Treasurer Josh Frydenberg has outlined a 'full implementation roadmap' for actioning the 54 Financial Services Royal Commission (FSRC) recommendations directed at the government.

Announcing the plan, Mr Frydenberg reiterated the government's commitment to act on all 76 recommendations and to go further in some instances.  Mr Frydenberg commented that the plan represents the most comprehensive corporate and financial services law reform process since the 1990s when the Corporate Law Economic Reform Program began.

Timing?

Mr Frydenberg highlighted the following implementation milestones.

• By the end of 2019, more than 20 commitments, around one third, will have been implemented or have legislation before the Parliament
• By mid-2020, more than 50 commitments, close to 90%, will have been implemented or have legislation before the Parliament
• By the end of 2020, remaining recommendations requiring legislation will have been introduced
• For measures contained in legislation introduced into the Parliament before 1 July next year, Mr Frydenberg said that the government expects the majority to commence by 1 July 2020 or from Royal Assent.
• The government will establish an independent review in three years' time to assess the extent to which changes in industry practices have led to improved consumer outcomes and the need for further reform.   In addition, there will be a similar review into the regulators' actions, to be undertaken by the new financial regulator oversight authority that the Financial Services Royal Commission recommended, and the government agreed, be established.

Additional resources

Over the next 18 months the reforms will 'dominate the Treasury's legislative program', with the work required equivalent to almost three-quarters of its current program.   To achieve the implementation timetable, Mr Frydenberg said that additional resources will be provided to the Financial Services Reform Taskforce within Treasury and to the Office of Parliamentary Counsel.

Legislation will be introduced without 'undue delay'

'Implicit in our implementation plan is that consultation on individual measures will be focussed on how the measures can best be implemented, not whether they should be implemented. The Royal Commission's recommendations and the Government's response are clear, now is the time for action, not more debate' Mr Frydenberg said.

Mr Frydenberg went on to say that both the Federal Opposition and the government have agreed to implement the FSRC recommendations, he expects to achieve the 'passage of relevant legislation without undue delays'.

The government has said that it will look to implement the reforms in a way that is consistent with the Financial Services Royal Commission’s recommendations that, as far as possible exceptions and qualifications to generally applicable norms of conduct be eliminated, and legislation applying to financial services firms expressly identify what fundamental norms of behaviour are being pursued.

Further details

Implementation Progress Update

Mr Frydenberg said that to date, the government has 'already implemented 15 of its commitments, 8 of which relate to Commissioner Hayne's recommendations and 7 to our additional commitments'. 

The Treasurer added that significant progress has also been made on a further 5 recommendations with draft legislation either introduced to the Parliament, released for comment or detailed consultation papers issued.

Implementation roadmap — timelines for the implementation of the recommendations directed at government

[Note: Appendix A (p8) of the government's implementation roadmap sets out the timelines for the implementation of recommendations directed at the government.  Appendix B sets out the actions and timing of the regulator's (ASIC and APRA's) implementation plans, and Appendix C sets out industry actions and implementation timelines.]

Legislation to be consulted on and introduced by the end of 2019: measures to improve consumer protections

• Recommendation 1.2 – Mortgage broker best interests duty
• Recommendation 1.3 – Mortgage broker remuneration (consistent with the government’s response)

[Note: In its initial response to the FSRC recommendations released in February the government said that from 1 July 2020, the government will prohibit for new loans the payment of trail commissions from lenders to mortgage brokers and aggregators, require that the value of upfront commissions be linked to the amount drawn-down by borrowers and not the loan amount, and ban campaign and volume-based commissions and payments. In addition, the government said that it would limit to two years the period over which commissions can be clawed back from aggregators and brokers and prohibit the cost of clawbacks being passed on to consumers.  The government also said it would task the Council of Financial Regulators and the ACCC to conduct a review into the impact of the changes, and the implications for consumer outcomes and competition of moving to a borrower pays remuneration structure for mortgage broking, as recommended by the Commission.]

• Recommendation 2.4 – Ending grandfathered commissions for financial advisers (legislation introduced on 1 August 2019)

[Note: This appears to be a reference to Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 which is at second reading stage before the House of Representatives.]

• Recommendation 4.2 – Removing the exemptions for funeral expenses policies
• Recommendation 4.7 – Application of unfair contract terms provisions to insurance contracts

[Note: Treasury is consulting on draft legislation which proposes to extend the application of the unfair contracts terms regime to insurance contracts in line with Recommendation 4.7.  See: Governance News 30/07/2019] 

• Recommendation 4.8 – Removal of claims handling exemption for insurance

[Note: The timing for implementing this recommendation appears unclear given that the government's implementation roadmap lists it as being consulted on and introduced by the end of 2019, and also as being consulted on and introduced by 30 June 2020.  Asked to clarify, Treasury has confirmed that the consultation period will take place by the end of 2019 and the legislation will be introduced by the end of 2020.]

[Note: The government issued a consultation paper seeking feedback on its proposed approach to implementing Recommendation 4.8,  (for both life and general insurance products) in March.  For a summary of the government's proposed approach see: Governance News The government consulted on 06/03/2019] 

In addition the roadmap includes four 'additional commitments': ASIC’s search warrants powers (ASIC Enforcement Review); ASIC’s telecommunications interceptions powers (ASIC Enforcement Review); ASIC’s licensing powers (ASIC Enforcement Review); ASIC’s power to ban people in the financial sector (ASIC Enforcement Review).  

Legislation to be consulted on and introduced by 30 June 2020: measures to improve consumer protections

• Recommendation 1.7 – Removal of point-of-sale exemption
• Recommendation 1.15 – Enforceable code provisions for industry codes of conduct
• Recommendation 2.1 – Annual renewal and payment for financial advice
• Recommendation 2.2 – Disclosure of lack of independence of financial advisers
• Recommendation 3.1 – No other role or office for trustees of Registrable Superannuation Entities (RSE)
• Recommendation 3.2 – No deducting advice fees from MySuper accounts
• Recommendation 3.3 – Limitations on deducting advice fees from choice superannuation accounts
• Recommendation 3.4 – No hawking of superannuation products
• Recommendation 4.1 – No hawking of insurance products
• Recommendation 4.3 – Deferred sales model for add-on insurance
• Recommendation 4.4 – Cap on commissions paid to vehicle dealers for sale of add-on insurance products
• Recommendation 4.5 – Duty to take reasonable care not to make a misrepresentation to an insurer
• Recommendation 4.6 – Limiting circumstances where insurers can avoid life insurance contracts
• Recommendation 4.8 – Removal of claims handling exemption

[Note: The timing for implementing this recommendation appears unclear given that the government's implementation roadmap lists this recommendation as being consulted on and introduced by the end of 2019, and also as being consulted on and introduced by 30 June 2020.  Treasury has confirmed that the consultation period will take place by the end of 2019 and the legislation will be introduced by the end of 2020] 

• Additional commitment in response to Recommendation 4.2 – Restricting use of the term ‘insurer’ and ‘insurance'
• Recommendation 1.6 – Reference checking and information sharing for mortgage brokers
• Recommendation 2.7 – Reference checking and information sharing for financial advisers
• Recommendation 2.8 – Licensee obligations to report compliance concerns
• Recommendation 2.9 – Licensee obligations where misconduct by financial advisers
• Recommendation 3.8 – Adjustment of APRA’s and ASIC’s roles in superannuation
• Recommendation 6.3 – General principles for ASIC and APRA to co-regulate superannuation
• Recommendation 6.4 – ASIC as conduct regulator for superannuation
• Recommendation 6.5 – APRA to retain current functions for superannuation
• Recommendation 6.9 – Statutory obligation for APRA and ASIC to co-operate and share information
• Recommendation 6.14 – A new oversight authority for APRA and ASIC
• Recommendation 6.11 – Improving ASIC’s Board meeting procedures
• Recommendation 7.2 – Implementing the ASIC Enforcement Review Taskforce’s recommendations to improve the breach reporting regime
• Additional commitment in response to Recommendation 7.2 – Implementing the ASIC Enforcement Review Taskforce’s directions power recommendations

Legislation to be consulted on by the end of 2020 

Access to redress and a new disciplinary body: Recommendation 2.10 – A new disciplinary system for financial advisers; Recommendation 7.1 – Compensation scheme of last resort

Measures to strengthen financial regulators

• Recommendation 3.9 – Extending the Banking Executive Accountability Regime (BEAR) to RSE licensees
• Recommendation 4.12 – Extending the BEAR to APRA-regulated insurers
• Recommendation 6.6 – Joint administration of the BEAR
• Recommendation 6.7 – Statutory amendments to facilitate co-regulation
• Recommendation 6.8 – Extending the BEAR to all APRA-regulated financial services institutions.
• Additional commitment – extension of the executive accountability regime to non-prudentially regulated financial entities to be administered by ASIC 

Reviews to be conducted in 2022 

• Recommendation 1.4 – Council of Financial Regulators and the Australian Competition and Consumer Commission review of changes to mortgage broker remuneration and operation of upfront and trail commissions
• Recommendation 2.3 – Review of measures to improve the quality of financial advice – Consistent with the Royal Commission recommendations, the review will examine all exemptions from the ban on conflicted remuneration, including for general insurance, consumer credit insurance, timeshare and stockbroking remuneration, and stamping fees
• Recommendation 2.6 – Review of each remaining exemption from the ban on conflicted remuneration. This review will occur as part of the review of measures to improve the quality of financial advice (recommendation 2.3)
• Additional commitment – Independent inquiry into changes in industry practices
• Additional commitment – Assessment of the effectiveness of changes made by the regulators following the Royal Commission by the (to be established) financial regulator oversight authority

Other measures

• Recommendation 1.11 – A national farm debt mediation scheme – The government is working with states and territories through the Agriculture Ministers’ Forum (AGMIN) to progress work on the establishment of a national farm debt mediation scheme
• Recommendation 1.5 – Regulating mortgage brokers as financial advisers – This recommendation will be progressed following the review of financial advice reforms (recommendation 2.3), given that review may recommend changes to the regulation of financial advisers
• Recommendation 3.5 – One default superannuation account – Implementation of this recommendation will be considered in the context of the findings and recommendations of the Productivity Commission’s report Superannuation: Assessing Efficiency and Competitiveness
• Additional commitment in response to Recommendation 7.1 – Increasing AFCA’s role in remediation programs – legislation to be introduced by mid-2021
• Additional commitment – Extension of Federal Court jurisdiction in relation to criminal corporate crime – legislation to be introduced by mid-2020

Industry Response to the release of the government's implementation roadmap

• Australian Banking Association: In a statement, The Australian Banking Association (ABA) welcomed the release of the government's road map. ABA CEO Anna Bligh said that lenders are already 'well down the track' of making changes to earn back the trust of the community following the release of the Financial Services Royal Commission's final report six months ago.  More particularly, Ms Bligh said that of the ten recommendations directed at industry, six involved changes to the Banking Code, all of which are under way, with five awaiting approval by the regulators (with a planned implementation date of March 2020).  'Make no mistake, banks understand what the community and government expects of them and are raising their standards to rightly meet those expectations' Ms Bligh said.
• Financial Services Council: In a statement, welcoming the release of the implementation roadmap, Financial Services Council CEO Sally Loane, cautioned that though it is 'very important to move quickly to rebuild consumer confidence and enhance consumer outcomes' there remain areas that need to be 'discussed with government' eg recommendation 2.10 (a new disciplinary system for advisers) and recommendation 7.1 (a compensation scheme of last resort).   Ms Loane said that 'any legislation to implement the recommendations should be treated with the same diligence and rigour as any other new Bill to be brought before the parliament'.  
• Australian Institute of Superannuation Trustees: Financial Standards quotes the Australian Institute of Superannuation Trustees (AIST) as criticising the pace at which the government has responded to the recommendations and the time taken to release the implementation plan, 'the government's response so far has been tepid at best' AIST CEO Eva Scheerlinck is quoted as saying.  With respect to the recommendation to end grandfathered conflicted remuneration, Ms Scheerlinck reportedly expressed disappointment that the government's approach has 'fallen short on consumer protection'.  Reportedly, Ms Scheerlinck has called on the government to prioritise recommendations to stop conflicts of interest in the sector as well as the 'worst practices' among banks and other for profit entities eg the ban on the hawking of superannuation products.