended to provide that ongoing fee arrangements:

  • must be renewed annually by the client
  • must record in writing each year the services that the client will be entitled to receive and the total of the fees that are to be charged
  • may neither permit nor require payment of fees from any account held for or on behalf of the client except on the client’s express written authority

Financial adviser disclosure of lack of independence

The law should be amended to require that a financial adviser who would contravene the Corporations Act by assuming or using any of the restricted words or expressions including ‘independent’, ‘impartial’ and ‘unbiased’ must, before providing personal advice to a retail client, give to the client a written statement explaining simply and concisely why the adviser is not independent, impartial and unbiased.

Grandfathered commissions

Grandfathered provisions for conflicted remuneration should be repealed as soon as practicable.

The Government subsequently announced this would be implemented from 1 January 2021. Many financial planners who borrowed money to buy trail commissions books have two years to adjust their businesses to a loss of this revenue.

Hayne added:

"the time when the initial advice was given and the initial conflict arose has passed. The influence of the commission has already done its work once. But the problem remains. The influence continues. Advisers have an incentive to keep their clients in products with grandfathered commissions rather than advise them to move to better products. There can be, and is, no justification for maintaining the grandfathering provisions."

Superannuation trustee obligations 

The trustee of an RSE (Registrable Superannuation Entity) should be prohibited from assuming any obligations other than those arising from or in the course of its performance of the duties of a trustee of a superannuation fund.

Fees on MySuper accounts

Deduction of any advice fee (other than for intra-fund advice) from a MySuper account should be prohibited.

Deduction of any advice fee (other than for intra-fund advice) from superannuation accounts other than MySuper accounts should be prohibited unless the requirements about annual renewal, prior written identification of service and provision of the client’s express written authority (as above) are met.

No hawking of super products

Hawking of superannuation products should be prohibited. That is, the unsolicited offer or sale of superannuation should be prohibited except to those who are not retail clients and except for offers made under an eligible employee share scheme.

One super default fund

Consistent with the Productivity Commission's proposal, it's recommended that a person should have only one default account. To that end, machinery should be developed for ‘stapling’ a person to a single default account.

Retention of 'twin peaks' regulation and superannuation

The ‘twin peaks’ model of financial regulation should be retained (that is, separation of APRA and ASIC).

The roles of APRA and ASIC in relation to superannuation should be adjusted to accord with the general principles that:

  • APRA, as the prudential regulator for superannuation, is responsible for establishing and enforcing Prudential Standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by superannuation entities APRA supervises are met within a stable, efficient and competitive financial system; and
  • as the conduct and disclosure regulator, ASIC’s role in superannuation primarily concerns the relationship between RSE licensees and individual consumers.

A new oversight authority for APRA and ASIC, independent of Government, should be established by legislation to assess the effectiveness of each regulator in discharging its functions and meeting its statutory objects. Graeme Samuel has already been appointed to run this function.

Other details

The Report makes 24 referrals of institutions for misconduct which may involve civil or criminal proceedings, but contrary to expectation, it does not name any individual. The only major bank to escape mention is Westpac. Regulators need to decide the next steps, including the potential for criminal charges. Hayne says regulators have failed to prosecute when given an opportunity:

“Very often, the conduct has broken the law. And if it has not broken the law, the conduct has fallen short of the kind of behaviour the community not only expects of financial services entities but is also entitled to expect of them. Too often, financial services entities that broke the law were not properly held to account.”

He draws attention to sales techniques in branches, saying:

“That is why the attempts by ANZ and CBA to sell superannuation in bank branches under a ‘general advice’ model may have contravened the law.”

Concluding comments

Kenneth Hayne has passed the baton to legislators and regulators to act on his recommendations, including enforcing existing laws and giving far greater priority to customer needs over profits.

One of the fears behind the impact of the Royal Commission is the reduction in lending by banks to all sectors of the economy, especially small business. There is no news in the Final report to suggest it will become worse than it already is, and Treasurer Josh Frydenberg said,

“Let me be clear. Personal responsibility for financial decisions rests with those who make them. However those who suffer harm as a result of misconduct will have access to redress.”

If looking for the most damning criticism of any company or people, it is probably NAB's Ken Henry and Andrew Thorburn who appear most exposed. Hayne said of them,

“I am not as confident as I would wish to be that the lessons of the past have been learned ... Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains.”

Like the consequences for the entire report, the real improvements to the financial system after a year of unprecedented scrutiny, are ahead of us.


Graham Hand is Managing Editor of Cuffelinks.


February 07, 2019

Thanks for the information in your newsletter (on added strength of ASIC) but you need to remember back to post GFC America. Not only were the CEO criminals who cause this not fined but they avoided jail and bonuses were taken out of public money to stump up the banks. CEO criminals won, the public lost. It'll be no different here.

February 06, 2019

Well for mine the whole process has been a disappointment - terms of reference - the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Sector.
Having had a former life within competent and duty bound professions - Commissioner Hayne and team of elfs did an average job and the stock market is a pretty fair indicator that the process was a dismal failure. up on average 5-7 % the next day. Commissioner Hayne may well be a good lawyer but not an observer of the financial services industry.
For what its worth - I believe he has an outstanding intellect but was ultimately torn between the black letter law and the concepts of social justice. Inevitably defaulted to his training - black letter law - without any observable appreciation of the context.

a lot of finger wagging - looking down my glasses.

For mine a serious opportunity wasted. He had the chance to pursue Misconduct in the Banking, Superannuation and Financial Services Sector. Pity. Nothing changes and ultimately we will all get back to this point.

and Yes I am in the industry and yes I have had another life with competent, credible, duty bound individuals as my bosses.

February 06, 2019

Victims will be forgotten and the banks and financial institutions will go back to situation normal. Doesn't matter who's in power. This RC is just another 'inquiry' in a long list over decades that makes little if any change once the lobbyists get the ear of governments.

Greed and the profit motive are the great incentives for bad actors and Australians are by and large too slack to take an interest. A very scary combination. Companies want to make your money their money with the least amount of effort involved. No one cares more about your money than you. Wake up Australia and take an interest in your wealth development. You can bet the super, bank and financial companies are big time.

Michael Tadros
February 05, 2019

Many thanks for the succinctness of this, Graham. My only "rant" about the recommendations, in as much as financial planning and services is concerned is that the person "on the ground" had no representation, or at the least, weak and obscure.

Steve Martin
February 05, 2019

A great summary - thanks Graham!

Wayne Barber
February 05, 2019

First run take away. There appears (apart from opt in at 2 year delivery to a 1 year cycle) a deficiency of understanding of the existing FOFA legislation by the commissioner re: adviser ongoing fee requirements.


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