Political Parties Split On Implementing Hayne Recommendations

Adele Ferguson, Business Columnist writes for the Australian Financial Review:

Apr 15, 2019 — 12.01am

It was a different tune three years ago. The opposition’s election campaign kicked off with a call to the banks that a Shorten government would call a royal commission.

Scott Morrison, then treasurer, was having none of it, warning a royal commission would hurt Australia’s international reputation, threaten economic stability and be a waste of money because we had a tough cop on the beat.

Three years on, with a royal commission still searing through the minds of those who saw the headlines throughout 2018, this election will be fought on trust.

Commissioner Kenneth Hayne said greed drove almost every example of misconduct uncovered by the royal commission.

As shadow minister for financial services Clare O’Neil says, “The choice at this election is between Labor’s plan to give bank victims a voice, a fair hearing and proper compensation, or the Coalition’s record of backflips, weasel words and blocking a royal commission for 600 days”.

When a reluctant Coalition finally called a royal commission in late 2017, the terms of reference was restrictive, the timetable an excruciatingly tight 12 months and the budget a frugal $70 million.

The big question is how each party will do it.

For starters they both need to step up and properly fund the regulators. As both parties go into the election campaign, the key difference is the coalition sees the royal commission and its recommendations as the end process of bank reform, while Labor sees it as the beginning. This was highlighted in a report released on April 8 by a Senate committee into the resolution of disputes with financial service providers within the justice system. The inquiry was held to investigate whether financial institutions use the legal system to bully customers into accepting settlements and whether the asymmetry of power has been abused. It made a series of recommendations, including the introduction of an industry levy bankrolled by listed financial services companies to fund legal assistance and financial counselling for consumers and small businesses that don’t have the resources to fund the legal action. The report also called on the government to improve access to legal assistance services for small businesses. Other reforms included increasing the current compensation cap available to consumers through the the Australian Financial Complaints Authority, the external dispute resolution body, to $2 million, including for credit, insurance and financial advice disputes; and setting up a retrospective compensation scheme independent of AFCA, to allow victims of bank misconduct who received a past external dispute resolution determination or court judgment to have the matter reviewed if they believed it was unjust. Labor backs all the reforms. Indeed, well before the report was released, Labor has pledged a $640 million “banking fairness fund” to be funded by a levy paid by financial institutions among Australia’s top 100 listed companies. The levy would target nine institutions, including the big four banks and AMP, and the size of the levy would be linked to their market capitalisation. It said $320 million would be used to double the number of taxpayer-funded financial counsellors, from 500 to 1000 to give free advice and ­advocacy to an extra 125,000 ­people a year and increase the number of free financial rights lawyers from 40 to 240. A dissenting report was included in the Senate report, where Coalition members rejected certain recommendations including not supporting additional resourcing for community legal services and financial counsellors on the basis it believed the industry already pays for AFCA. It said: “Coalition members of the committee are satisfied that the financial sector contributes substantially to the cost of dispute resolution through membership of AFCA.” It said any further contributions would require careful consideration. It said coalition members of the committee also note that the recommendation was “vague”. The Coalition members said a recommendation to increase AFRCA’s cap on compensation to $2 million and review it now was premature and unnecessary as AFCA has been in place since November 2018 and the government had announced a review would take place 18 months from that time. The Coalition members slammed as “convoluted and ambiguous” the recommendation for a compensation scheme of last resort independent of AFCA. When it comes to whistleblowers, there are also noticeable differences. Labor has promised a suite of reforms to whistleblower protections if it wins office, including introducing a United States-style whistleblower reward system. Other reforms include a protection authority, the appointment of a special prosecutor to go after corporate crooks and an overhaul of the current whistleblower laws into a single act. The whistleblower reforms aren’t perfect, but go much further than the Coalition, which not only doesn’t see a need to change current whistleblower legislation but prompted outgoing coalition minister Kelly O’Dwyer to label its reward system for whistleblowers as "wacky". Whistleblowers play a huge role exposing wrong doing and in the case of the financial services sector it was whistleblowers including CBA whistleblowers Jeff Morris and Ben Koh, as well as the IOOF, Macquarie, NAB and Timbercorp whistleblowers who played a big role in exposing the need for a royal commission. Some of these whistleblowers lost their careers, suffered mental issues and were subject to smear campaigns. One received a death threat. There are differences in other areas, including implementing Hayne recommendations. For instance, Hayne recommended a ban on grandfathered commissions to eliminate conflicted remuneration. The Coalition wants to give the financial planning industry until January 2021 to phase them out, while Labor wants them gone by January 2020. In mortgage broking, Hayne called for a ban on all commissions, including trailing commissions. Labor backs the ban on trailing commissions in respect of new loans, while the Coalition has kicked any decision down the road for three years, when it said it will review them then. Hayne’s calls for industry codes to be mandatory and enforceable have been embraced by Labor but the coalition is yet to commit. Industry codes that aren’t mandatory or enforceable aren’t worth the paper they are written on. Life insurance is a case in point, where its codes are virtually useless. Hayne also recommended a ban on hawking. The Coalition proposes to take a softer stance on hawking, which involves banning hawking of “unrelated" products, while Labor has pledged to fully implement Hayne’s recommendation that only the type of product a consumer asks about can be sold. The removal of point of sale exemption for car dealers and retailers from credit licensing was another recommendation that has attracted a difference between both parties. Labor says it backs the recommendation, while government says it will consult so that “balance is achieved between consumer protection and access to products and services”. The other big difference is payday lending. It has been more than 1080 days since the coalition received a set of recommendations for sector reform and has sat on them. According to shadow treasurer Chris Bowen at the recent The Australian Financial Review Banking & Wealth Summit, it has resulted in 800,000 Australians signing up for payday loans, with at least 15 per cent ending up in trouble. Bowen promised to dust off the legislation if Labor wins office. As the head of the Consumer Action Law Centre Gerard Brody said recently, “this would stop consumer lease providers charging effective interest rates of up to 884 per cent”. At the end of the day, if there is a contest between Labor and the Coalition on financial reforms, it is obvious who is in front. But when it comes to some of the big ticket structural issues such as vertical integration, super, remuneration or the regulators, both parties have adopted Hayne’s approach, which was to ignore them in the hope they would sort themselves out. Here’s hoping.