It’s completed, but will we see real change?


After its establishment on 14 December 2017, the Royal Commission into the Banking, Superannuation and Financial Services Industry has reached its conclusion. The Honourable Justice Hayne submitted his Final Report on 1 February 2019 and on 4 February the Report was published.

Justice Hayne made 76 recommendations, some of which are explained in this article.


Four observations 

The Final Report commences with four major observations about the financial services industry in Australia. The observations consist of:

1) the connection between conduct and reward

2) the power imbalance between financial service entities and their customers

3) the effect of conflicts between duty and interest

4) holding entities to account.

The first observation relates to the fact that employees were receiving incentives for sales and profit they had participated in, regardless of whether their conduct was lawful or not.

The second observation is referring to the idea that customers often have little knowledge and understanding of the transactions they engage in, (compared with the financial entity). Justice Hayne explained that,  financial service entities “acted in the way they did because they could”.

The third observation explains that intermediaries often handle customers’ matters, rather than the financial entity itself. In these instances, the customer is likely to assume the intermediary is acting independently and in line with the customer’s best interests, however, in lots of cases financial entities were paying intermediaries to act in the entity’s best interest.

Finally, the fourth observation relates to the fact that there no adequate consequences in place for entities that broke the law. Justice Hayne said “misconduct, especially misconduct that yields profit, is not deterred by requiring those who are found to have done wrong to do no more than pay compensation”. Rather, Justice Hayne suggests that media releases should be required for any wrongdoing by a financial service entity.


The recommendations fall under the headings of banking, financial advice, superannuation, insurance, culture and regulators. A couple of recommendations are highlighted below:

Intermediated home lending

Recommendation 1.2 says that mortgage brokers must act in the best interests of the borrower. Further, recommendation 1.3 says the borrower should pay the mortgage broker, rather than the lender. This will help to ensure that financial entities cannot pay intermediaries such as mortgage brokers to act in their best interests.

Access to banking

Recommendation 1.8 suggests that the Banking Code should be amended so that banks work with customers who live in remote areas and/or are not proficient in English to identify a suitable way for those customers to access banking services. This recommendation also includes the suggestion that banks should not allow informal overdrafts on basic accounts (without express consent) and should not charge dishonour fees on basic accounts.

Definition of small business

Justice Hayne explained that the definition of ‘small business’ in the 2019 Banking Code is “too complicated and too refined in its reach”. Therefore, recommendation 1.10 stipulates that definition of ‘small business’ in the Banking Code should be amended so that it applies to any business or group that employs less than 100 full-time employees, where the loan applied for is less than $5 million. Currently, there is a 3-part test to determine whether a business constitutes a small business:

1) annual turnover less than $10 million;

2) fewer than 100 full-time employees; and

3) less than $3 million total debt.

The new definition suggested by Justice Hayne will make it easier for small businesses to receive loans.

Disclosure of lack of independence

Recommendation 2.2 says that financial advisers must, before giving advice, provide a written statement to the client explaining why they are not independent, impartial and unbiased. The written statement must be clear and concise. A prescribed form for this written statement may be produced in the future.

Enforceability of the Code

Under recommendation 1.15 Justice Hayne says that ASIC may include ‘enforceable code provisions’, breaches of which will constitute a breach of the law. When deciding whether to approve a code, ASIC may take into consideration whether it is enforceable or not. It has also been suggested that ASIC have the power to approve codes of conduct relating to all APRA-regulated institutions and ACL holders.

Possible offences

Justice Hayne draws attention to the Corporations Act in saying that there is a real possibility that some financial service entities have breached section 1041G. Section 1041G stipulates that a “person must not, in the course of carrying on a financial services business, engage in dishonest conduct…” In accordance with section 1311(1), failure to comply is a criminal offence.

Justice Hayne goes on to explain ‘dishonest conduct’ means conduct which an ordinary person would consider to be dishonest, and which the offender knew was dishonest at the time.

Hayne referred a list of financial service entities to regulators for possible criminal and civil action, including ANZ, NAB, Allianz and AMP.



In conclusion Justice Hayne said that simplifying the law could be beneficial, however it could also lead to a wider application of the law which could result in unintended consequences. Instead, Justice Hayne recommended that exceptions and qualifications should be removed from the law. He has said that implementing some of the Report’s recommendations will result in a simplification of the law, and if other opportunities arise to simplify it, they should be seized.

We now wait to see what the federal government do to implement any of the recommendations. Considering a federal election is not far off it is unlikely that we will see substantiated change until after the election. Proposed changes may become a platform piece for the parties as we see the escalation of proposed policy in the lead up to the election. Then we will want to see if real change happens.


If you have any questions regarding the Final Report of the Royal Commission and how it may affect you or your business, please do not hesitate to contact Lynn & Brown Lawyers.


About the authors:

This article has been co-authored by Chelsea McNeill and Steven Brown at Lynn & Brown Lawyers.  Chelsea is in her third year of studying Law at Murdoch University.  Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.



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