Overview
On 25 November 2021, the Senate referred the provisions of the Bills to establish the proposed Financial Accountability Regime (FAR) and the proposed Compensation Scheme of Last Resort (CSLR) to the Economics Legislation Committee for inquiry and report by 15 February 2022.
The Final Report recommends the passage of all four Bills - Financial Accountability Regime Bill 2021, Financial Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021, Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021, and Financial Services Compensation Scheme of Last Resort Levy Bill 2021 - without amendment.
According to the report, the 33 submissions received by the inquiry 'showed widespread support for the bills in a modified form'.
Stakeholder Views on the proposed FAR
- According to the report, the majority of submissions supported the policy intent of the FAR Bills to 'improve the operating culture' of banks, insurers and superannuation funds and to increase 'transparency and accountability, both in relation to prudential and conduct related matters'.
- Having said this, the report also flags that a number of submissions raised concerns about various aspects of the design of the proposed FAR regime. Key stakeholder concerns flagged in the report include:
- queries around the rationale for establishing a new FAR regime (as opposed to simply extending the existing Banking Executive Accountability Regime (BEAR))
- concerns about the proposed scope of the regime
- concerns about the potential for the reforms (as currently drafted) to create uncertainty and lead to 'unintended consequences for related entities'
- the perceived duplication of existing laws and obligations
- the absence of civil penalties for individuals in the proposed FAR
- concerns about the design/operation of proposed deferred remuneration requirements
- the perceived lack of clarity around how joint administration of the proposed FAR by the regulators (ASIC and APRA) will work
- concerns about the commencement date for the proposed FAR
- Another concern highlighted in the report, is the lack of certainty around accountable person roles and the fact that some elements of the proposed FAR are not contained in the primary legislation but will be prescribed in ministerial rules which are not yet available (eg details of the roles/responsibilities of accountable persons).
- On this last point, the Committee's view appears to be that the inclusion of this level of prescription/detail in the primary legislation is not desirable (See: Chapter 2 of the report at paras 2.54-2.55).
- Overall, the Committee declined to recommend any amendments to the Bill.
The proposed Compensation Scheme of Last Resort (CSLR) Bills
- According to the report, there was also overall support for the introduction of a Compensation Scheme of Last Resort (CSLR) through the report flags that there were concerns raised in some submissions about the scope, design and funding model for the proposed scheme.
- The report ultimately rejects these reservations, stating:
'The committee is of the view that the scheme, broader than initially envisaged by both the Ramsay Review and Royal Commission, is based on prior extensive evidence, consultation, and recommendations of the Royal Commission, which concluded that a targeted and scalable scheme covering financial advice was the most appropriate response. The committee believes that the proposed compensation cap and levy will ensure the long-term sustainability of the scheme. Importantly, that it correctly balances the liabilities for industry, the provision of just compensation to claimants from scheme contributors and, restoring consumer confidence in the financial services sector as a whole'.
- Concerns were also raised about the fact that the regulations accompanying the Bills are not yet available, leading to uncertainty around implementation. The Committee's response to this can be summed up as follows:
'The committee notes that the accompanying regulations for the bills have not been published and this has meant that preparations for the possible implementation and compliance with the proposed legislative reforms are more difficult for interested stakeholders. However, the committee notes that the regulations will in due course be published, consulted on, and subject to parliamentary scrutiny in due course'.
Expansion of the proposed CSLR to include MIS
In separate additional comments, Labor Committee members expressed support for the introduction of a CSLR, but expressed reservations about the 'narrow focus' of the proposed scheme in light of feedback from witnesses to the inquiry including representatives from CHOICE, the Financial Planning Association of Australia and the Self-Managed Super Fund Association.
Labor Committee members recommended that the government expand the scope of the proposed CSLR to include managed investment schemes (MIS). In their view, this is justified in order to avoid 'poor outcomes' as occurred for example, in the case of the collapse of the Sterling Group.
Labor Committee members did not offer any additional comments on the FAR Bills.
CHOICE has called on the government to prioritise the passage of the legislation
In a statement, CHOICE welcomed the Committee's recommendation that the reforms be passed and expressed the hope that the Bills would be debated in the House of Representatives 'this week so that they can be passed in this term of parliament'.
On the CSLR, CHOICE also reiterated its view that the scope of the CSLR scheme should be expanded to include managed investment schemes.
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[Sources: Senate Standing Committee on Economics Inquiry into the provisions of the Financial Accountability Regime Bill 2021 [Provisions] and Financial Services Compensation Scheme of Last Resort Levy Bill 2021 [Provisions] and related bills Final Report; CHOICE media release 15/02/2022]