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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, Sparkes Helmore Lawyers
Mark Doepel, Partner at Sparkes Helmore Lawyers, provided The author gratefully acknowledges the assistance of
Marcus Vella in preparing this article.
an overview of the first three rounds.

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

18 / INSURANCE ADVISER JULY 2018