Financial services industry Royal Commission not out of the question

Will there be a Royal Commission into banks?

Given that the Coalition has secured a majority in the House of Representatives, the prospect of a Royal Commission into the financial services industry appears less likely.

However, given the strong ALP, Green and independent support, a private member’s bill may seek a Royal Commission in any case.

Coupled with increased funding to ASIC and growing calls from industry (including a show of support from AustralianSuper, the first institutional shareholder of all of the big four banks to back the approach), it is clear that the scrutiny of the financial services industry will only intensify.

What do Royal Commissions involve?

In the Australian system of government, Royal Commissions are the highest form of inquiry on matters of public importance. They are issued by the Governor-General and are usually chaired by one or more notable figures, often a retired or serving judge.

Reasons for using them include:

  • perceived independence;
  • the government needs to explore a very complex matter in a manner which is beyond the scope of its administrative resources;
  • the government lacks the expertise or coercive powers to handle an issue or investigation;
  • the need to investigate allegations of impropriety where the government, or an individual working in government, is involved; and
  • to justify a change in direction from the policy of a previous government, or a policy proposed while in opposition.

Broadly speaking, these types of Commissions have been investigatory or advisory - i.e. to look into events in the past or to formulate government policy. They have also moved towards being a law enforcement-style process.

It is common for the findings of a Royal Commission to contain policy recommendations which may subsequently be enacted into law.

What would a financial services industry Royal Commission target?

The Letters Patent instigating a Royal Commission contain its terms of reference. If a Royal Commission into the financial services industry eventuates, its terms of reference will reflect the imperative of those driving it. The Greens are advocating for wide terms encompassing the financial sector more generally; whereas the ALP has maintained focus on the banks.

Given the size and complexity of the financial services industry and the fact that it has been subject to so much internal and external scrutiny of late, it would be essential for the terms of reference of any Royal Commission to be appropriately targeted to avoid duplicating the work of past and existing initiatives.

These include:

  • the Financial System Inquiry, finalised in 2014
  • ASIC’s investigations of the big four banks (and proceedings commenced against NAB, Westpac and ANZ) in relation to bank bill swap rate manipulation
  • the Scrutiny of Financial Advice Inquiry, commenced in 2014 and ongoing;
  • enforceable undertakings provided to ASIC by Commonwealth Financial Planning Ltd, Macquarie Equities Limited, NAB, HSBC, UBS Wealth Management, amongst many other smaller institutions and individuals;
  • additional licence conditions imposed upon Commonwealth Financial Planning Limited, Financial Wisdom Limited, Macquarie Equities Limited and other financial services licensees;
  • internal review and remediation programs undertaken by all of the major financial institutions;
  • ASIC’s life insurance industry review, initiated in April 2016;
  • ASIC’s investigation into culture, conduct and conflicts of interest in vertically-integrated businesses in the funds-management industry, finalised in March 2016;
  • the Australian Bankers’ Association industry review of commissions and whistle blower protections, chaired by the former Commonwealth auditor-general; and
  • ASIC’s review of mortgage broker remuneration.

Amongst all of this activity, it is difficult to imagine what further outcomes a Royal Commission could achieve without extremely specific terms of reference. The lack of clear objectives (other than general trivia like “cleaning up the banking industry”) is of key concern given the immense financial, time, political and human resources absorbed by a Royal Commission.

Possible areas of focus could include the life insurance industry, superannuation, financial advice and culture (including remuneration, incentives and whistle blowers). This will impact the number and nature of the institutions involved: whether the inquiry is limited to the Big Four banks or extends to smaller banks, super funds, insurance companies, financial advisers or other industry players.

What could it mean for organisations and their people?

The powers of a Royal Commission are extensive in terms of compelling members of the public to provide evidence, either in the form of production or as a witness, which is relevant to the terms of reference.

Institutions the subject of the inquiry may be required to produce millions of pages of documents, and their officers and employees compelled to provide statements or appear in person before the Royal Commission.

Hearings can be conducted in public or in private.

A claim of legal professional privilege may only be maintained over documents required by a Royal Commission if:

  • a court has found the document (or relevant part of the document) to be subject to legal professional privilege; or
  • the member of the Royal Commission who required production of the document is satisfied as to the privilege claimed (which may require the person asserting the privilege claim to provide evidence to support their claim).

A Royal Commission is empowered to issue search warrants to be carried out by a member of the Commission, the Federal Police or the police force of the state in question. A person who fails to attend a Royal Commission after being summonsed as a witness can be arrested.

Severe penalties, including fines and imprisonment, can be imposed on persons who:

  • provide false or misleading evidence to a Royal Commission;
  • fail to provide a document or other thing that they were required to produce by a summons (unless they can prove that it was not relevant to the Royal Commission);
  • refuse to be sworn to provide evidence or answer any question put to them by a Royal Commission; or
  • deliberately conceal or destroy evidence required by a Royal Commission.

What you can do now

If a Commission is issued shortly:

  • What processes and teams do you have in place for document collation, management and production?
  • What information or processes of your institution might require special protection?
  • What arrangements do you have in relation to witness preparation, management and support?

Since 2013, HDY has had a role in each of the most significant Royal Commissions and Special Commissions in NSW, mobilising dozens of people to review tens of thousands of documents within very tight timeframes.

HDY’s Regulatory Risk + Strategy team has extensive expertise advising financial institutions in relation to their compliance with regulatory obligations and in responding to regulatory enforcement action. We would be pleased to meet with your team to discuss any particular concerns.

 

Scott Atkins

I'm unapologetically determined and fearless. I pursue excellence. Always.

Scott Atkins Partner

Scott is the Chair of our Board and an internationally renowned insolvency and restructuring lawyer. He is an inaugural Fellow and a member of the Board of INSOL International. Scott is also Vice President of the Australian Restructuring Insolvency and Turnaround Association (ARITA).

Scott is a trusted adviser to Australia's leading banks and insolvency and restructuring practitioners and has acted on some of the industry's most complex and sensitive banking and insolvency advisory and dispute resolution matters.

Prior to joining HDY, Scott practiced for 7 years as in-house counsel with Commonwealth Bank Group. He is now our Client Relationship Partner for the CBA Group. He is also the co-leader of our cross-border insolvency practice and our regulatory enforcement practice. Scott is recognised by his peers for his leading expertise in cross-border insolvency, acting on both inbound engagements in Australia and advising Australian clients on outbound engagements in the USA, UK, Cayman Islands, Hong Kong and The Netherlands, among other jurisdictions.

Scott was the Australian delegate on the Advisory Committee on Comparative Law established by the American Bankruptcy Institute as part of its Commission to Study the Reform of Chapter 11 of the US Bankruptcy Code. This resulted in a landmark report for the reform of Chapter 11.

He is a published author on insolvency and cross-border insolvency. Most recently, Scott was one of the Australian contributors to the 2015 publication 'International Contributions to the reform of Chapter 11 U.S. bankruptcy code' which is volume 2 of the European and International Insolvency Law Studies series. He also authored the Australian chapter of Avoidance of Antecedent Transactions and Cross-Border Insolvency (INSOL International). Among other publications, he is the co-author, together with Professor Rosalind Mason, of the Australian chapter of Look Chan Ho's leading text: Cross-Border Insolvency: Cases and Materials (Kluwer International).

Scott is a visiting lecturer on cross-border insolvency at the University of Sydney in its undergraduate and postgraduate law programs lead by Professor John Stumbles.

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Nikki Bentley

I understand the financial services industry and thrive on helping our clients in this industry succeed.

Nikki Bentley Partner

Nikki is the Group Leader of Henry Davis York's Corporate Group, which includes the legal teams for Corporate / Mergers & Acquisitions; Investments & Financial Services and Tax.

Nikki is a leading investment funds advisor specialising in financial services and corporate law.  She specialises in business establishment and structuring, fund establishment, funds merger and acquisition, product disclosure and distribution. Nikki leads HDY's corporate group which combines expertise from the Financial Services, M&A and Tax areas.

Nikki provides advice to leading Australian and global fund managers on a full range of corporate, commercial and regulatory issues facing their businesses. She has considerable experience in assisting clients with fund establishment (onshore and offshore), disclosure and distribution. Nikki regularly advises clients on establishing, buying, selling and restructuring their businesses. She also regularly assists clients responding to regulatory enquiries and investigations.

With more than 15 years funds management experience in private practice, government and as an in-house lawyer, Nikki's practice spans the range of funds management products, with particular expertise in hedge funds, property funds and equities.

Nikki is regularly involved in industry and government discussions on regulatory reforms impacting the Australian funds management industry. Nikki is a passionate advocate for the development of a new corporate collective investment vehicle because of the opportunities it could provide to grow the funds management industry. She is the Honorary Legal Counsel and Chair of the Regulatory Committee for the Australian branch of the Alternative Investment Management Association (AIMA) and is a regular participant on the Financial Services Council (FSC) working groups.

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John Martin Partner

John is a leading lawyer in both financial sector dispute resolution (complex and regulatory) and corporate insolvency and restructuring, with a particular specialty in cross-border insolvencies. He is recognised by his clients, peers and legal directories as a leader in his field.
 

Domestically, John advises on large and complex insolvencies and assists in finding solutions for financial institutions with regulatory and other complex issues. His clients include several of Australia's major banks, as well as insolvency practitioners appointed to insolvent entities.

Internationally, John has advised in connection with insolvencies in England, Fiji, Bermuda, Cambodia, Cayman Islands, Brunei, and Norfolk Island. His cross-border experience includes acting for the liquidators of an insolvent bank, and various liquidators of insurance and reinsurance companies.

John is a recognised authority on insolvency issues, with articles published in media outlets such as The Australian Financial Review and the Insolvency Law Journal. He has presented at numerous domestic conferences as well as internationally in the US, England, South Africa, Singapore, Canada, New Zealand, and the Netherlands.

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Anna Simmons

I deeply understand my client's business so I can offer insight and innovative solutions to achieve outcomes that count.

Anna Simmons Senior Associate

Anna is a restructuring and insolvency lawyer specialising in insolvency advice, dispute resolution and financial regulation.

Anna's clients include banks and insolvency practitioners. She advises these clients on dispute resolution, regulatory compliance, enforcement strategies, receiverships, and liquidations.

Anna has extensive experience in advising on various aspects of debt recovery, insolvency and bankruptcy, creditors' remedies, general banking litigation, fraud disputes, misleading and deceptive conduct claims (including valuer negligence) and other forms of dispute resolution. She has worked on a large-scale remediation program, with a focus on regulator engagement.

Anna also presents and writes on insolvency, litigation and recovery matters.

As part of HDY's Pro Bono program, Anna volunteers at Redfern Legal Centre and MOSAIC, a specialist legal service that provides free legal advice to asylum seekers, refugees and newly arrived migrants. Anna is a member of HDYPride, the firm's LGBTIQ support network.

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Claudine Salameh Partner

Claudine advises major financial institutions and insolvency practitioners on fraud, security enforcement, debt recovery, banking and insolvency litigation.

Claudine is a banking and insolvency litigation and regulatory expert. She acts for the major Australian financial institutions in relation to matters involving customer disputes, fraud, regulatory and compliance issues, security enforcement and debt recovery. She also acts for insolvency practitioners in formal receiverships, voluntary administrations and liquidations.

Claudine is well known for her ability to manage risks posed by litigation and regulatory inquiries and investigations. She is particularly attuned to reputational and business risks.

Claudine is highly strategic and creative and is recognised by her clients for being able to achieve the perfect balance between legal arguments and commercial and practical outcomes.

Claudine is currently assisting a financial institution in a review and remediation scheme and in a large scale recovery matter against a religious organisation. She is also involved in advising financial institutions in relation to their compliance with regulatory obligations.

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Michael Sullivan

I don't shy away from challenge or ambition or difficulty in order to get the right outcome, and always with integrity.

Michael Sullivan Partner

Michael acts for both public and private sector clients in relation to commercial disputes. He has experience in litigation, inquires and alternative forms of dispute resolution. Michael's particular focus is on providing litigation and advisory support to our government clients.

Michael has been focusing on the government sector for over 10 years, which gives him a critical understanding of the environment in which our government clients operate. He has assisted his clients with prosecutions, investigations, statutory inquiries and enforcement.

Michael has also had significant experience in acting for private sector clients in relation to commercial disputes. His particular focus has been fraud related matters and complex contractual  disputes. He brings a wealth of litigation experience to all his clients, including general conduct of litigation: preparing proceedings, obtaining witness statements, liaising with counsel and the management of discovery and production obligations in answer to subpoenas.

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