It was inevitable that the Morrison government’s acceptance of Kenneth Hayne’s call for stricter adherence to financial services law and a stronger regulatory approach would wane at some point.
From early on, in the face of strident industry lobby, the government abandoned the best-interests duty for mortgage brokers, with muted voices of opposition from consumer lobbies and the Labor Party.
Given its reluctance to set up a royal commission to look at misconduct in the financial services industry in the first place, it was inevitable that the government’s acceptance of Kenneth Hayne’s call for stricter adherence to financial services law and a stronger regulatory approach would wane further at some point.
That point came in September last year, when Treasurer Josh Frydenberg announced that he planned to remove responsible lending obligations from the National Consumer Credit Protection Act.
Responsible lending posed a problem for policy makers after a court ruled in favour of Westpac in the celebrated wagyu and shiraz case, throwing the responsible lending rules into doubt.
Hayne had anticipated this problem. The royal commission report said: “If the court processes were to reveal some deficiency in the law’s requirements to make reasonable inquiries about, and verify, the consumer’s financial situation, amending legislation to fill in that gap should be enacted as soon as reasonably practicable.”
Frydenberg took a different tack, putting forward a bill that allows lenders to rely on the information provided by borrowers, in the absence of reasonable grounds to suspect that information is unreliable. This would replace the current “lender beware” approach with a “borrower responsibility” approach.
Frydenberg’s reason for moving in this direction have not stood up to scrutiny but since then he has taken more steps to wind back the stronger regulatory approach favoured by Hayne.
In November, he said in a speech that “regulators must pursue their mandates in a manner that is consistent with the will of the parliament.”
Frydenberg said: “There need to be mechanisms to hold them [regulators] to account. It is the parliament who determines who and what should be regulated. It’s the role of regulators to deliver on that intent, not to supplement, circumvent or frustrate it.”
The following month the Treasurer introduced a bill transferring Consumer Data Right rule-making from the Australian Competition and Consumer Commission to Treasury.
The government’s response to Hayne was positive initially but for the past few months it has been backsliding.
Fortunately, one arm of government maintains the faith, with the public domain records of Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry preserved here.