The royal commission says the conduct identified and described in its report includes conduct by many entities that has taken place over many years causing substantial loss to many customers but yielding substantial profit to the entities concerned.
Very often, this conduct has broken the law. And if it has not broken the law, the conduct has fallen short of the kind of behaviour the community not only expects of financial services entities but is also entitled to expect of them.
"In almost every case, the conduct in issue was driven not only by the relevant entity's pursuit of profit but also by individual's pursuit of gain, whether in the form of remuneration for the individual or profit for the individual's business," the report says.
"Providing a service to customers was relegated to second place."
Hayne says incentive, bonus and commission schemes through the financial services industry have measured sales and profit, but not compliance with the law and proper standards.
The interests of the client, intermediary and provider of a product or service are not only different, they are opposed. Too often, conflicts were resolved on favour of the entity, adviser or intermediary and against the interests of the client.
Too often, financial services entities that broke the law were not held to account. Misconduct, especially misconduct that yields profit, is not deterred by requiring those who are found to have done to do no more than pay compensation.
"There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management," it says.
Criminal behaviour. In its discussion of the fee for no service scandal, the report makes it clear that the royal commission's view of "taking money for nothing" is criminal behaviour.
It recommends that where ongoing fee arrangements are made, they must be renewed annually by the client and the services the client will receive must be put in writing each year.
Advice. The report includes recommendations to improve disclosure about lack of independence and the repeal of all grandfathering provisions covering conflicted remuneration.
It suggests that ASIC should consider further reducing the cap on commissions in respect of life risk insurance products, with the cap ultimately being reduced to zero (under current rules, the cap will go down to 60 per cent of the first year's premium by 2020).
Mortgage brokers. The report has called for a complete re-shaping of the mortgage broking industry, with a move from commissions paid by lenders to fees paid by borrowers.
Deloitte banking and capital markets partner, Simon Pelletier, says there is no doubt that there will be fewer mortgage brokers if the proposed changes go ahead.
Super. Trustees of registrable superannuation entities (APRA regulated funds) should be prohibited from assuming any responsibilities other than those arising from or in the course of its performance of the duties of a trustee of a super fund.
No advice fees should be deducted from a MySuper account.
A person should have only one default super account. Systems should be put in place for 'stapling' a person to a single default account.
The regulators. The 'twin peaks' model of financial regulation should be retained, but with some adjustments. The law should be amended to ensure APRA and ASIC co-operate and share information to the maximum extent possible. Both regulators should be subject to regular capability reviews and a new independent oversight body should be established to assess the regulators' effectiveness.
APRA should adjust its approach to prudential supervision to build a supervisory program focused on building culture that will mitigate the risk of misconduct. The prudential regulator's role in overseeing superannuation should be adjusted. APRA should retain its current functions, including responsibility for the licensing and supervision of superannuation entities (RSEs) but this power should be shared with ASIC.
ASIC should focus less on enforceable undertakings and infringement notices, and look more at the use of court action to determine the consequences of a contravention.
Responsible lending. After devoting considerable space to concerns about lending standards in its interim report, the royal commission has little to say about them in the final report, except to note that banks have been tightening up on serviceability assessments. It has rejected calls to change from a "not unsuitable" test to a "suitable test".
Compensation of scheme of last resort. Hayne reiterates the Murray Inquiry recommendation that a compensation scheme of last resort be established to provide compensation to consumers whose financial institutions can't or won't pay compensation awarded in dispute settlements. Dispute resolution services and consumer groups have been calling for this for a long time but the government has been hard of hearing so far.