2017 and the consequences of avoiding a Royal Commission

Mike Taylor writes that many of the policy changes which have impacted the financial services industry through 2017 have been specifically aimed at obviating the need for a Royal Commission.

The proposed Royal Commission into the Banking and Financial Services industry served to define policymaking and events in the financial services industry in 2017.

This happened simply because the vast majority of financial services policy initiatives implemented by the Turnbull Federal Government in 2017 had the underlying purpose of giving the appearance of obviating the need for the Royal Commission which has been so assiduously pursued by the Australian

Labor Party Federal Opposition and no less enthusiastically by the industry funds lobby.

So what are the measures pursued by the Government which it claims will promptly address consumer concerns and therefore obviate the need for a Royal Commission?

Imposition of higher educational and professionalism standards and the establishment of the Financial Adviser Standards and Ethics Authority (FASEA);

Imposition of the legislation underpinning the Life Insurance Framework (LIF);

Delivery of greater powers to the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA); and

Introduction of legislation to impose the Bank Executive Accountability Regime (BEAR).

The extent of the Government’s actions impacting the financial services industry was wrapped up neatly by the Finance Sector Union (FSU) in its submission to the Senate Economics Legislation Committee inquiry into the BEAR legislation.

It said that, over the recent past, the Federal Government has established a range of inquiries and reviews aimed at creating greater scrutiny of the finance sector.

“In addition, the prospect of Royal Commission into the banking sector remains a live consideration,” it said.

“The introduction of the BEAR is one of several different regimes being implemented to address issues of accountability and conduct across the industry. Alongside APRA’s BEAR, ASIC are consulting over a process for Banning Senior Managers and ABA member banks have rolled out a Conduct

Background Check process for Financial Planners from March 2017 and a further Conduct Background Check process for other employees that has been rolled out between July and October 2017,” the FSU submission said.

However, it then critically added: “This rapid roll out of accountability systems is likely to lead to convoluted outcomes and is unlikely to lead to a situation of rebuilding the necessary trust across the industry”.

For their part, both the Treasurer, Scott Morrison and the Minister for Revenue and Financial Services, Kelly O’Dwyer have argued that the measures they have put in place will deliver almost instant change while a Royal Commission would represent a long, drawn-out exercise which could only make recommendations which might then not be pursued by the Government.

 

ASIC and policy

Another factor impacting the financial services industry in 2017 was the extension to the appointment of Greg Medcraft as chairman of ASIC.

Medcraft was first appointed by former Labor Treasurer, Wayne Swan, and despite the changing political tides, has managed to navigate the three further Treasurers and five ministers covering the financial services portfolio.

The importance of Medcraft’s tenure as chairman of ASIC is that he has used his position to secure a number of changes which will have implications for the financial services industry for at least a decade, and possibly longer.

When the former Labor Government was ramming through its Future of Financial Advice (FOFA) legislation, ASIC was granted “stakeholder” status in the policy development process and it is something which subsequently served the agenda of Medcraft and members of his ASIC executive team well.

Over the past seven years, ASIC has benefited from significant improvements to its powers with a measure of this being the legislative moves currently on foot to give it product intervention powers and suggestions that it should, alongside APRA, be given some oversight of the BEAR, including its extension to other parts of the financial services industry.

However, foremost amongst the changes influenced by Medcraft is the industry funding model for the financial services regulators – something which was readily philosophically embraced by the Coalition Government but something which has already been recognised as generating increased costs for financial services companies, not least financial planning firms.

Medcraft was also front and centre in backing implementation of the proposals which emerged from the Financial System Inquiry (FSI) for the establishment of a one-stop-shop external dispute resolution (EDR) body.

The Government is now pursuing implementation of the Australian Financial Complaints Authority (AFCA) structure which will see the statute-backed Superannuation Complaints Tribunal (SCT) lumped into an ombudsman-style regime alongside the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO).

The inclusion of the SCT in AFCA is occurring despite the resistance of a broad cross-section of the superannuation industry and despite the fact the FSI analysis recognised that the SCT’s poor performance in dealing with its case-load had been heavily influenced by a lack of funding. 

The SCT’s budget and resourcing are managed by ASIC.

Rounding out Medcraft’s period as ASIC chairman has been the changes wrought on life/risk adviser remuneration under LIF and the regulator’s insistence that this represents unfinished business. 
FASEA – the Government’s one proud moment

If the Turnbull Government could be said to have one proud legacy emanating out of 2017 it is probably FASEA and its expected agenda with respect to financial planner education and professionalism.

The FASEA has already gained the support of a significant proportion of the financial planning industry, not least because its board carries significant industry representation in the form of former Association of Financial Advisers (AFA) president, Deborah Kent and former Financial Planning Association (FPA) chairman, Matthew Rowe.

In what represented its initial guidance to the financial planning industry, the FASEA confirmed in late October the nature of the degree pathway which would apply to new entrants from January 2019.

The board resolved that the pathway would entail an AQF Bachelor degree covering fields that included ethics, professional attitudes and behaviours, financial planning and advice process and technical requirements.

It said this would entail up to 24 courses of which 12 would be core.

It said that career changers would be expected to pursue further pathways at the post-graduate level covering the same fields.

Commenting on the announcement, FASEA chair, Catherine Walter said that in the first instance, and to provide direction for employers, education providers and standards, the authority would be adopting the Financial Planning Education Council framework.

The move was particularly welcomed by the FPA which claimed it effectively confirmed that FASEA would “accept the FPA’s gift of the Financial Planning Education Council (FPEC) Curriculum and Approved Degrees list, and use this as the initial entry standard for new entrants into the financial planning profession”. 

“As of 1 January 2019, all new entrants will be required to have completed an AQF7 bachelor-level degree made up of 24 courses, 12 of which will be core courses including ethics, professional attitudes and behaviours, the financial planning and advice process, and technical requirements,” it said.