Mortgage brokers’ trail commission should be phased out over two or three years;
‘No hawking’ of superannuation or insurance products;
And criminal charges recommended.
The Royal Commission has handed down its final report, delivering 76 recommendations including criminal referrals and a phasing-out of mortgage broker trail commissions.
The 1,133 page document was delivered to Treasurer Josh Frydenberg on Friday and released to the public this afternoon.
Frydenberg said that the conduct of the banks has broken lives and the price paid by our community is immense.
It made 76 recommendations and Commissioner Kenneth Hayne found that in many instances entities conduct has broken the law.
“And if it has not broken the law, the conduct has fallen short of the kind of behaviour the community not only expects of financial services entities but is also entitled to expect of them,” Hayne wrote in the three-part document.
The Royal Commission has shocked Australians with revelations of fees charged for no service, fees charged to dead people, the implication that brokers favour some lenders of others due to lucrative payments programs and dodgy financial advice.
Now the Commissioner has made his recommendations.
Here’s how the 76 recommendations are broken down:
Banking – 17 recommendations
Financial Advice – 10 recommendations
Superannuation – 9 recommendations
Insurance – 15 recommendations
Culture, Governance and Remuneration – 7 recommendations
Regulators – 14 recommendations
Other important steps – 4 recommendations
Mortgage broker trail commissions will be phased out
The Royal Commission heard that CBA struck 700 brokers off its accredited list after they failed to deliver any loans to the major bank. Trail commission, or the ongoing commission paid to brokers by lenders for delivering loans, also came under scrutiny due to concerns it could push brokers to recommend higher value but less suitable loans to their clients.
The Royal Commission recommended the borrower, not the lender, pays the fee for the broker’s services.
It also recommended that trail commission be entirely phased out over a period of two or three years.
Criminal charges recommended
Commissioner Hayne has recommended criminal charges with a maximum fine of $94.5 million against two major institutions. Hayne has chosen not to identify these institutions in today’s mega document.
However the Commonwealth Bank, NAB, AMP, ANZ and IOOF were recommended to the authorities for further investigation for dishonesty charges.
Frydenberg has committed the government to pursuing all 76 of the recommendations.
He said the government will extend the power of the Federal Court to cover corporate criminal cases.
Financial advice clients will actually receive what they pay for
Ongoing fee arrangements for financial advice should be renewed annually by the client and the company must also make clear that the client will be entitled to receive those financial advice services.
Financial advisers will also need to disclose when they have a lack of independence, or have a risk of bias or partiality before providing personal advice.
Australians should have no more than one default fund
Australians should have no more than one super fund each – something the Productivity Commission has also suggested.
Hayne said “machinery” should be developed for “stapling” a person to a single default account.
Insurance to be overhauled
Hayne recommended that the hawking of insurance products be prohibited. The Royal Commission heard of how a young man with Down Syndrome was pressured into purchasing a life insurance policy by a cold caller over the phone.
Financial giants to take a good, hard look in the mirror
In his interim report, Hayne said corporate greed and remuneration policies built around sales were key factors in the financial sector’s failings.
The solution is for Australia’s financial services entities to review the cultural and governance, identify and deal with any problems and determine if the changes were effective.
More to come.
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