Upfront: Aftermath of the Hayne Report—is it business as usual?
Welcome to 2019. When I last wrote this column in December 2018 it was shortly after Commissioner Hayne released his Interim Report into misconduct in the banking, superannuation and financial services industry. There, I reflected on some questions Commissioner Hayne posed which he said would be considered in compiling his recommendations. I suggested that in answering those questions it would be "hard to imagine the Final Report will not make recommendations which will significantly overhaul the existing regulatory environment".
On balance ... I have to say I was wrong.
Some good news for some
For operators in the insurance and mortgage broking sectors, banning or capping commissions (assuming that recommendation is adopted) is a significant change. However, for other financial services businesses, the recommendations in the Final Report do not represent the significant structural changes some might have expected. For example, Commissioner Hayne questioned whether the vertically integrated financial services business model was appropriate. In the end, he stopped short of recommending it be prohibited, instead relying on market forces as evidenced by the inclination of the bigger institutions to divest their wealth management businesses.
Perhaps none of this should surprise us. After all, no one ever suggested the laws were not in place, just that they seem to be ignored, or if they weren't ignored, then they were being 'managed'.
Certainly, for the large majority of our clients, it will, more or less, be business as usual. This is good news.
However, there will undoubtedly be a greater focus on compliance. Commissioner Hayne makes a number of recommendations in relation to good governance and developing a compliance culture. Coupled with his recommendations that ASIC ought to change their "enforcement culture", all participants would be wise to ensure their systems and procedures are 'best of breed'. The latest fee increases, and significantly more federal funding, mean ASIC now has not only the financial means but an overwhelming sense of community expectation to enforce the law by litigating as opposed to 'negotiating outcomes'.
With significant change afoot, we have published a summary of our initial thoughts on the Final Report in the latest edition of our new specialist publication, Financial Services Thinking. As regulatory and political responses to the Report unfold in the coming weeks and months, we will continue to provide more detailed analysis on the Report and its implications.