The government’s Hayne royal commission reform timetable has been pushed back six months to allow the financial services industry to manage the crisis. Separately ASIC announced it will defer enforcing design and distribution obligations and mortgage broker reforms for six months, and the ACCC has pushed back the launch of Open Banking.
Open banking. The start date for open banking has been pushed out from July to October. Financial institutions required to share product reference data by 1 July have a three-month extension. The major banks have been sharing open banking product reference data since July last year. Product references data is information about a bank’s rates, fees and product features. The extension applies to non-major authorised deposit-taking institutions and also non-primary brand products of the major banks.
Design and distribution obligations. The changes are to apply from 5 October 2021 (5 April 2021 previously). Financial services companies will have to provide target market determinations for retail products that have a product disclosure statement. They will also have to meet distribution, record-keeping and reporting requirements. A final regulatory guide may be published in October.
Mortgage broker reforms. Introduction of the mortgage broker best interests duty has been pushed back from 1 July 2020 to 1 January 2021. Under the new duty, brokers will be required to make a “holistic” assessment of other credit products packaged with a home loan in meeting the new best interests duty. And brokers should be able to satisfy themselves that recommending from within their panel is in the consumer’s best interests.
Application of unfair contract term provisions to insurance contracts. This reform was due to take effect on 5 April 2021 but has been deferred for six months.
Annual fee for service renewals. The original commencement date was to have been 1 July 2020 but is now 1 January 2021. To overcome the issue of fee for no service that was highlighted by the Hayne royal commission, financial services providers that receive fees must seek annual renewal from clients for all ongoing fee arrangements, disclose in writing the total fees that will be charged and set out the services that will be provided. They must obtain written consent before fees can be deducted from a client’s account.
Ending grandfathered commissions. The legislation is passed and is planned to take effect on 1 January 2021. ASIC has announced that it is deferring work on this reform until further notice, although it still expects to implement the change on the scheduled date.
Removal of the claims handling exemption for insurance. The legislation is yet to be introduced and the timeline will be extended. The reform will remove the exemption for insurance claims handling from the definition of “financial service” under the Corporations Act.
A number of measures that the government had planned to introduce into Parliament by June will now be introduced in December. They include:
The removal of the point-of-sale exemption. Under the current exemption in the National Consumer Credit Protection Act, a dealership or retailer does not need to hold a credit licence or comply with responsible lending obligations. Removing the exemption will require third party vendors to only recommend loans that are not unsuitable for borrowers.
Prohibition of hawking superannuation and insurance products. Offers of these financial products during the course of unsolicited contact with a consumer will be banned. This measure will strengthen the current general prohibition on hawking.
Deferred sales model for add-on insurance.
Enforceable code provisions for industry codes of conduct.
Measures the government had planned to introduce into Parliament by December will now be introduced by 30 June next year. These include:
Compensation scheme of last resort. AFCA’s predecessor, the Financial Ombudsman Service, long advocated for a fund, to be supported by industry, that could be used to pay compensation to consumers when their financial institutions fail to pay compensation under an ombudsman’s determination.
Extending the Banking Executive Accountability Regime to all APRA regulated financial services institutions.