In this month's Regulatory Update we discuss the far-reaching affects of Commissioner Hayne's Royal Commission Final Report, Unfair Contract Terms (UCTs) and how regulators are coming down heavy on misleading advertising.
Following a whirlwind 12-month inquiry, Commissioner Hayne's highly-anticipated Royal Commission Final Report is finally here and although the four pillars of the banking system may have been bruised by the very public inquiry they certainly aren't broken. However, the reforms have the potential to render uneconomic those operating at the margins, these being financial services firms adjacent to the banks such as insurance companies, mortgage brokers, financial advisers, non-bank lenders, corporate trustees, and superannuation firms. All of which stand poised to have longstanding business models up-ended by the report.
Commissioner Hayne has set out his 76 recommendations by these subject matters – banking; financial advice; superannuation; insurance; culture, governance and remuneration; regulators; and “other important steps” (including a compensation scheme of last resort). Both the Federal Government and the Federal Opposition said they will support the recommendations.
Community Expectation – a Key Theme of the Final Report
One of the Commission's central tasks is to report on whether any conduct of financial services entities might have amounted to misconduct. The answer is yes – the inquiry identified substantial shortcomings in the conduct of these entities. Often, the law was broken, and when the law was not broken, the conduct fell below community expectations. Commissioner Hayne stated that his recommendations seek to improve the law to protect consumers from conduct that does not meet what the community expects.
What does the community expect? Commission Hayne identified “six norms of conduct” that can shed some light on this question:
- Obey the law
- Do not mislead or deceive
- Act fairly
- Provide services that are fit for purpose
- Deliver services with reasonable care and skill
- When acting for another, act in the best interest of that other
Unfair Contract Terms Regime Update
In 2011, the Unfair Contract Terms (UCTs) protections in standard form consumer contracts for financial products and services were implemented. In 2016, this was extended to small businesses. In 2019, we can expect UCTs to come under the spotlight as a result of public consultation.
Some commentators have already predicted that major changes are likely as the community has a high expectation of fairness. Consumers, as well as small businesses, enter into standard form contracts every day for financial products and services. The consumer or small business could be any one of us, or a client we are advising. This means it is essential to understand the meaning of “fairness” in the context of the UCTs regime, which includes what makes a term “transparent”.
Consumers are influenced by advertisements for products and services – influence is what marketing is designed to do. But today in a world that is more inter-connected and switched on, consumers are savvier than ever before – they expect clear, accurate and balanced messages in advertising.
It is vital that they feel they can trust the quality and integrity of the brand they are choosing. Some of this desire for information and transparency has been a result of various well-documented scandals, and, as a consequence, what we are seeing now is a greater need for transparency.
With a number of high-profile cases having recently hit the headlines, regulators ASIC and APRA, who have been given a greater delineation of powers following Banking Royal Commission, have already been cracking down on marketers, advertisers and promotors who make false or misleading statements or engage in misleading or deceptive conduct.
Time will tell if there will be more cases, but one thing is for certain we are now entering a new reality of transparency, one that calls for new rules to manage brands and reputation. It signifies a rapidly growing need for organisations to state and prove they are not deceiving their consumers.
Our Regulatory Update Webinar
In a recent one-hour live webinar, we covered these three hot topics:
- Banking Royal Commission's Final Report – key themes, the recommendations, and what they mean to us.
- Unfair Contract Terms – recent cases and the lessons learnt, including what does fairness mean, and what makes a term transparent.
- Advertising and Marketing – what the regulators cracked down on in 2018, and how to avoid pitfalls in 2019.
For those that missed this webinar, we will shortly be making the recording available for you to view on demand. Just keep an eye out on our “News & Resources” web page under “Blog” for our post webinar blog.
Our Regulatory Update Webinar Series helps you stay current to maintain your compliance knowledge. Watch this space as we will continue to provide you regulatory updates by way of live webinars and blog posts. We will share insights into hot topics and practical tips so you can manage changes and challenges.