Five ways dealer groups can prepare for the royal commission

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is not just about the banks. It has the potential to catch any Australian Financial Services licence holders – including financial planners and intermediaries – unawares with its broad mandate and tight timeframes.

The banks have attracted the most media attention, but the inquiry’s signed terms of reference suggest any financial services entity could be called upon to provide evidence. Any AFS licence holder may need to produce documents and may be cross-examined by counsel assisting the commission.

You won’t get much time

The first thing AFSL holders must understand is that they will be under time pressures if asked to give evidence. Based on previous royal commissions, any notices will require producing materials quickly – in a mere week in some cases.

We have already seen little tolerance for lateness from Commissioner Kenneth Hayne. The banks were scolded for not adequately responding in January. This shot across the bow indicates there will probably be few time extensions. Failing to produce evidence may attract high penalties.

The initial public hearing of the royal commission took place on February 12, with the first substantive hearings dealing with consumer-lending practices set to commence on March 13 and run to March 23. Submissions from stakeholders will be sought progressively, not just at the end of the commission. Plenty of notices to produce have already been issued, with many more to come.

What can planning firms do to be ready? The following five steps will go a long way:

  1. Prepare early: Scrambling to produce documents and making sense of your demands on the run is a classic mistake.

Assembly and review of information is critical. Legal professional privilege may offer some protection, but firms need to consider how they will frame privilege claims and prepare early. Commissions involve public hearings, with genuine scope for cross-examination and reputation damage; it is critical to understand this early and be ready. Privilege claims are unlikely to succeed if made late or assembled on the run.

  1. Consider getting on the front foot: Preparing and offering information may be better than awaiting a summons. The initial public hearing made it clear the commission is more focused on the response to any possible misconduct than on the misconduct itself. The commission wants to know how financial services businesses responded to issues and whether that response met community standards and expectations.

Firms won’t be penalised for volunteering information. In past royal commissions, we have found the focus can shift quickly from the conduct to the ensuing remedial action for those firms that have already identified and remedied a problem.

If there are concerns, consider independent advice but sometimes the best path is volunteering information. The commission has already invited early submissions from a range of financial services businesses, the responses to which are likely to play a big part in determining the areas of focus going forward.

  1. Address policies and procedures: Now is the time to look at any elements of your business needing review or updating. It’s a good time to examine areas of focus such as remuneration, as incentive-based remuneration and commissions are two big issues for the inquiry and have already emerged in submissions received from the public. While many advisory firms have moved on from soft-dollar commissions, any remuneration linked with financial products must be scrutinised closely.

Another key procedural issue is complaints. Advice firms could benefit from examining their complaints register for common themes. They might also wish to review their processes if they’re not responding quickly enough. Firms need to show they can deal with problems and complaints quickly. Record keeping and response times need to be fair and reasonable.

  1. Look for conflicts of interest throughout the organisation: Areas that may demand scrutiny include parts of the business where a head of department has a high-achieving team that may not be meeting best practice, or community standards or expectations.

Advisory firms analysing conflicts will need to consider whether the advice being provided to clients is transparent, ethical and unbiased.

  1. Preparing for costs: While the big banks have braced for the commission for some time, few in the broader financial services industry have budgeted for it.

Limited costs can sometimes be recouped. Also, firms should review their insurance policies and may wish to notify insurers. They need to be sure their policy will be applicable if called up. They may also consider business-interruption insurance.

Mark Petrucco is a partner and Jacob Uljans a special counsel at Hall & Wilcox. www.hallandwilcox.com.au


TOPICS:   royal commission into banking and financial services

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