The government will introduce broker remuneration reforms and a new best interests duty by the end of 2019, according to its newly released roadmap for implementing royal commission recommendations.
Federal Treasurer Josh Frydenberg has released the government’s financial services royal commission “implementation roadmap”, detailing the timeline for implementing the 54 recommendations that called for government action in commissioner Kenneth Hayne’s final report.
According to the roadmap, published on Monday (19 August), the government will consult on reforms to mortgage broker remuneration and the best interests duty before introducing them by the end of 2019.
Speaking to Loan Market brokers at the group’s Game On conference in Tasmania last week, Mr Frydenberg noted that the government and industry’s “collective goal” should be to ensure that the introduction of a best interests duty “serves as an important signal to consumers that gives them even more confidence to engage with the sector, to seek out a mortgage broker to assist them with their borrowing or refinancing needs”.
“The duty should not impose an unreasonable compliance burden or leave it to a ticker box approach to servicing your clients,” Mr Frydenberg said.
The re-elected government had rejected the royal commission’s recommendation to ban lender-paid broker commissions, opting instead for a review of remuneration in 2022 – to be led by the Council of Financial Regulators and the Australian Competition and Consumer Commission.
According to the new roadmap, released this week, the recommendation to regulate mortgage brokers as financial advisers will be progressed upon completion of the remuneration review, as that review may recommend changes to how financial advisers are regulated, the government’s implementation roadmap stated.
Spekaing after the release of the implementation roadmap, the Treasurer outlined that about a third of the government’s commitments will have been implemented or have legislation before the Parliament by the end of 2019 and more than 50 commitments by the middle of next year.
All royal commission recommendations requiring legislation is slated to be introduced by the end of 2020, Mr Frydenberg said, adding that he expects most of the legislative reforms to be in effect by 1 July 2020.
The government has taken action on 15 recommendations thus far, including a review of the Australian Prudential Regulation Authority.
Mr Frydenberg has said a further $9.3 million will be provided to the Treasury and the Office of Parliamentary Counsel this year to ensure that the government’s timetable for implementing the recommendations can be met. This is in addition to the $12.1 million that was already allocated in the 2019-20 budget.
“It is anticipated that giving effect to the implementation plan will take up 75 per cent of Treasury’s legislative agenda over the next year, with the Treasury legislative program typically representing 25 per cent of the total government legislative program,” the Treasurer said.
The government will also establish an independent review to assess the extent to which changes in industry practices have led to improved customer outcomes, as well as whether there is a need for further reform.
A similar review into the regulators’ actions will take place at the same time, to be conducted by a new financial regulator oversight authority, as recommended by the royal commission.
Implementation timeline welcomed by industry
The Australian Banking Association (ABA) issued a statement on the implementation roadmap, saying that while the timeline was only introduced this year, banks are “well down the track of implementing recommendations for which they are responsible to improve customer outcomes and earn back the trust of the Australian community”.
The chief executive of the ABA, Anna Bligh, said “banks have been working to make changes to ensure that the recommendations become part of their operating fabric”.
“Make no mistake, banks understand what the community and government expects of them and are raising their standards to rightly meet those expectations,” she added.
Ms Bligh also mentioned that the big four, among other banks, have completed culture reviews and introduced “mechanisms for the ongoing tracking of culture to determine whether actions are having the necessary impact”.
“But banks understand that effective cultural change is not going to come about through implementing the royal commission recommendations alone. It will only be achieved by putting the customer at the heart of every decision our banks make,” the ABA chief executive added.
“In addition, all banks continue to review how they remunerate staff, with a focus on good customer outcomes, not just meeting financial targets.”
To oversee the implementation of royal commission recommendations and ensure the banking industry is responding “swiftly” to the government’s legislative processes, the ABA had set up a dedicated Royal Commission Taskforce, which the CEO said have met six times over the past six months and will continue to do so.
However, at the Banking and Finance Oath’s Crossroads conference earlier in August, Ms Bligh noted that while there is a “sense of urgency” to act on the recommendations made by the royal commission, no “shortcuts” should be taken to fully absorb and reflect on the final report.
“The final report is the most important and tangible outcome from the royal commission, and I think it is extraordinary food for thought… The richest insights, in my view, from commissioner Hayne are not in his recommendations. They cannot be gleaned by focusing on those recommendations alone or in isolation,” Ms Bligh said.
“It’s the accompanying commentary, the background and the conclusions that he reaches, and the reasons he gives for those conclusions in which I think the deepest insights can be found.”
‘Lighter touch’ to applying regulation on smaller banks
Heritage Bank also welcomed the government’s implementation roadmap, expressing its support for the creation of a best interests duty for mortgage brokers. It noted that the broker channel is an important part of the mutual bank’s expansion beyond its home state of Queensland.
However, Heritage reiterated that the government needs to continue encouraging competition as it is “one of the best ways to restore trust in the sector”.
“In our view, consumers are best served by having optimal access to great value and choice among providers in the financial services sector. The government can underpin this approach by encouraging competition through mutuals such as Heritage who offer a genuine alternative,” Heritage Bank CEO Peter Lock said.
Mr Lock called for a “lighter touch” approach to imposing regulation on smaller banks who were not singled out by the royal commission.
“This will go a very long way to achieving greater competition and a level playing field in the bank sector,” the CEO added.