In the Final Report, the Commissioner has found that, for the most part, whilst the legislative tools necessary to protect borrowers are already available, there have been significant shortcomings in their application and enforcement.
As a result, the actual legislative changes proposed in the Final Report in relation to consumer lending are generally more limited than some might have anticipated. The only significant exception to limited legislative change being the regulation of brokers (although whether the recommendation that brokers be remunerated directly by borrowers will be introduced remains uncertain in light of the different positions adopted by the Government).
In her summary of the key findings, Partner Michelle Levy, said her initial reaction was that the recommendations in the Final Report were modest but, on a second reading, some would set a cat among the pigeons. We think the recommendations concerning mortgage brokers are in the 'cat and pigeon' category, while the recommendations concerning financial advisers are firmly in the 'modest' category.
And during the agricultural round of hearings, and in his Interim Report, the Commissioner asked if there should be special rules for farmers to address the particular challenges of the sector, and if so, who should bear the added cost? The Commissioner weighed various proposals, some of which had the potential to significantly affect the sector. For example, Counsel Assisting asked whether there should be a moratorium on banks taking enforcement action when a property is affected by natural disaster.
Perhaps the biggest issue dealt with in the superannuation hearings is how various forms of conflicts create perverse incentives for trustees to not comply with their duties.
Although the Commissioner seemed to be of the view that a trustee could not 'manage' conflicts between its duties to members and its own financial interests, in the end the Commissioner did not recommend prohibiting for-profit funds or breaking up vertically integrated business models. In the double-negative that is perhaps more familiar to criminal lawyers, the Commissioner says that he is not satisfied that for-profit funds cannot comply with their best interests duties and the duty to give members’ interests priority. He has, however, recommended a number of measures and provided analysis of trustee's duties which may affect the way trustees go about 'managing' conflicts in future.
While the sixth round of public hearings considered issues associated with the sale and design of life insurance and general insurance products, the handling of claims under life insurance and general insurance policies, and the administration of life insurance by superannuation trustees. The hearings also considered the appropriateness of various aspects of the current regulatory regime for the insurance industry.