Why Hayne pulled up short: Fels
Hayne’s final report pulled up short on addressing structural issues in the industry and was nothing more than a “lawyers royal commission”, according to former chair of the Australian Competition and Consumer Commission Allan Fels.
“I think Hayne pulled up short on addressing the structural questions like vertical separation including the role of banks in superannuation and wealth management,” Fels said at a recent Labor Economic Society in Sydney.
The inquiry also failed to address the “deep conflicts of interest around remuneration. On that, it really was a lawyers royal commission”.
By this Fels means that the terms of reference was too narrow and based within a legal framework.
“But the big policy questions he tended to avoid, for example with the mortgage brokers.”
Despite Hayne recommending an overhaul of the fee and pay model, Fels still felt he did not go “deeply enough” into the issues.
Fels also believed more could have been done on the remediation front and said it was positive that Labor took a more proactive policy approach to mortgage broking [Labor has retained its stance on trail commissions] and remediation.
“Royal commissions tend to have extremely conservative judges,” Fells said highlighting as similar conservative John Heydon - who was the judge on the Royal Commission into Trade Union Governance.
“Hayne is a great judge and lawyer but a great conservative.
“After he addressed the outright condemnation and attack on the banks, the actual response was quite conservative. It put a huge burden on both the regulators and ASIC.”
According to Fels this will be a problem that is why the industry should have some reservations on the effectiveness of the regulatory oversight.
“ASIC and APRA have had a poor record on law enforcement and not taking action which was highlighted by Commissioner Hayne.”
He also noted that APRA too comes from “quite a weak regulatory culture” and that it too needs to develop new skills.
However, Fels also highlighted that both ASIC and APRA have huge demands placed upon them. In particular, ASIC’s remit is wide with its scope spanning “spanning so many pieces of legislation”.
Drawing on his experience at the ACCC, Fels also acknowledged that the Corporations law that ASIC oversees is not as clear as the settings under Competition and Consumer Act around breaches and enforcement.
Nevertheless, for Fels, his “gut feeling” on ASIC is that it will change.
Hayne’s final report highlighted the need for ASIC to be more proactive when it comes to litigation and Fels highlighted that there is now “new personnel at the top” who have stated that they will adopt a new approach as they tackle the number of cases referred to them by the Royal Commission.
“For that reason I think there will be quite a lot of action from ASIC.”
Fels also spoke about the new oversight body also recommended by Hayne to monitor and assess the performance of the two regulators.
“I think it is quite difficult to exercise oversight on the regulators. It is quite hard to judge whether regulators are right or wrong to go to court.
“In this case, the oversight body will have a single focus. It will encourage ASIC to go to court. That will be a further source of pressure on the regulator to be more active.”