Behaviour in the Australian financial services sector was thrust into the spotlight when the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry began. Commissioner Hayne heard testimony from a variety of figures in an attempt to dissect a culture of ‘dishonesty and greed’. This week the final report of the Royal Commission was released (the ‘Final Report’).
The Final Report takes aim at the misconduct in the sector and attempts to hold financial institutions to a higher standard of conduct and increase protections for consumers.
Below we have outlined the key recommendations.
- Closer attention will need to be paid to the connection between remuneration and incentives (and boards / senior management will need adequate oversight of the remuneration structure).
- Companies should move away from commission based structures so poor behaviour is not rewarded.
Culture and Governance
- A focus on senior management and boards setting the tone and increased accountability for reinforcing good governance and culture at all levels (including internally).
- Managing risk, regulation and compliance needs to be prioritised, with reviews and developed responsibility and accountability frameworks being implemented.
- Due diligence to be carried out on third parties and intermediaries to further understand risk.
Cost to businesses
- Proactive changes and the increased compliance burden will require some financial investment.
Wider FS sector considerations
- Similar obligations have been placed on regulators.
- A new regulatory body will oversee the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority.
- Mandatory registration with a new disciplinary body for FS advisors.
As happened in Europe and the US, the Australian financial services sector is now focussing on culture and conduct. This has now led to government action to ensure a change in the culture of the banks and an improvement in corporate governance. We previously reported in February 2018 on the Australian Banking Executive Accountability Regime which brought in new rules on remuneration. The recommendations of the Royal Commission are likely to lead to further changes in the Australian financial services sector. The Australian government will now consider how to implement the recommendations of the Final Report.
If we can assist you in relation to your incentive plans or remuneration regulations, please do contact us.