In handing down the report today, around 4.30pm AEDT, Commissioner Kenneth Hayne recommended sweeping changes which aim to introduce more protections for every day consumers and increase penalties for law breakers. The commissioner also called for the expansion of enforcement powers for regulatory bodies and an industry-wide legislative simplification.

In its response, the government confirmed it will “take action” on all 76 recommendations put forward.

While it is impossible to list and go into detail over the 70 key areas of the final report, here are those that are set to impact the business of law in some respect.

Legislation simplification

A key theme in Commissioner Hayne’s recommendations was the simplification of the law “so that its intent is met”. In recommendation 7.3, he said that “as far as possible, exceptions and qualifications to generally applicable norms of conduct in legislation governing financial services entities should be eliminated”.

"... History shows, as [the] Treasury submitted, that legislative simplification can be a long and difficult task. Programs to simplify the law relating to income taxation and to reform corporate law have extended over many years – well beyond the life of a single Parliament. And I do not doubt that simplifying the law that relates to the financial services industry would be a large task. But there are two parts of that task that can inform, and I consider should inform, what is done in response to this report,” Commissioner Hayne said.

“First, it is time to start reducing the number and the area of operation of special rules, exceptions and carve outs. Reducing their number and their area of operation is itself a large step towards simplification. Not only that, it leaves less room for ‘gaming’ the system by forcing events or transactions into exceptional boxes not intended to contain them.

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“Second, it is time to draw explicit connections in the legislation between the particular rules that are made and the fundamental norms to which those rules give effect.”

Drawing that connection will have three consequences, according to Commissioner Hayne.

“It will explain to the regulated community (and the regulator) why the rule is there and, at the same time, reinforce the importance of the relevant fundamental norm of conduct,” he said.

“Not only that, drawing this explicit connection will put beyond doubt the purpose that the relevant rule is intended to achieve. And, the further consequence will be to highlight the fact that exceptions and carve outs like grandfathered commissions constitute a departure from applying the relevant fundamental norm. Emphasising the fact of departure may assist in reducing both the number and the extent of these qualifications.

“... Eliminating exceptions and qualifications is the first step towards a simpler and more readily understood body of law.”

Where there are opportunities for further simplification, the commissioner called for such opportunities to be seized.

Recommendation 7.4, headlined as “fundamental norms”, requested that “as far as possible, legislation governing financial services entities should identify expressly what fundamental norms of behaviour are being pursued when particular and detailed rules are made about a particular subject matter”, which tied in with the commissioner’s comments on simplification.

Commissioner Hayne said such recommendations “cannot wait for that larger task to begin, let alone end”.

Only once the detailed work is done, can decisions be made about how policies can be given “better and simpler legislative effect”, he said.

“It will require examination of how the existing law fits together and identification of the policies given effect by the law’s various provisions.”

The government’s position 

As previously highlighted, recommendation 7.3 called for the elimination of exceptions and qualifications to “generally applicable norms” of conduct in legislation governing financial services entities. 

In response, the Morrison government agreed to simplify financial services law to eliminate such issues, where possible. It also agreed to identify the “norms” of behaviour and principles (recommendation 7.4) that underpin legislation as part of the aforementioned legislative simplification process.

“The royal commission has noted that overprescription and excessive detail can shift responsibility for behaviour away from regulated entities and encourage them to undertake a ‘box-ticking’ approach to compliance, rather than ensuring they comply with the fundamental norms of behaviour that should guide their conduct,” the government’s response noted.

“A clearer focus on those fundamental norms in the primary legislation and subordinate instruments will improve the regulatory architecture and ensure that the law’s intent is met.”

One step further

Following just underneath its stance on recommendation 7.3 and 7.4, the government said it will take an additional measure to expand the Federal Court’s jurisdiction in relation to criminal corporate crime. 

Acknowledging the emphasis that effective deterrence through judicial decisions relies on the timely institution of proceedings and punishment of misconduct, Treasurer Josh Frydenberg committed the government to expanding the Federal Court’s jurisdiction in relation to such unlawful activity.

“The government agrees [that deterrence relies on the judiciary’s effectiveness and capacity to do its job] and has already provided an additional $70.1 million to boost ASIC’s enforcement capabilities and supervisory approach and $41.6 million to the Commonwealth Director of Public Prosecutions to prosecute briefs from ASIC,” Mr Frydenberg wrote in the government’s ‘Restoring trust in Australia’s financial system’ document.

“Extending the Federal Court’s jurisdiction will boost the overall capacity within the Australian court system to ensure the prosecution of financial crimes does not face delays as a result of heavy caseloads in the courts.”

The Federal Court has considerable expertise in civil commercial matters and is well-positioned to accommodate the conferral of a greater corporate criminal jurisdiction, which will help to increase the speed with which such matters are dealt with, he said.

ASIC, litigation and “an overwhelming amount of work”

With regard to corporate watchdog ASIC, Commissioner Hayne said the critical question for the regulator is accepted to be “why not litigate?”.

In the case of breach notifications, ASIC approaches litigation knowing the first document tendered into evidence will be able to demonstrate what an entity has said it has done or may have done in contravention to law, it was outlined.

However, he did consider also that “answering the question ‘why not litigate’ calls for skill and judgment”.

Skill and judgment is especially relevant “when it appears that the issue is systemic”, he considered, giving the example of add-on insurance being an industry-wide issue affecting many thousands of consumers as was pointed out by ASIC chair James Shipton.

In such instances, “issues of that kind will often present in a form such that the way ahead seems anything but clear because they appear to present ‘an overwhelming amount of work’.”

From first contact with any matter, Commissioner Hayne enforced the idea that “the regulator must approach the work ahead with a clear view of what kinds of outcome are being considered.”

“And unless and until it is plain that the public interest requires that there be no litigation, all forms of regulatory enforcement must remain under active consideration.”

Commissioner Hayne considered active consideration as a continual process of the regulator through each stage of an investigation, allowing work to “remain focused”.

“If the work is focused, that which is apparently an overwhelming mass (such as that of an industry-wide issue) is rendered intelligible and manageable.”

LCA’s take

The nation’s largest legal body, the Law Council of Australia, has backed the recommendations put forward by Commissioner Hayne, noting the “far-reaching impact” they will have on Australia's banking and financial services sector – and their ability to ensure consumers are treated both fairly and honestly, as well as in accordance with key principles of the law.

LCA president Arthur Moses SC said the royal commission had shone a light on misconduct – some potentially criminal – in the banking and financial sectors, providing a unique and important opportunity for reform and renewal.

“Australians were rightly shocked by some of the stories heard during the extensive royal commission hearings – of profit being put before people and in some instances the rule of law,” Mr Moses said.

“The recommendations put forward by Commissioner Kenneth Hayne have placed consumers first and established a roadmap with the potential to set the path straight into the future, ensuring banks and those providing financial services are held to account.

“Central to the Law Council’s submission was the call for simplification of complex laws, making them easier to understand and administer and we are pleased by the recommendations supporting this shift.”

Mr Moses also commended the notion of there being a “clear need” to put forward in the final report for the disadvantaged to access financial and legal assistance to deal with disputes on equal footing with large financial entities.

“Many of the cases before the royal commission involved matters where individuals were unable to pursue their rights because of an inability to access legal assistance. This resulted in injustices occurring and wrongdoers going undetected,” he said.

“We reiterate our calls for the federal government to ensure predictable and stable funding for the legal assistance sector, so all Australians can access justice.”