INSIGHT

Update on the Royal Commission

By Michael Mathieson
Banking Financial Services Royal Commission Funds Insurance Superannuation Financial Services

Written by Senior Regulatory Counsel Michael Mathieson

Have you been wondering what the Royal Commission will make of the numerous witness statements and vast amounts of other information collected from superannuation trustees in recent times? You will find out soon enough. But first, there are some curiosities from the Round Four hearings to consider – including a hint as to what the superannuation hearings will include.

Farming finance

In our most recent update, I mused on whether the Commission accepts or rejects the Bush Myth. The Round Four hearings did not provide a definitive answer to that question. However, there were some exchanges that suggested a lot of sympathy for those who work the land. For example, Ms Orr asked Mr Ruddy, a cattle farmer, to explain what he meant when he said he could not afford 'lick':

Can you explain for those … who don't know what lick is, Mr Ruddy? It's a – it's a mixture of minerals, like a sugar form, I suppose, and – and it's a high protein and helps digest the gut and the microbes in the gut.

The transcript does not do justice to the elaborate solicitude with which the question was put. Mr Ruddy drew further sympathy (and some chuckles) from the gallery when he continued:

… well, I couldn't pay my bills, so I couldn't buy lick. That's when I started home brewing. And I'm quite good at it now.

And earlier, the Commissioner had responded to Mr Katter's interjection from the gallery with:

There are a lot of people out there concerned, and I know that.

Even so, I think we can safely assume that neither Ms Orr nor the Commissioner has had time to leaf through the works of Henry Lawson in recent months.

Funeral insurance

I confess that, before the Round Four hearings, I had not really focussed on the exception to the definition of financial product in the Corporations Act 2001 for funeral expenses policies: regulation 7.1.07D of the Corporations Regulations.

According to the Explanatory Statement that accompanied regulation 7.1.07D:

The rationale for relief is that a funeral expense policy, where provided for the sole purpose of paying in the future for a funeral, does not warrant regulation by the licensing and disclosure provisions of the Corporations Act.

Following the recent hearings, the author of this statement could be forgiven for feeling a little sheepish.

In her closing submissions, Counsel Assisting asked whether funeral expenses policies should no longer be excluded from the definition of 'financial product'. Quite. One could equally ask whether funeral expenses policies should be issued in a manner that is efficient, honest and fair; or whether the prospective customer should be given a product disclosure statement setting out the significant benefits, significant risks and costs of the product in a clear, concise and effective manner; or whether the issuer of a funeral expenses policy should be subject to the same regulation as, say, a pet insurer.

The product issuer in the spotlight was the Aboriginal Community Benefit Fund (ACBF). Counsel Assisting said that ACBF 'is not an Aboriginal organisation, nor is it affiliated with any Aboriginal or government organisation'. This point gives rise to a heavy irony, although an irony that is not particularly funny.

In May 1996, ACBF commenced proceedings in the NSW Supreme Court to restrain the Bateman's Bay Aboriginal Land Council and the NSW Aboriginal Land Council from carrying on a contributory funeral fund business for the benefit of Aboriginal people. ACBF ultimately succeeded in obtaining declaratory and injunctive relief.

It was ultra vires the land rights legislation for the Aboriginal land councils to carry on that business. However, the question was whether ACBF, as a competitor, had standing to seek the relief. Subscription rates for ACBF's products ranged from $4 to $26 per fortnight depending on age. In contrast, the subscription rates for the Aboriginal land councils' product were to be $15 per annum (for those up to 19 years of age) or $40 per annum (for those aged 20 and over). Given the Aboriginal land councils' product would be significantly cheaper, ACBF argued that it was 'highly probable' that the offering of that product would have a 'severe detrimental financial effect' on ACBF's business and that ACBF, therefore, had standing to bring the proceedings.

The question of standing found its way to the High Court. The High Court decided, unanimously, that ACBF did have standing. The members of the Court were Justices Gaudron, McHugh, Gummow, Kirby and, ahem, Hayne. In this way, a non-Aboriginal organisation succeeded in stopping two Aboriginal organisations from providing funeral products to Aboriginal people.

Sales practices

The Commission examined the sale practices not just of ACBF but also those of Select, a distributor of insurance products (including, until recently, funeral insurance).

Select's witness admitted that, in connection with the sale of funeral insurance to an Aboriginal woman, the sales representative probably: gave unauthorised personal advice; contravened the anti-hawking provision; and, engaged in unconscionable conduct. Counsel Assisting said it was also open to find that there was conduct falling below community standards and expectations; for example, it was 'deeply inappropriate for the Select sales representative to induce Ms Marika to provide the names and contact details of a significant number of family and friends during the phone call'. Counsel Assisting said the misconduct had several causes, including:

  • Select's sales training – Select encouraged its employees 'to sell aggressively and to overcome objections in such a way that was designed not to permit potential purchasers to exit the selling process'; and
  • Select's remuneration and incentive structure – Select provided 'very significant incentives which attracted its representatives to sell policies at all costs, and did not appropriately deter potential misconduct'.

Superannuation

And to finish where we started – superannuation. The Commission's agenda for the upcoming superannuation hearings must be rather full. According to the closing submissions in the Round Four hearings, the agenda will include the interaction between superannuation funds and Aboriginal and Torres Strait Islander people:

… the Commission heard about a number of difficulties faced by Aboriginal and Torres Strait Islander people when seeking access to their superannuation entitlements. These difficulties included – but were not limited to – a lack of understanding of the existence or purpose of superannuation, identification issues, difficulties associated with meeting the conditions of early release of superannuation, and difficulties associated with the release of death benefits.

Given that superannuation will be the subject of the Commission's next round of hearings, we will further consider these topics at this point. In the course of that round of hearings, we will invite responses to questions relating to the interaction between superannuation funds and Aboriginal and Torres Strait Islander people.

Tune in on 6 August.