Posted: 19 Feb. 2019 10 min. read

Key takeaways and outcomes

Royal Commission

The world has been watching the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry with intent. Established on 14 December 2017, the Royal Commission released the final report to a waiting audience on the 4 February 2019. The 76 recommendations within the report represent a measured and pragmatic response, and as such have divided opinion.

Before we dive into the outcomes, let’s recap the journey to date.

After growing political pressure, the Royal Commission was called on 14 December 2017, following a formal letter by Australia’s largest banks to the Treasurer to start the process in order to bring certainty to the industry and begin the path to rebuilding trust.

The Terms of Reference were broad

It called for a focus on instances where ‘any conduct, practices, behaviours or business activities by financial services entities fall below community standards and expectations’. Seven rounds of public hearings were held. They covered themes from insurance and financial advice, to those living in remote communities and the agricultural sector, to broader structural questions.

These hearings were a combination of case studies and appearances from those affected by misconduct, as well as the very public cross-examination of the banks’ CEOs and senior leadership in particular, as well as insurers and wealth managers. Over the period, more than 10,000 complaints were submitted by the public, and it seemed like just as many headlines.

Responsible Lending

Recommendation 1 from the final report is that ‘the NCCP Act should not be amended to alter the obligation to assess unsuitability’. This is a key theme throughout.  With commentary by Commissioner Hayne that the issue at hand is not one of a lack of regulation, but an apparent ‘perception that compliance [to the law] is voluntary’[1]. Despite the first chapter being entitled ‘Banking’, mortgage brokers seem to be the hardest hit with large structural changes recommended, including:

  • Formal requirements for brokers to act in the ‘best interests’ of borrowers, with a civil penalty on breach.
  • Subjection of mortgage brokers to the laws governing financial advice.
  • The prohibition of trail commissions from July 2020.
  • A proposed change to make borrowers pay a fee for advice as opposed to bank paid commissions to remove conflicted remuneration.

Managing these changes will require significant restructuring to the operating model of all members of the mortgage broking industry.


In addition to changes in commission structures, the report provides broader recommendations on remuneration, particularly where practices have the potential to lack accountability or lead to conflicts of interest. These include:

  • Extending remuneration structures to non-financial risks such as misconduct and compliance.
  • Regular assessments of remuneration frameworks to encourage the sound management of non-financial risks for APRA-regulated institutions.
  • Setting limits on financial metrics in connection with remuneration.
  • Mandatory clawbacks.
  • Encouraging improvements in the quality of information provided to boards on risk management performance.

It is interesting to note the Government’s response on several of these recommendations, that it ‘supports all financial services entities acting on this recommendation’. This shifts the burden back to individual entities. The efficacy of voluntary recommendations remains to be seen.


One of the most important recommendations is the proposed expansion and modifications to the Banking Executive Accountability Regime (BEAR).

  • The BEAR will be extended to all APRA regulated entities, and a comparable regime introduced for all licensed entities.
  • Responsibility for administering BEAR will be shared, with APRA retaining responsibility for prudential matters and ASIC responsible for matters relating to consumer protection and conduct.
  • The regulators themselves will be required to comply with BEAR.

By broadening BEAR, there will be a greater focus on accountability across the industry and more formal governance built into organisational structures.

Regulation and regulators

The report recommends retaining the current regulatory structure. However, it calls for several major changes in supervision and enforcement including:

Greater collaboration between APRA and ASIC through new principles for co-regulation, statutory obligations for cooperation and information sharing, and joint administration of BEAR.

  • A quadrennial capability review for both regulators commencing with APRA in 2019.
  • A new independent oversight body to assess the effectiveness of the regulators.
  • A shift towards a ‘why not litigate?’ stance in regards to ASIC’s enforcement approach.
  • A reduced use of infringement notices.
  • More careful consideration of enforceable undertakings.

With these changes, we are likely to see a more empowered regulatory mechanism, greater enforcement, and increased industry oversight.

It is clear that the Royal Commission will have a lasting impact on the Australian Financial services industry, even if only for the long path to rebuilding trust.

Importantly for international observers, the Royal Commission has highlighted that robust compliance, monitoring, reporting and accountability mechanisms are critical to managing conduct and maintaining trust.

For more commentary from Deloitte on the Royal Commission click here

[1] Page 425 Final Report

More about the author