Several bills affecting the financial services industry were before Parliament when the election was called on Sunday. With Parliament prorogued, the bills lapse.
They include the Financial Accountability Reform Bill 2021, the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 and the Financial Services Compensation Scheme of Last Resort Levy Bill 2021.
A couple of the bills were controversial – one that waters down the responsible lending provisions of the consumer credit law and one that establishes a compensation scheme that is short of industry expectations.
Depending on who wins government, they might never reappear. If they do, they could look very different.
Financial Services Compensation Scheme of Last Resort Levy Bill 2021. The proposed scheme will provide compensation to consumers where they have an Australian Financial Complaints Authority determination in their favour and where the relevant financial institution has not paid the consumer in accordance with the determination.
Court and tribunal rulings will be outside its scope. Compensation will be capped at A$150,000.
Under the terms of the lapsed bill, for a claim to be paid, AFCA must have been notified within 12 months that the company has not complied with a determination. In addition, the company must be unable to pay the compensation owed.
Specific products and services are those that financial institutions with an Australian financial services licences or an Australian credit licence are authorised to provide and where they are required to be AFCA members. Managed investment schemes are not covered.
Products and services provided by voluntary AFCA members will not be covered.
Critics of the bill have complained that the compensation cap is too low, court and tribunal rulings should be covered, and managed investment schemes should be included.
Labor members of the Senate Economics Legislation Committee wrote a dissenting report when the committee reviewed the bill earlier this year. While the committee recommended that the bill be passed the dissenting reported recommended that its shortcomings be addressed.
If Labor wins government, the bill might reappear in quite a different form.
Financial Accountability Reform Bill 2021. The bill was designed to extend the obligations first introduced in the Banking Executive Accountability Regime in 2018 to the superannuation and insurance industries and replace BEAR for the banking industry. The BEAR legislation was to be repealed when FAR was passed.
Like BEAR, the FAR bill imposed obligations on directors and senior executives to conduct their business honestly and with care, skill and diligence. Companies were to nominate executives to be responsible for areas of business operations. A deferred remuneration obligation was included to ensure remuneration was reduced if accountability obligations were not met.
As things stand now, the BEAR regime will remain in place until the next government decides whether or not to revive FAR.
National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020. The bill was designed to remove the responsible lending provisions from the NCCP Act, except where they apply to high-risk lending (such as small amount credit contracts and consumer leases), relying instead on APRA’s prudential supervision to regulate lending practices.
Lenders would be entitled 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.
The bill also extends the best interest duty that currently applies to mortgage brokers to other “credit assistance providers”. And it gives the responsible minister power to set non-ADI credit standards.