Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry announced

The Government has announced a Royal Commission into the alleged misconduct of Australia’s banks and other financial services entities.

Retired High Court Judge Kenneth Hayne will be appointed as the Commissioner.

The Royal Commission’s proposed terms of reference are not limited to the major banks; it includes all authorised deposit-taking institutions (including Macquarie Bank, regional banks, mutual banks, credit unions and building societies), insurers, Australian financial services licensees and superannuation funds (not including self-managed superannuation funds).

UPDATE 18 December 2017:  The Governor-General has issued the Letters Patent establishing the Royal Commission. Intermediaries between borrowers and lenders have been added to the definition of “financial services entity” covered by the Inquiry following the Government’s consultation with the appointed Commissioner on the draft Terms of Reference.

UPDATE 23 January 2018: First hearing announced

“Misconduct” includes conduct that:
a) constitutes an offence against a Commonwealth, State or Territory law in relation to the provision of a financial service, as existed at the time of the alleged misconduct; or
b) is misleading and/or deceptive; or
c) indicates a breach of trust or duty or unconscionable conduct; or
d) breaches a professional standard or a recognised and widely adopted (conduct) benchmark.

The Commission may submit to the Government an interim report no later than September 2018 and must submit a final report within 12 months.

The Royal Commission’s proposed terms of reference provide that it will not defer, delay or limit, in any way, any proposed or announced policy, legislation or regulation that the Government is currently implementing (such as the Banking Executive Accountability Regime and the Australian Financial Complaints Authority).

The Royal Commission will cover a number of areas including:

  • Any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations; and
  • The use by a financial services entity of a 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.

As part of the review, the Royal Commission will consider, amongst other things, whether any findings 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;
  • other practices, including risk management, recruitment and remuneration practices;
  • The effectiveness of mechanisms for redress for consumers of financial services;
  • The adequacy of existing Commonwealth laws, internal systems of financial services entities, and forms of industry-self regulation, including industry codes of conduct.

The Commission may also recommend whether any further changes to the legal framework, practices within financial services entities and the financial regulators, are necessary to minimise the likelihood of misconduct by financial services entities in future

The Royal Commission will not inquire into other matters such as financial stability or the resilience of banks.

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