The Senate Economics Legislation Committee has recommended that bills to set up the Financial Accountability Regime and the Financial Services Compensation Scheme of Last Resort be passed without amendment.
In a report released on Monday, the committee also waved through reforms to the law covering small amount credit contracts and consumer leases.
Financial Accountability Regime. FAR extends the obligations first introduced in the Banking Executive Accountability Regime in 2018 to the superannuation and insurance industries and replaces BEAR for the banking industry. The BEAR legislation will be repealed when FAR is passed.
Like BEAR, FAR imposes obligations on directors and senior executives to conduct their business honestly and with care, skill and diligence. The aim is to improve the risk and governance cultures of financial institutions and to promote improved performance and stability of the financial system.
The obligations cover directors and senior and influential executives. Companies are to nominate executives to be responsible for areas of business operations. A deferred remuneration obligation is designed to ensure remuneration is reduced if accountability obligations are not met.
The committee said the most submissions supported the bill in its current form, although there were calls for the addition of civil penalties for accountable individuals.
Its view is that the banning powers and deferred remuneration measures in the bill will work to “effectively guide behaviour”.
Financial Services Compensation Scheme of Last Resort. The CSLR 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.
Specific products and services are those that financial institutions with an Australian financial services licence or an Australian credit licence are authorised to provide and where they are required to be AFCA members. Managed investment schemes are not covered.
The many critics of the bill have complained that the compensation cap is too low, court and tribunal rulings should have been covered, managed investment schemes should have been included and that some of the historical misconduct examined by the Hayne royal commission should have been covered.
In a remarkable display of bad faith, the committee report does not refer to any of this. Labor’s bill is largely the same as a Coalition bill that was before the parliament when the May election was called.
In February, Labor members of the Senate Economics Legislation Committee wrote a dissenting report when the committee reviewed the Coalition bill, saying its shortcomings needed to be addressed. Now they are silent.
Consumer credit reforms. The bill makes several changes to the rules covering small amount credit contracts, including:• updating the mechanism for restricting the repayments that are allowed under a contract – the protected earnings amount;• requiring SACCs to have equal payments and equal repayment intervals over the life of the loan;• prohibiting the lender from charging monthly fees in respect of the residual term of a loan where it is repaid early;• prohibiting licensees