Several months later: Changes enacted after the 2019 Royal Commission Financial Services Report

Since the Royal Commission Financial Services Report’s release in February last year, the Federal Government has started implementing the 54 recommendations directed at it. Similarly, corporate regulators like ASIC and APRA have begun enacting changes to their processes and enforcement.

According to Treasurer Josh Frydenburg, the 2019 Report contains ‘the most significant and far-reaching changes in three decades.’ Several months on, which of these changes have been implemented and what can we expect in 2020?

The Federal Government’s action

In August this year, the Federal Government introduced the Financial Services Commission Implementation Roadmap, outlining their progress implementing these recommendations and their proposed changes in 2020.

The Government has promised a swift timeline for implementing these changes, aiming for at least 20 commitments implemented or introduced by the end of this year, 50 recommendations implemented or introduced by mid-2020 and the remaining four introduced or implemented by the end of 2020.

As of August, the Government has taken action on 15 recommendations, including:

• Introducing the Treasury Law Amendment (AFCA Co-operation) Regulations which require AFCA members to take reasonable steps to co-operate with AFCA when resolving disputes;
• Undertaking regular capability reviews, starting with APRA in March 2019;
• Passing an Act that extends ASIC’s Product Intervention Powers and the Design and Distribution Obligations imposed on financial services licensees;
• Working with State and Territory governments on a national farm debt mediation scheme to assist in settling disputes between banks and borrowers;
• Applying new civil penalties for superannuation malfeasance and legislation to end grandfathered commissions for financial advisers introduced in Parliament; and
• A bill aimed to better protect small businesses from unfair contract terms in insurance.

However, there is much more progress to be done still and the Government has been accused of dragging its feet in relation to increasing and acting upon penalising big banks and corporations. Some big-ticket items, such as commission payments to mortgage brokers, have been rejected and instead a review of commissions will take place after three years.

ASIC beefs up

In a post-Royal Commission world, ASIC has adopted a much more aggressive approach to regulation and enforcement. The Report featured 12 recommendations aimed at regulators, all of which ASIC committed to implementing. The corporate watchdog is receiving $404 million in government funding to see through these recommendations and crackdown on corporate misconduct.

On March 12th last year, the government introduced the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill (Cth) (‘The Penalties Bill’) which amended the Corporations Act 2001 (Cth) (the Corporations Act), ASIC Act 2001 (Cth) (the ASIC Act), National Consumer Credit Protection Act 2009 (the Credit Act) and Insurance Contracts Act 1984 (Cth) (the Insurance Act) to consolidate the penalties framework in these Acts, expand the civil penalty regime to new provisions, and introduce stronger penalties for bodies corporate and individuals (including increased fines and jail time for certain offences).

This increased penalty signifies ASIC’s new attitude towards enforcement. While ASIC used to feature the question ‘why litigate?’, the Report has redirected ASIC’s focus to ‘why not litigate?’ Practically, this means less settlements, and more courts determining the consequences of a contravention.

On 18 August 2019, ASIC released Report 625, outlining their changes from January – June 2019. In this six month period, 10 individuals had been charged in a criminal proceeding, 70 criminal charges laid, 6 people imprisoned, 191 charged in summary prosecutions for strict liability offences and 386 criminal charges laid in summary prosecutions for strict liability offences. Further, ASIC has increased enforcement investigations by 20%, enforcement investigations involving the bix six by 51% and investigations into wealth management services offered by financial services firms by 216%.

APRA’s actions

APRA released a 2019 update in August tracking its progress with the Royal Commission recommendations that were directed to it. Of these, all are underway and on track to be completed by the end of 2020. Notably, APRA and ASIC are working together on a Memorandum of Understanding to demonstrate how they intend to comply with their statutory obligation to cooperate.

Overall, we’re seeing greater administrative action and regulation from the Federal Government, ASIC and APRA. It’s our expectation that enforcement of these new regulations will continue throughout 2020.

If you’re seeking further legal advice regarding regulation disputes and financial services please don’t hesitate to contact Mackay Lawyers & Advisors on +61 3 8596 8196

‍