By Darren James, Partner
Former High Court Justice, Kenneth Hayne, seems set to be given a sweeping mandate to deep dive into conduct within the financial services sector within Australia.
It is no surprise that the draft terms enable the Commission to examine allegations of ‘misconduct’, broadly defined, by banks. That is what many in support of the Commission have wanted.
But the Commission’s draft terms go much further on that than just banks. They pick up other financial service entities such as ADIs, general and life insurers, reinsurers, RSE licensees of registrable superannuation funds, AFSL holders and Authorised Representatives of AFSL holders, as well as each of their directors, officers and employees.
The inclusion of RSE licensees of registrable superannuation funds in the draft terms caught many off-guard. Even more surprising, was the inclusion of “any entity that has any connection (other than an incidental connection) to the RSE licensee of a registrable superannuation entity”. This unexpected inclusion will, if reflected in the Commission’s final terms, allow the Commission to look at the conduct of unions and other bodies who have connections with industry superannuation funds.
Yet another surprise in the draft terms was the power to consider the “nature, extent and effect of misconduct” by a financial services entity “through persons acting on their behalf”. This discreet inclusion hasn’t been the subject of much commentary to date. But it seems to contemplate that the Commission may investigate the conduct of receivers & managers, as well as debt recovery houses and others who undertake work which involves acting on behalf of financial services entities.
Many advisers and commentators looking at the Commission’s draft terms are trying to work out what the precise areas of focus of the Commission will be.
Action groups and others representing the aggrieved within the community are hopeful that the Commission will shine a sanitising light into what have they hitherto perceived as dark places. That this will occur in some way seems inevitable. But the precise compass of the areas to be touched by that light, and duration and strength of the light itself, may end up disappointing some and surprising others.
The Commission is required to look at the issues that have the “greater potential for harm if not addressed expeditiously” and is to issue its report within 12 months. These dual imperatives, together with the volume of other matters that the draft terms require the Commission to consider and report upon, necessarily impact upon the Commission’s focus.
The Commission is also permitted not to inquire into a particular matter “to the extent that to do so might prejudice, compromise or duplicate another inquiry or investigation, or a criminal or civil proceeding”. There have been well over 50 substantive inquiries, reviews and investigations into matters involving Australian financial service entities. There have also been multiple class actions and regulatory proceedings – a number of which remain on foot. Each of these inquiries, investigations and proceedings is likely to further impact on what the Commission considers and how it does so.
It remains to be seen how any of the lobbying that is currently underway about the Commission’s terms, including that by major political parties, industry and consumer groups, will shape the Commission’s final terms.
In the mean-time, many of those in the sights of the draft terms, as well as the interest and other action groups who want to be heard by the Commission, are ramping up their preparations in anticipation of a January 2018 hot start.
Legal, forensic, expert and PR/communications resources are being locked in, the witnesses that they wish to lead on key topics are being identified, and document repositories are being mapped to facilitate retrieval and preservation in anticipation of notices to produce being issued by the Commission. Issues in relation to the representation required by directors, C-suite members and employees who might be the subject of notices to attend for examination, are also being actively considered.
The Commission’s draft terms are available here. Final terms are expected to be announced before the end of the business year or in early January 2018.
For further information, please do not hesitate to contact: