Thursday, 12 November 2020
Financial Sector Reform (Hayne Royal Commission Response) Bill 2020; Second Reading
That this bill be now read a second time.
On 4 February 2019, the government released its response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The royal commission made 76 recommendations, 54 of which were directed to the government. The government also made 18 additional commitments in its response to the royal commission.
The Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 continues to fulfil the government's commitment to implement the recommendations, with this bill implementing 21 of the commitments made by the government.
Schedule 1 to the bill provides that certain provisions of financial services industry codes be made 'enforceable code provisions' where provisions within industry codes relate to specific commitments made by a code subscriber to the consumer. Provisions within industry codes that are broader in their nature and seek to make general, in-principle, commitments regarding industry practices will not form enforceable code provisions. The schedule also provides for the establishment of mandatory financial services industry codes.
Schedule 2 to the bill will improve the protections for consumers with life insurance contracts by preventing insurers from inappropriately cancelling life insurance contracts on the basis of non-disclosure or misrepresentation unless the insurer can show it would not have entered into the contract.
This schedule also replaces the existing duty of disclosure with a duty for consumers to take reasonable care not to make a misrepresentation to an insurer. The new duty appropriately aligns with a layperson's knowledge of insurance. It removes the need for consumers to guess what the insurer may require to be disclosed.
Schedule 3 to the bill implements the government's commitment to an industry-wide deferred sales model for add-on insurance products. The royal commission highlighted that some of these products often represent poor value for consumers and are sold using pressure-selling tactics. The schedule ensures consumers are given four days to consider their purchase of insurance policies with these characteristics.
Recognising that immediate access to add-on insurance products may be required in some limited instances, this bill provides for regulations to exempt products from the deferred sales model. One such exemption will be provided to add-on travel insurance products. A commencement date of the later of 5 October 2021 or the day after royal assent has been provided to facilitate this process and to allow affected stakeholders to make the necessary system changes.
Schedule 4 to the bill provides ASIC with the power to impose a cap on the commissions that can be paid for add-on insurance products sold by vehicle dealers to prevent inappropriate sales of add-on insurance.
Schedule 5 to the bill prohibits the hawking of superannuation and insurance products. Consistent with the final report of the royal commission that 'no financial product should be hawked to retail clients', the new hawking rules apply to all financial products, including managed investment schemes and securities. A number of exceptions will be allowed where the risk to consumers is low.
Schedule 6 to the bill will protect consumers by preventing organisations from calling themselves an 'insurer' unless they are a regulated insurer, and preventing anyone from selling a product as 'insurance' unless it is an insurance product.
Schedule 7 to the bill will enhance consumer protections by making insurance claims handling a financial service. This will apply Australian financial services licensing requirements, such as general conduct obligations, to entities that handle and settle insurance claims, enabling ASIC to take regulatory action to prevent and address poor conduct and consumer outcomes.
Schedule 8 to the bill will prohibit superannuation trustees from having a duty to act in the interests of another except those arising from its role as trustee. This will address the royal commission's concern that such duties could conflict with its duty to act in the best interests of their superannuation fund members.
Schedule 9 to the bill amends the roles and responsibilities of the superannuation regulators, including by expanding ASIC's role as a consumer protection regulator. This schedule will also expand the Australian financial services licensing regime to cover all activities undertaken by superannuation trustees. This will ensure ASIC has access to its full suite of enforcement tools, and strengthen ASIC's ability to take enforcement action and ensure fair remediation of members.
Importantly, the Australian Prudential Regulation Authority (APRA) will remain the regulator responsible for prudential regulation and member outcomes in superannuation, including licensing and supervision of trustees.
Schedules 10 and 11 to the bill strengthen the existing breach reporting regime for Australian financial services licensees, and establish an equivalent breach reporting regime for Australian credit licensees. Strengthened breach reporting requirements will ensure more misconduct is reported, reports are provided in a timely manner, and strengthen ASIC's ability to take any necessary enforcement action.
The schedules also amend the law to require both Australian financial services and credit licensees to investigate misconduct by financial advisers and mortgage brokers, and remediate clients who have suffered loss or damage as a result of that misconduct. This ensures that consumers are being promptly and effectively remediated where necessary.
Further, the schedules amend the law to establish a protocol for reference-checking and information sharing about financial advisers and mortgage brokers to ensure they past misconduct is not hidden from their new employer.
Schedule 12 to the bill puts in place a statutory obligation for ASIC and APRA to cooperate with each other, share information on request, and notify the other whenever either forms the belief that a breach in respect of which the other has enforcement responsibility has occurred. These changes will improve collaboration between ASIC and APRA and ensure enforcement and supervisory decisions are based on all available information. This schedule also further formalises ASIC's meeting procedures and aligns them with those in the APRA Act to reinforce the centrality of decision-making in ASIC, and improve governance.
Finally, the Legislative and Governance Forum for Corporations was consulted in relation to a number of the amendments and has provided approval as required under the Corporations Agreement 2002.
Implementation of these reforms, as recommended by the royal commission, is a critical component of restoring trust and confidence in Australia's financial system.
Full details of the measures are contained in the explanatory memorandum.
I commend the bill to the House.