Gerard Rennick (Queensland, Liberal Party) Share this | Hansard source

I rise today in support of the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Bill 2019. All 76 key recommendations from the 2019 Hayne royal commission were directed towards resolving specific issues of negligence and institutional misconduct, and addressing the negative impact on public confidence in Australia's banking and financial services sector. Of the 76 reform recommendations, 54 were directed to the government, 12 to the financial regulators and the remaining 10 to the industry to implement.

The Morrison government has made it clear that it will take action on all 54 government recommendations and has announced a further 18 commitments to help address the issues raised in the commissioner's final report. The government is on track to meet these commitments and take action on the commission's recommendations.

This bill is part of the Morrison government's strong commitment to take action to better protect consumers and regain public confidence in our financial sector. Specifically, this bill seeks to address concerns identified by the royal commission within the mortgage broking industry—in particular, issues that limit confidence in professional standards and cause criticism of established remuneration structures.

The government is also addressing royal commission recommendations 4.2 and 4.7 with respect to the application of unfair contract terms within the Australian Consumer Law and the unethical approach that has been identified by the royal commission regarding funeral insurance. Funeral insurance policies have been found to unfairly target at-risk Australians by selling policies that hold little to no value in many circumstances. Commissioner Hayne revealed that poorer, less well-educated Australians are typically the ones most likely to be entangled in overpriced, often meaningless contracts with funeral insurers.

The recent banking royal commission highlighted a particular insurance fund, the Aboriginal Community Benefit Fund, that was found to have over two-thirds of its funeral insurance policyholders under the age of 30. It was also found that over a third of their policyholders were under 15 years of age. You can't help but ask the question: why are so many people under 30 being sold funeral insurance, let alone children under 15? This is quite obviously a rort. Clearly, their premiums will exceed any possible payout, leading to undue financial hardship for these families. This is simply unacceptable, especially from an industry that, in many cases, is supposed to provide protection for families struggling with the prospect of high funeral expenses.

The Morrison government has committed to protecting these vulnerable Australians. The current framework of the Corporations Act has allowed these companies to be exempt from the scrutiny of the Australian Securities and Investments Commission. By amending the definition of 'financial services' within the Corporations Act, this exemption will be repealed to better ensure that Australians receive fair and equitable service from funeral insurance providers.

To further implement recommendation 4.2, this bill also removes any ambiguities within the ASIC Act that may currently exist to confirm beyond doubt that insurers will not be given a free pass. With respect to recommendation 4.7, the government will also implement a long-overdue addition to the unfair contract terms to now include all insurance brokers. There is simply no sound basis, in legal principle or in business, to suspect that an insurer would suffer an increased burden should they be included under such terms. The only negative consequence for any insurer will be if their claims are not being settled efficiently, honestly and fairly. And if that were the case, such a situation should not be tolerated by the insurance industry or by Consumer Law. By enacting this recommendation, it is a priority for this government to ensure that consumers and small business can renew their insurance policies without fear of being subjected to unfair contractual obligations.

Small business and consumers alike can rest easy knowing that the Morrison government is holding insurance brokers accountable by ensuring that they conduct their business in an open, fair and efficient manner that is fit for purpose. Australians can be assured that their financial commitments—whether they are small-business ventures or loans obtained to purchase a house or a car—will be treated with the utmost care and to the highest standard of professionalism and confidence.

For years, mortgage brokers have been able to act in their own interests, interfering with the best interests of their clients. It must be acknowledged that many brokers do act in the interests of their clients and without the need for purpose-built legislation to rein in bad behaviour. Unfortunately, the evidence of the royal commission made it quite clear that some within the industry have taken advantage of the system. As Liberals, we believe in reducing government regulation, in reducing red tape and in reducing government interference in the private sector. However, it is clear from the findings of the financial services royal commission that this industry requires immediate legislative boundaries in order to ensure better consumer outcomes.

In practice, the proposed 'best interests duty', defined by law as a legal obligation to ensure that the best interests of the clients are to be upheld, should already be the foundations of the mortgage broker's business. I do commend those brokers who already apply this framework. However, it is clear that this is not always the case. As I'm sure even the opposition will agree, this obligation must be front and centre to assure the Australian consumer that they are receiving the best advice for them, rather than the advice which best fills the broker's pocket.

An established duty of care is already in place for many professionals, such as doctors, teachers and construction contractors. They all must act in the best interests of their patients, students and clients, as required by law. Why should mortgage brokers be any different? After all, a home loan is one of the biggest financial commitments Australians make during their lives. It should rightly be expected that such a commitment, when guided by experts, would be dealt with professionally. It is hardly unreasonable to apply the same standard to mortgage brokers as the law applies to countless other professionals.

There is almost universal support for this proposal across the industry. Key mortgage brokers and lenders have all accepted a legally imposed duty of care as a welcome change that will work hard to regain consumer confidence. Striking the right balance with the mortgage broking industry is made all the more difficult by the currently conflicted remuneration structures. This government aims to eliminate the negative effect of such payments to better ensure that Australians receive the best quality advice. To this end, all campaign and volume based commissions, incentives and payments will be banned by this bill. It is the role of a mortgage broker to be impartial as to the product or lender that he or she recommends. While such payments continue to exist, this impartiality comes under pressure. Broker recommendations under existing commissions are likely to be made irrespective of the client's interests in order to maximise financial advantage for the brokers.

This government is committed to ensuring that conflicted benefits, whether monetary or not, are not made or accepted by brokers and lenders. This provision acts on recommendation 1.2 of the Hayne royal commission report. The government notes that trailing commissions have also been called into question by the royal commission. However, based upon a significant body of advice from industry experts, it has been determined that the best course of action is to hold off on such changes due to potential worker distortion and associated unintended consequences. It is not in the interests of this government nor the Australian people to see the mortgage broker industry crumble. There are approximately 16,000 mortgage brokering businesses in Australia employing over 27,000 people who collectively offer invaluable cost-effective advice to a great many Australians.

The industry review that the government has proposed is to take place in three years and will look at all remuneration structures for mortgage brokers, including trailing commissions, to better determine the effect on the industry and the likely impact on consumer protection standards. The Morrison government wants to ensure that the mortgage broking industry survives and prospers. We do not want to cripple an entire industry with sudden large-scale changes piled on top of each other all at once. This government prefers a process by which the industry is given time to adapt to newly implemented changes. Following a review process, future changes can then be fully considered and properly evaluated as standalone propositions and integrated into the industry, if necessary, without unreasonable or perverse consequences. The Morrison government respects all recommendations of the royal commission and has also heard the concerns of mortgage brokers. We listened and now we have acted.

It is the government's view that an unbiased review process in three years should be conducted into these matters. The review process will consider the impact that the currently proposed legislation will have on the industry. It will also determine whether changes to trailing commissions and the introduction of a 'borrower pays' remuneration structure are sustainable or even desirable. The government would not want to see sound mortgage broker advice become a commodity that only the rich can afford. We acknowledge the hard work and dedication of a majority of mortgage brokers in providing a high-quality, cost-effective service. This bill simply reinforces what many in the industry already practise, and this bill further highlights the government's commitment to restoring consumer confidence in our banking and financial service industry by assuring Australians that they will receive fair, ethical and efficient consumer service.

The Morrison government is confident that the measures contained in this bill constitute much-needed reforms to directly benefit all Australian buyers, borrowers and homebuyers. I commend the bill to the Senate.