Consumer group CHOICE has hailed the Banking Royal Commission Report as a once in a generation opportunity to clean up the banking and financial services sector.
“Commissioner Hayne makes it clear: the laws that govern the banking system have not been up to the job,” says CHOICE CEO, Alan Kirkland
“Simple community expectations—that financial institutions should act honestly and in their customers best interests—have been undermined by decades of industry lobbying, resulting in laws that are riddled with carveouts and exceptions. This has to end.”
“This represents a key turning point for the industry and its lobby groups: will they pretend to accept the recommendations then lobby to undermine them behind closed doors, as they have with every other major reform? Or will they realise that if they want to win back community trust, this time they need to act with integrity?”
“The report is also a damning indictment of industry self-regulation. For too long, we have allowed banks to write and enforce their own rules. This means that the rules are weak and the consequences for breaking them are non-existent.”
“Commissioner Hayne makes it clear that if we are going to have industry codes, they have to have the force of law, with clear sanctions where they are breached.”
“The sector that cops the greatest wrath—and quite rightly—is the mortgage broking industry. The Royal Commission says that payments by banks to brokers should be banned, and that brokers should have strong obligations to act for their customer—the person taking out the loan.”
“For the first time, the broking industry will have to prove that it is offering a service that consumers are willing to pay for. If they think they are offering value, they have nothing to fear from this reform.”
Key reforms CHOICE says should be implemented as a matter of urgency are:
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The end to weak self-regulation through industry codes that can be breached with no consequences (Rec 4.9)
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A ban on hawking financial products to unsuspecting consumers—especially insurance and superannuation (Recs 3.4 & 4.1)
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A ban on the payment of commissions to mortgage brokers and financial advisers—so it is clear that they act for the person seeking advice, and nobody else (Rec 1.3)
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An obligation that mortgage brokers act in the best interests of the person seeking a loan (Rec 1.2)
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An end to hidden fees for financial advice (Recs 2.1 & 2.4)
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A compensation scheme, funded by industry, to make sure that when consumers are found to deserve compensation it is paid (Rec 7.1)
“The release of the Final Report presents a once-in-a-generation moment to repair a broken financial system and achieve justice for victims. It is important that the government starts the law reform process now and listens to what Commissioner Hayne has said about the need for simple, strong laws. This time we can’t let industry persuade parliamentarians to water the law down.”
Superannuation
“Superannuation should be treated as an essential service, not a cash cow for insurers and super fund executives” says Xavier O’Halloran, Acting Head of Advocacy at the Superannuation Consumers’ Centre
“The negative reaction by the super lobby to the Royal Commission and recent Productivity Commission report shows an industry set of protecting their own interests, not those of ordinary Australians saving for a retirement. The Royal Commission’s recommendations can be the first steps in making the super system work for members.”
Key things the Superannuation Consumers’ Centre says should be implemented as a matter of urgency are:
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The end to duplicate superannuation accounts, which have taken $50,000 from the retirement savings of the average person (Rec 3.5)
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A civil penalty regime for funds that breach their best interest duty to members (Rec 3.7)
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Making it easier for consumers to understand the default life insurance that is provided in MySuper funds, through legislating definitions and terms that apply to all products life insurance products (Rec 4.13)
“The Royal Commission report is not the final word on superannuation. With only one round of hearings, the Royal Commission could look at very few aspects of the system. The Productivity Commission’s three-year review went much deeper and wider. If we are going to address the biggest problem in superannuation, that of poor fund performance, we need to improve the default system as a whole.”
Alan Kirkland and Xavier O’Halloran are available for comment from Canberra.
Erin Turner, CHOICE Director of Campaigns and Communications is available from Sydney.
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