The long-awaited final report on the banking royal commission was released yesterday. The aim of the Royal Commission - which is the highest form of inquiry into matters of public importance - was to expose wrong-doing and dodgy practices in banks, and insurance and superannuation companies.
And it delivered. From Day one, the commission heard gut-wrenching stories of people who'd lost their homes and their livelihoods due to misconduct, bad management or straight-out illegal behaviour. All up, Commissioner Kenneth Hayne made 76 recommendations. The Federal Government said it would act on all of them. We've summarised a number of them below that we think will have the biggest impact on our client's day to day lives.
1. Buying a house or property:
The Royal Commission spent a long time looking at the issue of responsible lending. That is, that financial institutions and advisers should have the best interests of their clients in mind when they recommend products that would part them with their hard-earned cash. At the moment, if you're thinking of buying a property and you enlist the help of a mortgage broker to find the best loan, there are no rules which state that the broker has to act in your best interest. Commissioner Hayne wants to change that. He's recommended that mortgage brokers have to work in the best interest of their clients. If they're found not to do that, they could face civil (i.e. not criminal) charges. But that change may come with a cost attached. The consequence of removing those incentives from lenders means that we'll move away from a lender-pays system (where banks and other institutions pay a broker to pass on a deal) to a borrower pays system. In other words, if you want a mortgage broker to find you the best deal, you'll likely be the one paying for it.
2. Owning a Farm:
The natural and man-made cycles of flood and drought in Australia mean people who work in the agricultural sector have special financial needs. They may have a fantastic year one year, followed by years of drought which yield next to nothing. Commissioner Hayne wants those special requirements acknowledged through legislation. He's recommended that default interest is waived on loans in areas affected by drought and natural disaster. This would only apply to areas that have been formally declared as in drought, or as a natural disaster zone. He's also recommended that the value of a farm or agricultural holding be assessed by someone other than the bank that has the outstanding loan. That would mean that the value of the land isn't determined by who ends up with it if the owner can no longer pay their loan.
Commissioner Hayne also wants a national farm debt mediation scheme. That means financial advisers with special knowledge of the agricultural sector would sit down with farmers in debt to help work out a repayment scheme that lets them keep a roof over their heads. Mediation exists now, but it's usually a last-ditch measure. This recommendation wants to increase the mediation so it gives farmers and their families more of a fighting chance.
3. If you've suffered from dodgy financial practices:
Given the Royal Commission had more than 10,000 public submissions, and a further 12,800 calls and emails while the hearings were being held, we can quite accurately say that a lot of people have felt wronged by financial institutions. Commissioner Hayne wants to make it easier to get justice in this area. He's recommended a last-resort compensation scheme that's funded by the industry itself. Say for example you do everything right and a regulator or court finds that a financial institution has gone belly-up, meaning you get nothing. In the future, the compensation scheme may be able to help you out. The Federal Government will also fork out $30 million to 300 individuals and small businesses who've been found owing from previous cases. The Federal Government has also announced it will expand the role of the Federal Court (which currently only sees civil cases) to start hearing white-collar criminal cases. They say the expansion will ease a backlog in criminal cases that have emerged from the Royal Commission.
We hope this summary gives you an outline of the main changes we're expecting to see from the Royal Commission. If more detail emerges that may impact you, we'll certainly keep you informed.