ANALYSIS / Royal Commission update
BIG CLAWS FOR A
TOOTHLESS TIGER
In the lead up to the (recently held) fourth round of hearings of
the Royal Commission into Misconduct in Financial Services,
Mark Doepel, Partner at Sparkes Helmore Lawyers, provided
an overview of the first three rounds.
T
he Royal Commission into
Misconduct in the Banking,
Superannuation and Financial
Services industry (Royal Commission) has
so far been a surprisingly fierce, ruthless
and illuminating inquiry.
At the very least, the Royal Commission
has turned out to be much more than the
“toothless tiger” inquiry that the Liberal
Government (the Government) might
have thought it would be when it was
established under some duress late last
year – not to mention in the shadows of
the dual-citizenship saga.
Initially, many thought the somewhat
restricted one-year timeline and broad
terms of reference would make it difficult
for the Royal Commission to achieve
much, especially given the expensive and
competent legal counsel available to the
big players. However, the inquiry has
already been successful in shining a bright
and very public light on the murkier side
of Australia’s financial services industry
and organisations within the sector have
good reason to be increasingly
apprehensive about what could be
coming their way.
The Letters Patent provided by the
Government to Commissioner Kenneth
Hayne (a former High Court Justice)
gives the Royal Commission until
1 February 2019 to:
• investigate past examples of
misconduct across the entire
“financial services” sector and
determine whether separate legal
proceedings are warranted
• identify whether any other
behaviour in the industry that “falls
below community standards” can be
attributed to “poor culture and
governance practises”
18 / INSURANCE ADVISER JULY 2018
• investigate whether the
superannuation system is being
used for purposes not in the best
interests of its members, and
• make detailed recommendations
on the changes, which ought to
be made by lawmakers, regulators
and the industry, to reduce
these problems.
Importantly, the Letters Patent set
the scope of the inquiry to be a far
broader investigation than that of the
banks alone. The definition of “financial
services entities” has been intentionally
drafted to include all life insurers,
general insurers, reinsurers and
insurance intermediaries (including
insurance brokers and authorised
representatives of AFSL holders) who
carry on business in Australia.
To date there have been three rounds
of Royal Commission hearings, with
each round addressing a separate issue
in the industry over the course of
10-11 days respectively. Round one
placed issues in consumer lending
under the spotlight, round two
addressed issues in financial planning
and round three examined the
appropriateness of lending to small
and medium enterprises.
Commissioner Hayne and his Counsel
Assisting have been particularly efficient
in their use of this limited time and have
chosen to break down each broad issue
into five or six key parts, and then
“scapegoat” a limited number of
organisations that are deemed to have
been the “worst offenders” in each space.
The big four banks including CBA, NAB,
Westpac and ANZ have been used as case
studies in each and every round of
hearings so far – with smaller firms also
MARK DOEPEL,
Partner, Sparkes Helmore Lawyers
The author gratefully acknowledges the assistance of
Marcus Vella in preparing this article.
targeted where their misconduct has been
identified as equally deplorable.
The Royal Commission’s biggest scalp
so far has been AMP. As a result of the
disturbing revelations of consistently
misleading ASIC following the 2014 “fees
for no service” scandal, AMP has now seen
the majority of its board replaced, three
separate shareholder class actions filed
against it (with two more looming) and a
resulting drop of more than $2 billion in
share value. Those are some pretty big
claws for a toothless tiger.
Although, at the time of writing,
the insurance industry has only been
targeted in relation to “add-on insurance”
products for consumer credit,
organisations should take little solace in
this. Their time will come. The
Commissioner announced the issue of
focus in round four will be the provision
of financial services to rural and remote
communities. However, no mention has
been made of what is beyond – perhaps to
refrain from giving organisations too
much time to prepare. In any event, since
the Government went out of its way to
include the insurance industry within the
scope of the inquiry, it is unlikely the
Commissioner will allow the sector to
emerge unscathed.
Even before the Royal Commission
has delivered its recommendations, the
Government has already announced
harsher penalties for a suite of existing
misconduct offences, which will increase
the risk of doing business in the industry.
The extent of additional fallout remains
hard to predict, but insurers and
intermediaries would be best advised to
get their house in order soon, before the
Royal Commission comes knocking on
their door.