Commissioner Kenneth Hayne said that trustees and senior executives of superannuation funds and insurers should be accountable in the same way bank bosses are under the Banking Executive Accountability Regime (BEAR).

In his 951-page final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Hayne recommended that BEAR should be extended to all Australian Prudential Regulation Authority (APRA)-regulated financial services institutions.

“After medium and small ADIs (authorised deposit taking institutions) have complied with the BEAR in accordance with the current timetable, the largest registrable superannuation entity (RSE) licensees should also be required to comply with like provisions,”Hayne wrote in the report made public on Monday afternoon.

“Thereafter, the provisions should be applied to the balance of RSE licensees. After that, they should apply to the largest insurers and, thereafter, the balance of insurers”.

The regime for large ADIs came into effect on July 1,  2018

Hayne noted that these changes should be made sequentially, and they would “take time”.

At the same time Hayne said the Australian Securities and Investments Commission and APRA should jointly administer the BEAR.

This comes after both regulators were lambasted for their lack of action in Hayne’s interim report released in September.

“ASIC should be charged with overseeing those parts…that concern consumer protection and market conduct matters, and APRA should be charged with the prudential aspects,”Hayne wrote.

The Financial Services Union welcomed the recommendations to extend the role of ASIC and APRA, but raised concerns over the regulator’s abilities.

“Given ASIC and APRA failed in the past, we are sceptical about their ability to do everything the report recommends,” FSU national secretary Julia Angrisano said in a statement.

“The cosy relationship between the regulators and the institutions they regulate must end”.

More regulator oversight

In his final report Hayne recommended that a new body, independent of the government, be established to oversee APRA and ASIC to assess their performance.

He said the new authority should be made up of three part-time members and report to “at least biennially”

“Over time, the oversight authority should develop a comprehensive list of items against which each agency’s performance is evaluated,”Hayne wrote in the final report.

“An important consideration will be how effective the agencies are in enforcing the laws within their remit. That will determine whether more radical steps, such as creating a specialist civil enforcement agency, should be reconsidered”.

Addressing the final report in a press conference on Monday, Treasurer Josh Frydenberg announced that his government planned to instigate a Graeme Samuel-led review of APRA.

‘Twin peaks’ maintained

The final banking royal commission report also made a raft of other recommendations relating to how the financial services sector is regulated, but Hayne said the “twin peaks” system should be preserved.

He said the law should be amended so that APRA and ASIC must cooperate with each other and share information. They must also notify each other if there is the belief that a breach “in respect of which the other has enforcements responsibility may have occurred”.

In line with APRA’s submission, Hayne said APRA should be the prudential regulator for superannuation and retain it current functions which include responsibility for the licensing and supervision of registrable superannuation entity (RSE) licencees.

ASIC meanwhile should be given the power to enforce all provisions in the Superannuation Industry (Supervision) Act that are, or will become, civil penalty provisions.

“There should be co-regulation by APRA and ASIC of these provisions,” said Hayne.

Regulator response

APRA chair Wayne Byres described the royal commission’s final report as a “considered and fair assessment of failings in the financial system and a helpful roadmap for reform”.

“Although the commission has assigned some important new responsibilities to APRA, our primary responsibility remains the safety and stability of the financial system, to protect the financial well-being of the Australian community,” he said in a statement.

ASIC chair James Shipton acknowledged that Hayne identified ASIC’s enforcement culture as the focus of change needed at ASIC.

“This focus accords with ASIC’s change agenda, that has included the adoption of our ‘why not litigate?’ enforcement stance, the initiation of our Internal Enforcement Review and the enhancement of our governance structures, he said.

In his interim report, Hayne singled out ASIC’s favoured approach of enforceable undertakings, with accompanying media releases.

“Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn out remediation program and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct,” Hayne wrote.

“Infringement notice-imposed penalties that were immaterial for the large banks. Enforceable undertakings might require a ‘community benefit payment’, but the amount was far less than the penalty that ASIC could properly have asked a court to impose.”

He also called out APRA’s reluctance to act.

When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done,” Hayne said. “The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court.”

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