With the election fast approaching, it’s worth considering how a potential Labor government would act on the recommendations made in the final Royal Commission report.
Arguing that the Morrison Government is “hiding behind weasel words and delaying, watering down or rejecting at least 15 recommendations to protect their mates in the top end of town,” Labor said it would implement 75 recommendations “in full” – in some cases before the election.
Topline measures include taking “decisive action to establish a comprehensive victim compensation package” – partly through increasing AFCA compensation caps – as well as “ending conflicted remuneration in mortgage broking” and requiring major companies, industry bodies and regulators to publicly report to the Royal Commission implementation taskforce every six months.
Let’s see what Labor has in store for advice:
Safe harbour provisions
As discussed in our initial coverage of the final report, Commissioner Hayne recommended considering whether the safe harbour provision should be removed, given that in practice it “requires the adviser to make little or no independent inquiry into, or assessment of, products. Instead, in most cases, advisers and licensees act on the basis that the obligation to conduct a reasonable investigation is met by choosing a product from the licensee’s APL.”
While the Government advised it would make these considerations following a review of the advice sector in three years’ time, Labor said it is committed to repealing the safe harbour provision “unless the review identifies a clear justification for retaining it.”
Grandfathering provisions for conflicted remuneration were a hot topic in coverage of the Commission – an article by our columnist, Paul Tynan, suggested “the ramifications of banning grandfathered commission retrospectively and resultant loss of faith and confidence in the financial services industry, institutions and government is a cost far greater than any benefit derived from this action.”
According to Labor, though, the banning of grandfathered commissions could be achieved before the May 2019 election, and that a Labor government “will end grandfathering of conflicted remuneration effective from 1 January 2020.”
Labor’s response continued: “Where it is not practicable to rebate the benefit to an individual client because, for example, the grandfathered conflicted remuneration is volume-based so it is not able to be attributed to any individual client, Labor expects industry to provide fee relief or other benefits to the relevant cohort commensurate with the overall benefit obtained by the payer of the commission as a result of it ceasing.”
With regards to life insurance commissions, Labor explained that unlike the Government, it would ensure ASIC considers whether there is any clear justification for retaining life insurance commissions. If not, the response said, “Labor will ban them.”
The new advice disciplinary system
In the report, Hayne argued that a new disciplinary system for advisers made sense given that “a requirement of individual registration as a condition of practice is common to most professions.”
“For example,” he added, “health practitioners (including doctors and nurses) must be registered with the Australian Health Practitioner Regulation Agency (AHPRA). Lawyers must be admitted to practise, and hold practising certificates. Architects and teachers must be registered with a relevant state or territory registration body.”
The Government has agreed a new system is necessary. In its response, Labor said it will begin a consultation process “as soon as possible” with advisers, consumer advocacy groups and regulators. Under Labor, the response added, the new regime will have all of Hayne’s recommended features “at a minimum.”
Wrapping it up
There are other differences with the Morrison Government outlined in Labor’s full response – available here – but these are the key measures Labor’s committing to both before and after the election in May.
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