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The Regulatory Landscape in the Wake of the Royal Commission

Date: 23 July 2018

Senior Associate, Daniel Knight discusses emerging issues in the Financial Services industry in the wake of the Royal Commission and how he believes this will shape the regulatory landscape. 


The Royal Commission has generated a lot of noise. To cut through it all, here are 4 key indicators which I think will shape the regulatory landscape in the wake of the Commission.

First, the Royal Commission cannot focus on misconduct in isolation. The Federal Treasury has highlighted the need to balance regulation with allowing business to continue. It's not possible tor desirable, Treasury says, to try to regulate risk down to zero.

Second, reward and payment structures can create misalignment between provider and client. As can unmanaged conflicts of interest. The Future of Financial Advice reforms banned conflicted trailing commissions, but generous transition arrangements allow commission to still be paid some 5 years later. Grandfathered commissions seem sure to be banned in the wake of the Royal Commission. Mortgage broker remuneration, too, seems likely to change.

Third, Treasury submissions also point out that, in some respects, the laws are already sufficient. Rather than regulatory change, what's needed may be more thorough and vigorous enforcement. In consumer credit, for example, lenders are already required to lend only if it is "responsible" to do so and to ensure their contracts don't contain "unfair" terms. Are those laws being prosecuted as they should be, across all sectors?

Fourth, the Royal Commission identified a culture which at times tolerated wrongdoing and covered it up. Regulating to improve culture is difficult, but we may well see strengthening of law to encourage timely breach reporting and whistleblowing, for example. The hope from Treasury is also that increased enforcement activity from ASIC will lead to cultural improvements.

Hearings resume in August and the Commission is due to release its interim report by the end of September.

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