CTH Introduces Bill to Implement Recommendations from the Hayne Royal Commission
On 12 November 2020, Federal Treasurer Josh Frydenberg introduced the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 (Cth) (“the Bill”) into the House of Representatives.
The Bill seeks to implement a significant number of recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (“the Royal Commission”). The Royal Commission and its interim report were discussed in an earlier Timebase article. The Royal Commission’s final report was submitted to the Governor-General on 1 February 2019. The Bill also contains amendments to address the 18 additional Government commitments in response to the Royal Commission, aimed to improve consumer protections and strengthen financial regulators. The Bill is yet to pass the lower house.
Amendments under the Bill
Schedule 1 of the Bill contains proposed amendments to the Corporations Act 2001 (Cth) (“the Corporations Act”) and the National Consumer Credit Protection Act 2009 (Cth ) (“the Credit Protection Act”), which will strengthen the existing voluntary code of conduct framework. Under these amendments the Australian Securities and Investments Commission (“ASIC”) will be able to designate certain code of conduct provisions as enforceable. Breach of these enforceable code provisions will carry civil penalties and allow for administrative enforcement action from ASIC. Schedule 1 also seeks to establish a mandatory code of conduct for both the financial services and consumer credit industry through regulations to ensure enforceability and protection for consumers.
Schedule 2 of the Bill contains proposed amendments to the Insurance Contracts Act 1984 (Cth) (“the Insurance Act”) in order to improve consumer protections with life insurance contracts. These amendments seek to prevent insurers from inappropriately cancelling these contracts on the basis of non-disclosure or misrepresentation. In order to validly cancel these contracts, insurers must show that:
- The failure to disclose or misrepresentation was done fraudulently, and
- That the insurer would not have entered into the contract if the misrepresentation had not been made
Schedule 2 also replaces the existing duty of disclosure with a duty for consumers to take reasonable care not to make a misrepresentation to an insurer. These amendments clarify that a fraudulent misrepresentation is a breach of this duty. However, failing to answer a question or giving an obviously incomplete or irrelevant answer to questions are not sufficient to prove a breach of this duty. This duty to take reasonable care takes into account:
- The type of consumer insurance contract being entered into and the target market for these contracts
- The clarity and specificity of any questions asked by the insurer
- If the importance of answering these questions were clearly communicated to the insured, and if the consequences of failing to do so were fully explained
- Whether or not there was an agent involved
- If the contract was a new one entered into, or if it was an existing contract being renewed, extended, varied, or reinstated
Schedules 9 and 12 amends the roles and responsibilities of superannuation regulators including ASIC and the Australian Prudential Regulation Authority (“APRA”). Schedule 9 contains amendments that will expand the Australian financial services licensing regime to cover all activities undertaken by superannuation trustees, and extends the consumer protections for financial services under the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”) to an expanded range of trustee activities. These amendments will ensure that ASIC has the appropriate powers and enforcement tools to expand its role as a superannuation regulator responsible for consumer protection and the regulation of market integrity. Schedule 12 seeks to put in place a statutory obligation for cooperation between ASIC and APRA. Both organisations must share information on request and must notify the other if either believes that a breach in regards to enforcement responsibility has occurred.
Schedule 11 seeks to introduce amendments to strengthen breach reporting and remediation. These amendments propose the introduction of a breach reporting regime for Australian credit licensees, comparable to the breach reporting regime for financial services licensees. Financial service licensees and credit licensees will also have a new obligation to report serious compliance concerns about their financial advisers and mortgage brokers. Mortgage brokers that have either license will also be obligated to investigate misconduct and be responsible for the remediation of affected clients.
Other amendments under the Bill include:
- Implementation of a deferred sales model for the sale of all add-on insurance products (Schedule 3)
- Extending ASIC’s power to impose a cap on commissions paid for add-on insurance products by vehicle dealers (Schedule 4)
- Prohibition of the hawking of superannuation and insurance products (Schedule 5)
- Restricting the use of the terms ‘insurance’ and ‘insurer’ (Schedule 6)
- Claims handling and settlement of a financial service to fall under the purview of the Corporations Act (Schedule 7)
- Superannuation trustees will be prohibited from having a duty other than those arising from their duty as a trustee (Schedule 8)
- New reference checking and information sharing obligations for mortgage brokers (Schedule 10)
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Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 (Cth), Bill and supporting documents available from TimeBase's LawOne Service