What Now - Banking Royal Commission

In scenes reminiscent of 1 January 2000 in the IT world, the financial world awoke this morning with a feeling of Y2K, what Y2K? The Banking Royal Commission by Kenneth Hayne has been tabled and reported on overnight. 76 recommendations. The feeling around the office is that the devil may yet be in the detail, but on first glance there is a sense that perhaps the banks will get off relatively lightly. The market would appear to think so with major banks and AMP all up in early trade today.

The main takeaways that I can see are:

1. Fees for no service are likely to be a thing of the past. That it was ever thought to be ok is stunning enough. There is virtually no argument against the proposition that it is unethical. It remains to be seen whether the courts hold this conduct to be unlawful.

2. Advice fees to the superannuation industry is on the nose. Fees will be prohibited from MySuper and will require annual disclosure against non MySuper accounts.

3. Flogging of super products to people who don't need them and are vulnerable in society will be illegal. Again - I can hear the accountants of the world musing that "best interests of the client" has been around for at least 20 years. Maybe we reap what we sow when we bring in bureaucracy to licencing to prevent those that have provided common sense advice to clients for decades from doing so and releasing them to the "sharks".

4. Much commentary was held around banks foreclosing on distressed farms. The appointment of receivers or external administrators to recover debts should only happen as a last resort. Again, most in society would have thought that would be the case anyway so the report merely represents community attitudes. One wonders what the cost of remediation might be for instances where this didn't happen or may not have happened.

5. Mortgage broking, financial planning and insurance will be asked to move to a fee based model where the customer knows upfront the cost of the broking or insurance or planning activity. The long standing method of commission based payments is on the way out. Some were surprised that this recommendation wasn't with "immediate effect". In essence, if this form of remuneration is thought to be conflicted, why wait? If it isn't conflicted, why move at all? I felt the timeline in this regard was a mixed message to consumers. It is as yet untested how fee for service model will go. It may be that consumers accept it as a service that is valuable and worth the fee. It may be that the banks inadvertently are the winners as consumers return "straight to the branch" to prevent an extra fee. Time will tell.

6. The regulators will have an overseeing body to regulate them! This sounds like the schoolyard scenario where a young child is learning to tie their laces. Rather than doing it properly, they merely tie extra knots to secure their shoes. How many knots are enough - one, two, three, ten? My wife might add the analogy of how many accountants it takes to change a light bulb!

7. Financial planners should seek their client's agreement every year if they are charging ongoing fees for advice. In accounting there is an annual client service agreement so this sounds like much the same thing across the financial sector. I would suggest after initial teething it is no big deal.

8. The law itself was not found wanting in the report, it is the lack of enforcement and lax oversight that enabled the behavior to occur in the first place. It is emerging that the banks themselves were involved in setting the terms of reference with government and despite noise that both parties will either adopt all recommendations in fact or "in principle", there is actually insufficient sitting days in parliament before the next election to change much in the way of laws so enforcement and a slap on the wrist is all we've got for now.

I would expect the credit departments of banks and compliance departments of financial planners and insurance agencies and mortgage brokers to be busy dotting their i's and crossing their t's in a paper trail sense for increased oversight by regulators. Whether that will actually translate into better advice and better outcomes for consumers may depend on whether the advice given or action taken is actually "in the best interests" of the consumer who is paying the fee. The "keep it simple stupid" principle would appear relevant to me. If everyone understood the rules and the "common man" could follow the outcome based on those rules then some of the oversight and regulation ought to be fairly transparent. Why "best interests" can't be applied as a catch all is beyond me.