A Reflection on 2018

2018 has not disappointed if you were pinning your hopes on a tumultuous year. Public perception of the financial services industry is a mix of negativity and trust issues, in the wake of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission). We have written extensive commentary  on the Royal Commission to date and we are not expecting any further developments until Commissioner Hayne’s final report is published in February 2019. If you need some light reading, you can find all of the hearings and supporting documents on the Royal Commission website. 

Legislative Changes

Although the Royal Commission has resulted in a lack of trust between the public and the financial services industry due to misconduct within the industry, the Government has been busy streamlining some current legislation and introducing ways to seek to further protect the public. Some of these are outlined below.


The Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 (Cth) enhances the current protections for a certain class of individuals for blowing the whistle on suspected wrongdoing. In a world where large corporations are becoming evermore accountable for their conduct and unethical behaviour, the ability of an individual to call out that behaviour and be legislatively offered identification protection, is certainly a welcome move.  Senator Patrick, during the second round readings of the Whistleblowing Bill, said that “NAB chair, Ken Henry, at the [C]ommission last week [during Round 7] illustrates what we are up against and why this bill is so important”. Senator Patrick went on to say that “[the Bill] will also give Australians confidence that, with the help of conscientious employees, the type of disgraceful conduct that we've seen in the corporate sector, which has been flushed out by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, will become a thing of the past”.

Product Design and Distribution

The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 (Cth) is a result of the Financial Systems Inquiry recommendation that financial product designers and distributors should be obliged to make a targeted and principles-based determination about the audience for the relevant product. The Royal Commission has heard substantial evidence of the big four banks selling inappropriate financial products to consumers, either as a result of excessive sales targets or attractive staff remuneration packages linked to certain products, which has in turn led to the collapsing of businesses, repossession of homes and the resulting emotional trauma and devasting effect on families. The new Design and Distribution Bill will, if passed, require all designers and distributors of financial products to clearly identify their target market, especially if that market is retail clients, and clearly demonstrate that the product is fit for its purpose. This is not a new requirement as all financial services providers have a duty under section 912A(1)(a) of the Corporations Act 2001 (Cth) to provide financial services “efficiently, honestly and fairly” but it does create a more defined process on how to achieve that outcome, and more accountability on behalf of the provider and distributor.

Australian Financial Complaints Authority (AFCA)

The Australian Financial Complaints Authority, more commonly known as AFCA, is established under the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 and combines and replaces the Financial Ombudsman Service, Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. Financial institutions that have retail customers are legally required to have an external dispute resolution scheme. It is AFCA’s strategy to provide fair, independent and effective solutions for disputes, while influencing reform in the industry by raising standards and improving internal practices to avoid complaints initially. Retail customers have been hit the hardest by the poor conduct highlighted by the Royal Commission and so a new, empowered dispute scheme is certainly a move in the right direction to encourage accountability.

What is Missing?

Clearly missing from the legislative agenda is any suggestion of addressing conflicted remuneration and fees for no service. The public, and the rest of Australia, gasped in horror when the big four banks, and AMP, announced that they had persistently kept their consumers in inappropriate products because their financial planners made commission on those products, and charged consumers fees for a service which the consumer didn’t receive, including in instances where the customer had died. Over the last few months we have seen several banks confirm that they will no longer be permitting their external financial planners to charge commission on the sale of their financial products. Although this has been a hot topic at the Royal Commission, we are still no closer to a legislative solution and the industry is audibly divided on how to manage this payment structure, especially as the FOFA Reforms still permit grandfathered commission payments.

What Can We Expect in 2019?

2019 is already set to be a watershed year with the highly anticipated publication of Commissioner Hayne’s final report. We are likely to see the floodgates opened with recommendations but with a general election looming in May 2019, it really is anyone’s guess what will happen next. We are hopeful that the New Year will bring a fresh focus on the industry and how to better protect consumers, perhaps starting with how to achieve a good corporate culture without further legislation.

Our previous articles on these topics can be found below:

Financial Services Updates

Financial Services Updates