A five-minute summary of the Hayne Royal Commission findings
By now you have probably begun analysing the findings of the Hayne Royal Commission – however if you need a top line catch up, here’s our summary, with some of our own thoughts added.
High lights (or Low lights)
Overall, the Commissioner laid the blame for the various acts of misconduct at the feet of the boards and senior management of the entities involved. He identified the key issues as culture, governance and remuneration practices
1) The Commissioner posed four key questions in making his recommendations:
- To what extent can the law be simplified so that its intent is met, rather than merely its terms being complied with, and how can this be done?
- Should the approach to addressing conflicts of interest change from managing conflicts to removing them, either by banning all or some forms of conflicted remuneration and sales or profit based remuneration and/or changing industry structures?
- What can be done to improve compliance with the law (and industry codes), and the effectiveness of the regulators, to deter misconduct and ensure that grave misconduct meets with proportionate consequences?
- What more can be done to achieve effective leadership, good governance and appropriate culture within financial services firms so that firms ‘obey the law, do not mislead or deceive, are fair, provide fit for purpose service with care and skill, and act in the best interests of their clients’
2) He defined acceptable norms of behaviour which should be complied with as follows:
- obey the law
- do not mislead or deceive
- act fairly
- provide services that are fit for purpose
- deliver services with reasonable care and skill, and
- when acting for another, act in the best interests of that other
3) Although these norms are reflected in existing law, the Commissioner pointed out that is piecemeal, and articulated some general rules in response to the issues that were identified during the hearings:
- the law must be applied and enforced
- industry codes should be approved under statute, and breach of key promises made to customers in the codes should be a breach of the statute
- no financial product should be ‘hawked’ to retail clients
- intermediaries should act only on behalf of, and in the interests of, the party who pays the intermediary
- exceptions to the ban on conflicted remuneration should be eliminated
- culture and governance practices (including remuneration arrangements) both in the industry generally and in individual entities, must be improved.
In addition, we welcome the Commissioner’s recommendation to establish a compensation scheme of last resort to provide redress to businesses and retail consumers where compensation awarded to them goes unpaid. We have long supported this concept, with the scheme funded by the sector of the industry giving rise to the unpaid claims.
From our perspective overwhelmingly the main findings relate to the shortcomings in the culture and governance of the organisations investigated.
We believe there needs to be enhanced attention given to culture and governance throughout the financial services sector and suggest you do not wait for these recommendations to become law and/or policy. That process will be long and politicised.
Consider the constructive steps you can take now to assess your culture and governance arrangements and how you can improve these – PFS Consulting can help.