The Albanese Government is finalising the response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (FSRC) recommendations and the 2016 Review of Small Amount Credit Contracts (the Review).
The FSRC highlighted the need for better consumer outcomes, enhanced accountability and strong and effective regulators to restore trust in Australia's financial system, while the Review highlighted the need for stronger protections for consumers of high-cost small amount credit contracts and consumer leases.
Today, legislation was introduced into Parliament to implement the two major outstanding legislative measures from the Financial Services Royal Commission (Recommendations 3.9, 4.12, 6.6, 6.7, 6.8 and 7.1), and the outstanding government response to the 24 recommendations of the Review.
Financial Accountability Regime
The Government has finalised the legislation to implement recommendations to extend the Banking Executive Accountability Regime to all APRA-regulated entities and to provide for joint administration between APRA and ASIC.
The new Financial Accountability Regime (FAR) imposes a strengthened responsibility and accountability framework that will ensure that the directors and most senior and influential executives of financial institutions will be held accountable for their decisions and conduct which have significant flow on effects for everyday Australians and the Australian economy.
The FAR imposes heightened accountability obligations and ensures that where these obligations are not met, appropriate consequences will follow, including civil penalties for financial institutions and disqualification of senior executives as accountable persons.
By implementing these outstanding recommendations, the Government is finalising the necessary action to ensure that financial institutions are meeting the community's expectations, and shifting their focus from profit at all costs to outcomes for all Australians.
Compensation Scheme of Last Resort
The Government is delivering on its election commitment to establish a Compensation Scheme of Last Resort (CSLR) to ensure Australians continue to have trust and confidence in the financial system external dispute resolution framework.
The CSLR will facilitate the payment of compensation of up to $150,000 to eligible consumers who have a determination from the Australian Financial Complaints Authority (AFCA) relating to personal financial advice, credit intermediation, securities dealing and credit provision which remains unpaid.
The Government will contribute towards the costs of the scheme in its first year of operation, which is proposed to commence from 1 July 2023. The scheme will be fully industry funded through a levy on relevant financial service and credit licensees in the subsequent years of the scheme's operation.
The Government has also released for consultation exposure draft regulations to support the operation of the CSLR legislation. Further information is available on the Treasury consultation website.
Small Amount Credit Contracts and Consumer Leases
The legislation will also introduce new protections for consumers of high-cost credit products known as SACCs (also known as payday loans) and consumer leases. These products are typically used by low-income households to purchase household goods, who may have limited access mainstream credit products, such as credit cards.
These reforms aim to reduce the risk of financial hardship for consumers of these products, through for example, new caps and protected earnings amounts for consumer leases, enhanced and extended protected earnings amounts for SACCs, prohibitions on certain types of unsolicited marketing of SACCs and consumer leases, new disclosure obligations, enhanced sanctions for misconduct and the introduction of new anti-avoidance provisions targeting avoidance practices by predatory lenders.
