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Banking Royal Commission - what you need to know

by Knowledge Shop Editor, on 04/02/19 22:12

The Government today released its response to the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

“My message to the financial sector is that misconduct must end and the interests of consumers must now come first. From today the sector must change, and change forever,” Treasurer Josh Frydenberg said in his response. 

The issues covered were broad, comprehensive, and will add a layer of compliance over everything from interactions with consumers, fees for service, commissions, through to the management of staff remuneration packages. It is no less than consumers would expect following the explosive evidence produced by the Royal Commission. Other than a few recommendations however, many of the reforms do not have dates or details beyond an agreement that the recommendations should be implemented. 

Financial advice

  • Ongoing fee arrangements must be renewed annually by the client. At present this requirement applies to new clients after 1 July 2013 however the Government will extend this requirement to all clients.
  • Grandfathering of conflicted remuneration will end from 1 January 2021. From this date, payments of any previously grandfathered conflicted remuneration still in contracts will instead be required to be rebated to applicable clients. Where the grandfathered conflicted remuneration is volume based and not attributed to any one client, the industry is expected to pass on benefits indirectly through lower fees. ASIC will be tasked with monitoring the end to grandfathering.
  • AFSL holders will need to report serious compliance concerns about individual financial advisers to ASIC quarterly.
  • Introduction of a new disciplinary system for financial advisers.


  • Ban on hawking of insurance products. The definition of hawking will be clarified to include selling of a financial product during a meeting, call or other contact initiated to discuss an unrelated financial product.
  • Funeral expenses will be included under the definition of a financial product.
  • Cap on commissions paid to car dealers for add-on insurance products.
  • Tightening of laws to ensure that insurers cannot unduly reject the payment of legitimate claims – duty to disclose will be amended, failure to disclose (where the disclosure would have had no bearing on the insurance).
  • Extension of unfair contract laws to insurance.
  • Handling and settlement fees will fall within the definition of a financial service. 

Brokers and aggregators

  • Introduce a ‘best interests’ duty for mortgage brokers to act in the best interests of borrowers.
  • Introduction of civil penalties where a mortgage broker breaches best interest duty.
  • The Commission recommended that mortgage brokers should be subject to and regulated by the law that applies to entities providing financial product advice to retail clients. The Government agrees and will seek to align the regulatory frameworks for mortgage brokers and financial advisers. They will also review the feasibility of enabling financial advisers to also act as mortgage brokers.
  • From 1 July 2020, the Government will prohibit the payment of trail commissions from lenders to mortgage brokers and aggregators on new loans .
  • The Government will also require that the value of upfront commissions be linked to the amount drawn‑down by borrowers and not the loan amount, and ban campaign and volume‑based commissions and payments. Additionally, the period over which commissions can be clawed back from aggregators and brokers will be limited to two years and prohibit the cost of clawbacks being passed on to consumers.
  • 'Point of sale' dealers will be brought within the national consumer credit code protections.


  • Ban on hawking of superannuation and insurance products.
  • Limits to deducting advice fees from superannuation and a prohibition on the deduction of advice fees from MySuper accounts.
  • A person should have only one default superannuation account.


  • A national farm debt mediation scheme will be established.
  • Prudential standards amended so that appraisals of the value of land taken or to be taken as security should be independent of loan origination, loan processing and loan decision processes; and provide for valuation of agricultural land in a manner that will recognise the likelihood of external events affecting its realisable value; and the time that may be taken to realise the land at a reasonable price affecting its realisable value.
  • The ABA should amend the banking code so that while a declaration is in place, banks will not charge default interest on loans secured by agricultural land in an area declared to be affected by drought or other natural disaster.
  • Banks should introduce tighter controls and processes for how they manage distressed agricultural loans.
  • ASIC to enforce industry code provisions.

In addition, the Government will expand the Federal Court’s jurisdiction in relation to criminal corporate crime. 


  • Government Response to the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
  • Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry



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