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An overhaul of culture within the big four banks and tougher regulator action on misconduct have emerged as key calls to action in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services released earlier this week.
While Commissioner Hayne did not recommend banning the vertical integration that gave rise to many of the conflicts of interests across the retail banking sector and for-profit super funds, he did observe that retail trustees had problems performing their duties and that the regulators must pay close and constant attention to this. A key recommendation in the report is that civil penalties apply to trustee directors who breach their best interest duty.
AIST’s media response to the report noted that the Commission’s 76 recommendations (nine of which directly concerned super) represented an historic opportunity to restore trust in the financial services sector and reform banking culture, which had put profits ahead of customer interests.
However, AIST CEO Eva Scheerlinck warned that nothing would change unless regulators were prepared to take tough action against misconduct and do more to enforce the law.
“As Commissioner Hayne succinctly put it, the concept of acting in members’ best interests is not hard to understand. The banks and ‘for-profit’ super funds must be forced to abide by this fundamental principle and if they break the law the community has a right expect that they are properly held to account,” she said.
Speaking later on the ABC’s PM program, Ms Scheerlinck said AIST said both regulators needed to undergo a significant culture shift, adding it would take time to restore trust in the financial services, particularly across the banking sector.
Listen to the full interview.
Both major political parties have now responded to the Commission’s final report, with the government indicating it will take action on all the recommendations bar one: the recommendation to ban mortgage brokers receiving upfront and trailing commissions from loan providers. The Opposition has said it will support all recommendations and has proposed three further reforms: tougher penalties for corporate crime; the appointment of a dedicated prosecutor for corporate crime; and new whistleblower provisions. Labor has also called on the government to extend the Parliamentary sitting period this year to allow for a special session dedicated to implementing recommendations from the Royal Commission.
The draft programme for Federal Parliament has been released, with the Protecting Your Super Package and the Design and Distribution Obligations and Product Intervention Powers both listed for debate.
The Protecting Your Super Package has received a lot of attention following the release of the Productivity Commission and the Financial Services Royal Commission final reports. It is scheduled to appear on Wednesday.
Meanwhile the Design and Distribution Obligations and Product Intervention Bill 2018 is scheduled for the Thursday along with the Social Services Legislation Amendment (Supporting Retirement Incomes) Bill 2018.
The Supporting Retirement Incomes bill sets out new means test rules that accommodate annuities.
It is important to note that the programme is indicative only and subject to change. It is common for the Senate to not get through all of the items on the draft programme.
AIST will follow the passage of these bills closely and will update members as to their status.
In a pre-budget submission to treasury, AIST has called for the urgent implementation of the Fair Work Commission default selection process.
The submission notes that the process to put quality filters in place to enhance the selection of default funds by the FWC has been legislated and should be implemented.
The submission states that the default system must ensure that people are immediately connected with high performing funds and that members of any poor performing default funds are moved out of those funds.
Other key AIST recommendations include:
AIST has also recommended urgently deferring the proposed means test changes for lifetime income streams until the flaws identified in the Productivity Commission report, as well as issues relating to consumer disclosure and protections, have been resolved.
For further information regarding the pre-budget submission, contact AIST policy and regulatory analyst Richard Webb: firstname.lastname@example.org
The Shadow Minister for Financial Services, Clare O’Neil, has warned that underperforming super funds will be on Labor’s radar if elected.
In a wide-ranging speech at a recent Melbourne event, Ms O’Neil said the biggest problem facing super was poor performing funds and that time was up for these underperformers.
“A future Shorten Labor government simply will not stand by while millions of Australians have their saving eaten up by poor performance or fee gouging. The worst examples are totally unacceptable and wrong,” Ms O’Neil said
“There are a number of proposals on the table for how we could default more Australians into quantity superannuation funds – from the Fair Work Commission, to best in show, to an expanded role for the Future Fund. We will have more to say about this over the coming months.”
Discussing the poor conduct that had surfaced in the Royal Commission, Ms O’Neil stated: “These include very disturbing conflicts of interest, trustees unaware of the nature of their legal obligations, charging fees for no service, keeping regulators in the dark and paying compensation to superannuation members using their own retirement savings. This kind of conduct must be stamped out.”
Ms O’Neil also discussed Labor’s plans to reform unpaid super, which includes placing the right to super within the National Employment Standards, strengthening the ATO compliance regime and increasing penalties for employers for underpayment or non-payment of superannuation.
Also high on the agenda for Ms O’Neil is tackling the super gender gap, with Labor planning to pay super on paid parental leave and phase out the $450 monthly income threshold for SG payments.
The government’s second round of consultation on of the rules governing the early release of superannuation benefits on compassionate and severe financial hardship grounds closes on 15 February.
An issues paper with findings and draft proposals for reform was released in November of last year. The paper also discusses data collection and future review of the system as well as the transfer of early release administration to the ATO.
AIST will be making a submission in the coming days. For further information contact policy and regulatory analyst Richard Webb: email@example.com
08 February 2019