Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

Overview

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, known as the Banking Royal Commission or Hayne Royal Commission, was Australia’s 2017-2019 public inquiry into misconduct across banking, superannuation, insurance and financial advice, led by retired High Court judge Kenneth Hayne and ending in a final report with 76 recommendations. It was established by Letters Patent dated 14 December 2017 (Parliament of Australia). Its brief was to test whether conduct by financial services entities amounted to misconduct or fell below community standards and expectations (Parliament of Australia). The inquiry covered authorised deposit-taking institutions, insurers, financial services licensees and superannuation funds, but not self-managed superannuation funds, and it did not inquire into prudential questions such as financial stability (Bright Law).

Seven rounds of public hearings ran between March and November 2018, covering consumer lending, financial advice, small business lending, regional and remote communities, superannuation, insurance and the causes of misconduct (Hall & Wilcox). The commission sat for 68 days, called more than 130 witnesses and received 10,323 public submissions (Financial Standard). Its interim report of 28 September 2018 covered the first four hearing rounds (Money Magazine). Hayne’s unifying explanation was blunt: “Too often, the answer seems to be greed — the pursuit of short term profit at the expense of basic standards of honesty” (Money Magazine). His emblematic example was charging continuing advice fees to the dead (Money Magazine).

What the hearings exposed

The interim report paired criticism of institutions with criticism of their regulators (Money Magazine). Hayne wrote that the conduct regulator, the Australian Securities and Investments Commission (ASIC), rarely went to court to seek public denunciation and punishment of misconduct, while the prudential regulator, the Australian Prudential Regulation Authority (APRA), never went to court (Money Magazine). The final report placed primary responsibility on the institutions themselves: “there can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management” (Australian Institute of Company Directors).

Case studies included the Commonwealth Bank of Australia’s anti-money laundering compliance and National Australia Bank’s charging of adviser service fees to superannuation members (Australian Institute of Company Directors). Each of the major banks other than Westpac was referred to regulators to consider criminal prosecution, with 24 entities potentially exposed to criminal liability (Hall & Wilcox). A separate count describes 19 instances of possible misconduct covering 24 offences across 22 entities (Clyde & Co).

The final report’s recommendations

Hayne submitted his final report on 1 February 2019, and it was released publicly on 4 February 2019 with 76 recommendations (Clyde & Co). For mortgage brokers, he recommended a best-interests duty enforceable by civil penalty, that the borrower rather than the lender pay the broker’s fee, and that lender-paid trail commissions and then other commissions be prohibited over two to three years (Hall & Wilcox). For financial advice, ongoing fee arrangements were to be renewed annually by the client, advisers were to disclose any lack of independence, grandfathered conflicted remuneration was to be repealed as soon as reasonably practicable, and a single central disciplinary body with adviser registration was to be created (Hall & Wilcox). The fees-for-no-service scandal alone was expected to see at least AU$850 million paid in compensation (Clyde & Co).

In superannuation, trustees were to be barred from assuming obligations other than as trustee, advice-fee deductions from MySuper accounts were to be prohibited except for intra-fund advice, unsolicited selling was to be banned, each person was to have only one default account, and trustees were to be banned from “treating” employers to secure default-fund nomination (Hall & Wilcox). In insurance, the commission made 15 recommendations, including banning hawking, a deferred sales model for add-on insurance, extending unfair contract terms to insurance contracts, and bringing claims handling within the definition of a financial service (Hall & Wilcox). For small business, Hayne recommended against extending consumer credit law to small business lending, proposed a Banking Code definition of small business as fewer than 100 full-time equivalent employees with loans under $5 million, and recommended a national farm debt mediation scheme (Hall & Wilcox).

Regulators, culture and what Hayne did not recommend

Hayne set out six basic norms: obey the law, do not mislead or deceive, act fairly, provide services fit for purpose, deliver services with reasonable care and skill, and, when acting for another, act in that other’s best interests (Australian Institute of Company Directors). He retained the “twin peaks” model, with APRA as prudential regulator and ASIC responsible for conduct, but pushed ASIC towards court enforcement as the starting point, with infringement notices rarely appropriate beyond administrative failings (Australian Institute of Company Directors). ASIC subsequently adopted “why not litigate?” as the starting question for enforcement matters (Australian Institute of Company Directors). Hayne also recommended a new independent oversight body for ASIC and APRA, and extension of the Banking Executive Accountability Regime to all APRA-regulated institutions under joint ASIC and APRA administration (Clyde & Co).

Notably, the report stopped short of structural revolution: it did not recommend enforced separation of product and advice, with Hayne judging separation costly and disruptive and its benefits not shown to outweigh its costs (Hall & Wilcox). It likewise contained no recommendations fundamentally disrupting Australia’s corporate governance model (Australian Institute of Company Directors). Treasurer Josh Frydenberg said the government would act on all 76 recommendations (Financial Standard), although one contemporary summary reported action on 75 of 76, with the mortgage-broker remuneration crackdown held back on competition grounds (Clyde & Co).

Implementation stretched well beyond 2019: the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 put ongoing-fee and independence-disclosure reforms into law, with schedules commencing 1 July 2021 (Parliament of Australia). In September 2022, legislation was introduced to extend the accountability regime to all APRA-regulated entities as the Financial Accountability Regime and to establish a Compensation Scheme of Last Resort paying up to $150,000 to eligible consumers with unpaid Australian Financial Complaints Authority determinations, proposed to commence 1 July 2023 (Australian Treasury Ministers).

What this profile does not claim

Referral totals differ between sources depending on the counting unit, and this profile reports the range rather than settling on one number. The final report’s page count likewise differs on whether annexures are included. The profile does not assess how many of the 76 recommendations were ultimately implemented in full, beyond the 2020 and 2022 legislative steps documented above, and it does not claim that any individual was convicted as a result of the referrals, since the report invited regulators to consider proceedings rather than determining guilt. Outcomes of individual referrals and the later fate of the proposed regulator oversight body were not verified at the research date.