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Assessment Task 2:Very Straightforward taskTask has been broken down into steps and structuresome sources have been provided to help youBust use minim 8 literary sources referenced correctly MUST APPLY TO AUSTRALIA ALL DATA FOR AUSTRALIA ARTICLE MUST BE AUSTRALIANWord Count 1500
Critically analyse a recent article related to the The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in light of the role of ethical values and human dignity in economic decisions.You will find such articles in daily newspapers as well as in more dedicated economic/business journals such as The Economist magazine. Factiva, an electronic database system available through the ACU Library also allows you to search for newspaper articles on specific topics.RequirementsThe article analysis is comprised of a written paper of no more than 1500 words. In preparing your business article critique you should:Provide a brief discussion of the article and point out the three most important issues contained within the article. Do not simply summarise.Point out the underlying concepts which are relevant to the articleThe article should be properly referenced at the end of the paper and include a copy of or a link to the article.A suggested structure to you critique may be:Intro – (background info about ethical values and human dignity in economic decisions, overview of components to be discussed)Brief discussion of article and three most important issues Underlying concepts/theories relevant to article General critique – whether you agree/disagree and why Conclusion Here are some readings which may be of assistance in your research for Assessment 2. Please feel welcome to use them as you see fit (with proper referencing).Articles and Websites on Ethics and Economics
http://theconversation.com/oh-the-morality-why-ethics-matters-in-economics-5963
https://www.economicsandethics.org/decision-making/
https://www.econlib.org/library/Enc/EthicsandEconomics.html
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Final Report
Royal Commission into
Misconduct in the Banking,
Superannuation and
Financial Services Industry
VOLUME 1
© Commonwealth of Australia 2019
© Commonwealth of Australia 2019
ISBN:
ISBN:
978-1-920838-64-5 (print)
978-1-920838-64-5 (print)
978-1-920838-65-2 (online)
978-1-920838-65-2 (online)
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Department
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1 February 2019
His Excellency General the Honourable Sir Peter Cosgrove AK MC (Retd)
Governor-General of the Commonwealth of Australia
Government House
CANBERRA ACT 2600
Your Excellency
In accordance with the Letters Patent issued to me on 14 December 2017,
I have made inquiries and now provide the Final Report of the
Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry.
Yours sincerely
[Signed]
Kenneth M Hayne
Commissioner
v
Contents
Volume 1
Glossary
xxiii
Abbreviations
xxvii
Legislation
xxxi
Preface
xxxv
1. Introduction
1
1
This report
1
1.1 Four observations
1
1.2 Primary responsibility
4
1.3 Key questions
5
1.4 Extending the Commission
6
1.5 Underlying principles and general rules
7
1.5.1 Underlying principles
1.5.2 General rules
Apply and enforce the law
Industry codes
Hawking
Intermediaries
Conflicted remuneration
Culture and governance
1.5.3 Making change carefully and simply
2
8
11
12
12
13
14
14
15
16
Recommendations
19
2.1 Reading the recommendations
20
vii
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
3
Recommendations by subject matter
20
3.1 Banking
20
Consumer lending: Direct lending 
Recommendation 1.1 – The NCCP Act 
Consumer lending: Intermediated home lending 
Recommendation 1.2 – Best interests duty
Recommendation 1.3 – Mortgage broker remuneration
Recommendation 1.4 – Establishment of working group
Recommendation 1.5 – Mortgage brokers as financial advisers
Recommendation 1.6 – Misconduct by mortgage brokers
Consumer lending: Intermediated lending for vehicles
and other consumer goods
Recommendation 1.7 – Removal of point-of-sale exemption
Access to banking services
Recommendation 1.8 – Amending the Banking Code
Lending to small and medium enterprises
Recommendation 1.9 – No extension of the NCCP Act
Recommendation 1.10 – Definition of ‘small business’
Recommendation 1.11 – Farm debt mediation
Recommendation 1.12 – Valuations of land
Recommendation 1.13 – Charging default interest
Recommendation 1.14 – Distressed agricultural loans
Enforceability of industry codes 
Recommendation 1.15 – Enforceable code provisions
Recommendation 1.16 – 2019 Banking Code
Processing and administrative errors
Recommendation 1.17 – BEAR product responsibility
3.2 Financial advice
Ongoing fee arrangements
Recommendation 2.1 – Annual renewal and payment
Lack of independence
Recommendation 2.2 – Disclosure of lack of independence
Quality of advice
Recommendation 2.3 – Review of measures to improve
the quality of advice 
Conflicted remuneration
Recommendation 2.4 – Grandfathered commissions
Recommendation 2.5 – Life risk insurance commissions
Recommendation 2.6 – General insurance
and consumer credit insurance commissions 
viii
20
20
20
20
20
21
21
21
21
21
22
22
22
22
22
22
23
23
23
24
24
24
24
24
25
25
25
25
25
26
26
26
26
26
27
Final Report
Professional discipline of financial advisers
Recommendation 2.7 – Reference checking
and information sharing
Recommendation 2.8 – Reporting compliance concerns
Recommendation 2.9 – Misconduct by financial advisers
Recommendation 2.10 – A new disciplinary system
3.3 Superannuation
27
27
27
28
28
28
Trustees’ obligations
28
Recommendation 3.1 – No other role or office
28
Recommendation 3.2 – No deducting advice fees from
MySuper accounts
29
Recommendation 3.3 – Limitations on deducting advice
fees from choice accounts
29
‘Selling’ superannuation
29
Recommendation 3.4 – No hawking
29
Nominating default funds
30
Recommendation 3.5 – One default account
30
Recommendation 3.6 – No treating of employers
30
Regulation30
Recommendation 3.7 – Civil penalties for breach of covenants
and like obligations
30
Recommendation 3.8 – Adjustment of APRA and ASIC’s roles
30
Recommendation 3.9 – Accountability regime 
30
3.4 Insurance
Manner of sale and types of products sold: Hawking
Recommendation 4.1 – No hawking of insurance
Recommendation 4.2 – Removing the exemptions for funeral
expenses policies
Specific steps in respect of particular products: Add-on insurance
Recommendation 4.3 – Deferred sales model for add-on insurance
Recommendation 4.4 – Cap on commissions
Pre-contractual disclosure and representations
Recommendation 4.5 – Duty to take reasonable care not
to make a misrepresentation to an insurer
Recommendation 4.6 – Avoidance of life insurance contracts 
31
31
31
31
31
31
31
32
32
32
ix
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
Unfair contract terms
Recommendation 4.7 – Application of unfair contract
terms provisions to insurance contracts
Claims handling
Recommendation 4.8 – Removal of claims handling exemption
Status of industry codes
Recommendation 4.9 – Enforceable code provisions
Recommendation 4.10 – Extension of the sanctions power
External dispute resolution
Recommendation 4.11 – Co-operation with AFCA
Recommendation 4.12 – Accountability regime 
Group life policies 
Recommendation 4.13 – Universal terms review
Recommendation 4.14 – Additional scrutiny for related
party engagements
Recommendation 4.15 – Status attribution to be fair and reasonable
3.5 Culture, governance and remuneration
32
32
33
33
33
33
33
34
34
34
34
34
34
34
35
Remuneration35
Recommendation 5.1 – Supervision of remuneration –
principles, standards and guidance
35
Recommendation 5.2 – Supervision of remuneration – aims
35
Recommendation 5.3 – Revised prudential standards and guidance 35
Recommendation 5.4 – Remuneration of front line staff
36
Recommendation 5.5 – The Sedgwick Review
36
Culture and governance
36
Recommendation 5.6 – Changing culture and governance
36
Recommendation 5.7 – Supervision of culture and governance
37
3.6 Regulators
Twin peaks
Recommendation 6.1 – Retain twin peaks
ASIC’s enforcement practices
Recommendation 6.2 – ASIC’s approach to enforcement
Superannuation: Conduct regulation 
Recommendation 6.3 – General principles for co-regulation
Recommendation 6.4 – ASIC as conduct regulator
Recommendation 6.5 – APRA to retain functions
x
37
37
37
37
37
38
38
38
39
Final Report
The BEAR: Co-regulation
39
Recommendation 6.6 – Joint administration of the BEAR
39
Recommendation 6.7 – Statutory amendments
39
Recommendation 6.8 – Extending the BEAR
39
Co-ordination and information sharing
40
Recommendation 6.9 – Statutory obligation to co-operate
40
Recommendation 6.10 – Co-operation memorandum
40
Governance40
Recommendation 6.11 – Formalising meeting procedure
40
Recommendation 6.12 – Application of the BEAR to regulators
40
Recommendation 6.13 – Regular capability reviews 
41
Oversight41
Recommendation 6.14 – A new oversight authority
41
3.7 Other important steps
External dispute resolution
Recommendation 7.1 – Compensation scheme of last resort
ASIC Enforcement Review Taskforce Government Response
Recommendation 7.2 – Implementation of recommendations
Simplification so that the law’s intent is met
Recommendation 7.3 – Exceptions and qualifications
Recommendation 7.4 – Fundamental norms
4
41
41
41
42
42
42
42
42
Recommendations: Answering the key questions
43
4.1 Simplifying the law so that its intent is met
43
4.2 Conflicts
45
4.3 Regulators and compliance
46
4.4 Culture, governance and remuneration
47
4.5 Increasing protections
49
xi
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
2. Banking
51
Introduction51
1
Direct lending under the NCCP Act 
52
1.1 The existing provisions
52
1.2 Compliance with existing provisions
54
1.2.1 The NCCP Act
Benchmarks
‘Not unsuitable’
Recommendation 1.1 – The NCCP Act 
1.2.2 The responsible lending provisions of the Banking Code
2
Intermediated home lending
60
2.1 Home lending through mortgage brokers
61
2.1.1 Misconduct
2.1.2 Customer outcomes
2.1.3 More recent changes
70
2.3 Best interests duty
72
2.4 Do more?
Recommendation 1.3 – Mortgage broker remuneration
Recommendation 1.4 – Establishment of working group
2.5 Brokers as advisers
Recommendation 1.5 – Mortgage brokers as financial advisers
Recommendation 1.6 – Misconduct by mortgage brokers
73
73
80
80
80
82
82
2.6 Aggregators
83
2.7 Introducers
83
Intermediated auto lending and associated issues
84
3.1 Flex commissions
85
3.2 Relying on the retail dealer
86
Recommendation 1.7 – Removal of point-of-sale exemption
3.3 Capitalising add-on insurance
xii
64
66
68
2.2 Trail commissions
Recommendation 1.2 – Best interests duty
3
54
56
59
60
60
88
88
Final Report
4
Access to banking services
Recommendation 1.8 – Amending the Banking Code
5
88
94
Lending to small and medium enterprises
94
5.1 The lending framework
94
Recommendation 1.9 – No extension of the NCCP Act
96
5.2 The 2019 Banking Code and the definition of ‘small business’97
Recommendation 1.10 – Definition of ‘small business’
5.3 Guarantors
98
5.4 Loan renewal and enforcement
99
5.5 Agricultural enterprises
Recommendation 1.11 – Farm debt mediation
Recommendation 1.12 – Valuations of land
Recommendation 1.13 – Charging default interest
Recommendation 1.14 – Distressed agricultural loans
6
100
103
103
103
104
Enforceability of industry codes
104
6.1 Enforcing the code
104
6.2 The purpose of industry codes
105
6.3 Identifying the enforceable code provisions
108
6.4 The proposed model: Codes more broadly
111
Recommendation 1.15 – Enforceable code provisions
Recommendation 1.16 – 2019 Banking Code
7
97
112
112
Processing and administrative errors
112
7.1 Identifying processing and administrative errors
112
7.2 Preventing processing and administrative errors
114
Recommendation 1.17 – BEAR product responsibility
116
Conclusion117
An addendum: Bankwest 
117
xiii
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
3. Financial advice
119
Introduction119
1
History
119
1.1 How did the financial advice industry emerge?
121
1.2 Development of the regulatory framework
123
1.3 Vertical integration
124
1.4 Early scandals
127
1.4.1 Storm Financial
1.4.2 Commonwealth Financial Planning (CFPL) 
2
127
129
1.5 The FoFA reforms
130
1.6 More recent developments
133
1.7 Further Observations
134
Fees for no service
136
Introduction136
2.1 How and why did these events occur?
138
2.2 What has been the response to these events?
145
2.3 Were the responses adequate?
149
2.3.1 Possible offences151
2.3.2 Communication to ASIC153
2.3.3 Section 1041G154
2.4 Avoiding future fees for no service
2.4.1 Improvements to systems and processes
2.4.2 Further changes
Information about the services to be provided
The duration of the arrangement
Authorisation for deductions
158
158
159
160
161
162
Conclusion163
Recommendation 2.1 – Annual renewal and payment
3
Inappropriate advice
164
164
Introduction164
3.1 Conflicts of duty and interest
3.1.1 The legislative premise
3.1.2 Applying the current law about the client’s interests
xiv
165
166
168
Final Report
3.2 Can conflicts be managed better?
170
3.2.1 Improved education and standards for financial advisers
170
3.2.2 Design and distribution obligations and product intervention powers 171
3.2.3 Better disclosure?
172
Recommendation 2.2 – Disclosure of lack of independence
176
3.2.4 Amending the best interests duty?
177
Recommendation 2.3 – Review of measures to improve
the quality of advice
178
3.3 Reducing or eliminating the conflict
3.3.1 Conflicted remuneration
The exception for grandfathered commissions
Recommendation 2.4 – Grandfathered commissions
The exception for life risk insurance
Recommendation 2.5 – Life risk insurance commissions
The exceptions for general insurance, consumer credit insurance
and non-monetary benefits
Recommendation 2.6 – General insurance and consumer
credit insurance commissions
3.3.2 Structural separation?
4
Professional discipline
179
179
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185
185
189
189
190
190
196
Introduction196
4.1 Existing arrangements
4.1.1 AFSL holders
Recommendation 2.7 – Reference checking and information sharing
Recommendation 2.8 – Reporting compliance concerns
Recommendation 2.9 – Misconduct by financial advisers
4.1.2 ASIC
4.1.3 Industry associations
4.1.4 FASEA and the Code of Ethics
4.2 A new approach to discipline
4.2.1 Mandatory individual registration
4.2.2 A single, central disciplinary body
4.2.3 Mandatory and voluntary notifications
Recommendation 2.10 – A new disciplinary system
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Conclusion218
xv
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
4. Superannuation
219
Introduction219
1
Some history
220
2
Trustees’ obligations to members
224
2.1 The trustees’ covenants
224
2.2 Best interests of members and conflicts of interest
225
2.2.1 Dual-regulated entities
Recommendation 3.1 – No other role or office
2.2.2 Conflicts of interest and the trustees of retail funds
2.2.3 Frameworks for managing conflicts
2.2.4 Conflicts of interest and industry funds
2.2.5 Extend best interests duty?
2.2.6 Prohibit ‘for-profit’ funds?
2.2.7 Structural separation
2.3 Dealings with members’ funds
2.3.1 Deduction of advice fees from superannuation accounts
Recommendation 3.2 – No deducting advice fees from
MySuper accounts
2.3.2 Ongoing advice fees
Recommendation 3.3 – Limitations on deducting advice
fees from choice accounts
2.3.3 Paying grandfathered commissions
2.4 Governance
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241
241
243
243
243
2.4.1 Board composition
2.4.2 Mergers
243
245
2.5 Selling superannuation
247
2.5.1 No hawking
Recommendation 3.4 – No hawking
2.5.2 Nominating a default fund
Recommendation 3.5 – One default account
Recommendation 3.6 – No treating of employers
2.6 Accessibility
2.6.1 Identification
2.6.2 Binding death benefit nominations
2.6.3 Early release of superannuation benefits
for severe financial hardship
xvi
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254
Final Report
3
Regulatory framework
255
3.1 A different regulatory task
255
3.2 The present division
258
3.3 Who should regulate?
258
3.4 Adjusting regulatory roles
259
3.4.1 Current enforcement of the trustees’ covenants
3.4.2 Changing enforcement of covenants
Recommendation 3.7 – Civil penalties for breach of covenants
and like obligations
Recommendation 3.8 – Adjustment of APRA and ASIC’s roles
260
261
262
263
3.5 Regulators and trustees’ conflicts of interest
263
3.6 Governance, regulation and supervision
264
Recommendation 3.9 – Accountability regime 
266
Conclusion266
5. Insurance
267
Introduction267
1
History
267
2
The life insurance industry
268
3
The general insurance industry 
271
3.1 Regulatory framework
272
3.2 Limitations in the regulatory framework
276
Issues and responses
277
4.1 Manner of sale and types of products sold
278
4
4.1.1 How to sell: Advice about insurance products
4.1.2 How to sell: Prohibit the unsolicited offer
or sale of insurance products
Recommendation 4.1 – No hawking of insurance
4.1.3 Specific steps in respect of particular products
Funeral insurance
Recommendation 4.2 – Removing the exemptions for funeral
expenses policies
Add-on insurance
Recommendation 4.3 – Deferred sales model for add-on insurance
278
279
284
284
285
288
288
292
xvii
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
Recommendation 4.4 – Cap on commissions
Product intervention, disclosure and design
4.2 Pre-contractual non-disclosure and misrepresentations
4.2.1 The duty of disclosure
4.2.2 Section 29(3) of the Insurance Contracts Act
Recommendation 4.5 – Duty to take reasonable care not
to make a misrepresentation to an insurer
Recommendation 4.6 – Avoidance of life insurance contracts 
4.3 Unfair contract terms
Recommendation 4.7 – Application of unfair contract terms
provisions to insurance contracts
4.4 Claims handling
Recommendation 4.8 – Removal of claims handling exemption
4.5 Status of Industry Codes
Recommendation 4.9 – Enforceable code provisions
Recommendation 4.10 – Extension of the sanctions power
4.6 External dispute resolution
Recommendation 4.11 – Co-operation with AFCA
4.7 Accountability
Recommendation 4.12 – Accountability regime 
5
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301
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308
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310
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316
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318
318
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Group life insurance
318
5.1 The structure of group life insurance
319
5.2 MySuper
320
5.2.1 Standardising MySuper insurance
Recommendation 4.13 – Universal terms review
5.3 Associated entities
5.3.1 Trustee obligations for insurance
5.3.2 Increased requirements for related insurers
Recommendation 4.14 – Additional scrutiny for related
party engagements
5.4 Statistically appropriate rates
322
324
324
324
327
329
329
Recommendation 4.15 – Status attribution to be fair and reasonable 331
Conclusion332
xviii
Final Report
6. Culture, governance and remuneration
333
Introduction333
1
Remuneration
336
1.1 Background
336
1.1.1
1.1.2
1.1.3
1.1.4
Responses to the GFC
International developments
Australian developments
Further observations
1.2 Executive remuneration
1.2.1 Issues of design
Experimentation in the design of remuneration systems
Proportion of fixed and variable remuneration
Design of variable remuneration
Availability of clawback
1.2.2 Issues of implementation
Risk-related adjustments
Supervision of implementation
Disclosure of consequences
Recommendation 5.1 – Supervision of remuneration –
principles, standards and guidance
Recommendation 5.2 – Supervision of remuneratio …
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