Unravelled, by Michelle Levy 4 min read
You will have seen the Financial Accountability Regime 2021 Bill was released a couple of weeks ago for comment, because you will have read my colleagues' Insight . FAR will require accountable entities (ADIs – again, and then later, life companies, general insurers, private health insurers and RSE licensees) to 'take reasonable steps to conduct their businesses with honesty and integrity, and with due skill, care and diligence'. This seems to be a very nice formulation, and hard to object to – although it may come as no surprise to regular readers to learn that I do. But before explaining why, I note the drafters do seem to have forgotten (somewhat inexplicably, given the mood) one of Commissioner Hayne's key six principles – a duty to act fairly. Being quick off the mark (given the '2020' Tokyo Olympics are on, a sporting metaphor seems apt), you could say the drafters might have noted that this duty was adequately covered elsewhere because, with the exception of health insurers, all of the accountable entities will already hold an Australian financial services licence, and so they will also be required to provide financial services (in short, conduct their businesses) efficiently, honestly and fairly. But you can see the difficulty with the argument – they already have a duty to act honestly and, while it is a bit hard to make sense, really, of a duty to act efficiently, it might be thought to be something to do with care, skill and diligence. And this is the reason I object. I want to head down to Canberra and say, 'Please stop' – no one needs more regulation.
In addition to being obliged to act efficiently, honestly and fairly, ADIs, life and general insurers and RSE licensees must not enter into contracts on unfair terms; they must not mislead or deceive or act unconscionably. Come October, they will have to ensure their products are suitable for their customers, although I wish them luck finding any, given the anti-hawking laws and the deferred sales for add-on insurance commencing at the same time. Insurers have a duty of utmost good faith; life companies a duty of priority; and the poor RSE licensees have duties to act in the best (soon, financial) interests of beneficiaries, to treat beneficiaries fairly, to give beneficiaries' interests priority and to promote beneficiaries' financial interests. In fact, I counted the covenants applying to a trustee – there are 25 in the SIS Act, and when the Government finally adds the retirement income covenant, there will be 26, without counting those in the prudential standards. Do you remember Tony Abbott's Cutting Red Tape initiative?
Commissioner Hayne did not, in the main, recommend new law – he said the problems in the industry were that participants did not comply with the law and regulators did not enforce the law. These are not problems that are addressed with more law.
At the end of last year, APRA released an information paper on the Implementation of the Banking Executive Accountability Regime (the forerunner to FAR). It looked at implementation by three of the large banks, and said about non-executive accountable persons (are these non-executive directors?): 'Non-executive accountable persons could reflect on whether the ADI’s governance arrangements and their individual practices enable them to demonstrate how they, and the ADI, are meeting their accountability obligations.'
Now, I ask you: 'reflect on' the bank's governance arrangements and their individual practices? I can't help but be reminded of the rhyme about sticks and stones. Well, if you have forgotten, it ends with 'words can never hurt you'. As a sensitive child, I always doubted this. As a somewhat cynical adult, I still can't quite make up my mind. But what I do know is that 16 trustee covenants, overlapping but different formulations of the same thing, and hundreds and hundreds of pages of regulation, don't help anyone and may well hurt. A few plain, well-chosen words are more likely to be effective, and duties to act honestly, with integrity – and, I would add, fairly, and with skill, care and diligence – might well be those words. As to the rest – get rid of it. I suspect there would not be a customer, insured or member who would come to any harm as a result – only the lawyers, and perhaps that is the pitch to take to Canberra.
For those of you who, like me, are not going anywhere for a while – there is lots of time for reflection and, if you are so inclined, to pen your submissions on FAR, the retirement income covenant and the anti-hawking laws.
Until next month, I wish you luck.