The Financial Services Agenda 2021
22 January 2021
A quick guide to the regulatory reform and policy transformation we expect to see in Financial Services throughout the year ahead.
Hayne Royal Commission
In spite of the disruptions of 2020, the Morrison Government has made significant progress in implementing the outstanding recommendations of the Hayne Royal Commission. The omnibus legislation which passed through the Parliament in December enacted 20 separate recommendations. However, a further 15 recommendations requiring legislation remain outstanding, of these only four are subject to legislation presently before the Parliament.
The Hayne legacy will continue to overshadow the sector out to 2023, with reviews forthcoming into life insurance commissions and the quality of financial advice. One thing to watch in 2021 will be the Australian Law Reform Commission (ALRC) Review of Corporations and Financial Services Regulation which will produce its first report on the use of definitions in financial services and corporations legislation by 30 November 2021.
Responsible Lending Reforms
The year 2020 saw Governments across Australia embrace surprising policy and regulatory solutions including in financial services. In September, Treasurer Josh Frydenberg made the landmark decision to amend National Consumer Credit Protection Act 2009 (NCCP) remove the responsible lending obligations for most lenders and intermediaries. The legislation is presently before Parliament and would see the responsible lending rules limited to small amount credit contracts and consumer leases.
ADI lenders will continue to comply with APRA’s lending standards requiring sound credit assessment and approval, and key elements of these lending standards will also be applied to non-ADI lenders. Mortgage and Finance broker conduct will be governed by the newly introduced best interest duty. The bill – which is likely to be opposed by both the Labor Party and the Greens – is presently subject to a Senate Economics Committee inquiry.
The second unexpected development from the past year has been the Federal Government decision to abolish the Financial Adviser Standards and Ethics Authority (FASEA). Established in 2017, FASEA has come under consistent criticism from the industry for its approach to regulation and education standards. In place of FASEA, the Government will expand the function of the Financial Services and Credit Panel within ASIC to regulate the sector, while responsibility for setting industry standards will move to Treasury. It appears the transformation of financial advice will be a key priority for the Morrison Government in 2021, as the Government intends to introduce legislation to Parliament to enact these changes in the first half of this year. Meanwhile, ASIC will examine potential measures to improve the affordability of financial advice, with a series of roundtables due to be held in the coming months.
In 2021, the industry should expect no reprieve from political conflict over superannuation. A previously-delayed series of increases to the super guarantee (SG) percentage are due to begin from 1 July 2021, seeing the SG reach 12 per cent by 1 July 2027. While the Morrison Government has not finalised its position, the Retirement Income Review called for the current rate at 9.5 per cent to be retained. All eyes will be on the Federal Budget on 11 May for a decision on the guarantee.
In the meantime, the Labor Opposition will campaign against any further delay to the increase. The Government also faces a challenge to it’s Your Future, Your Super reform package with opposition in some quarters to the proposed measure of superannuation ‘underperformance’ and concern about the implications for ‘stapling’ accounts to workers over the course of their career. This consultation on these draft bills concluded last month, with final legislation expected in the first half of 2021.
Payment Systems & Fintech
After several years of breakneck regulatory and policy transformation, there will further developments in payment systems and fintech. As with the rest of the financial services industry, the payments space should remain wary the looming spectre of a newly empowered AUSTRAC following its victory over Westpac in September. In media comments, AUSTRAC has indicated that in 2021 it will target a major non-bank financial institution.
Meanwhile, the Farrell Review of Payment Systems is due to report to the Treasurer in April on issues including governance and regulation of payments, potential productivity enhancing reforms and changes to government payment systems. Separately, the RBA is expected to release its long-running Review of Retail Payments Regulation, the latter of which will help to clarify the bank’s position on issues facing the fast-growing buy now, pay later (BNPL) sector.
Please refer to GRACosway’s industry sector briefings:
For detailed Financial Services updates, sign up to receive The Financial Services Digest – a weekly publication produced by GRACosway for clients. For more information, or to subscribe, please contact us.
For further information on our banking and financial services capabilities please contact:
Managing Partner, Melbourne
+61 407 766 633