Five things you need to know about Australia’s Royal Commission into the Financial Services Industry

What is a Royal Commission?

Australia’s state and federal governments establish royal commissions from time to time to investigate current controversies or real or perceived wrongs in the community.

Royal Commissioners have a broad discretion as to the procedures which they will adopt.  It is, however, assumed that evidence will be heard in public unless the Commission orders otherwise.

A Commission is constituted by one or more Commissioners. The Commissioner – or the Chair of the Commission when more than one Commissioner is appointed – is usually a current or former judge or a senior barrister. By appointing current or former officers of the judiciary or senior barristers the relevant government signals the seriousness of the inquiry, as well as what is expected to be an impartial and thorough investigation of the facts or circumstances causing concern. Royal Commissions have power to compel attendance and the giving of evidence with potential for impact on reputations and interests of witnesses, companies and individuals.

Using the word “Royal” reflects the fact that the power to appoint such Commissions has been part of the residual power of the Crown.  The power to appoint Royal Commissions and the conduct of Royal Commissions is now also supported by legislation.

Why a Royal Commission into financial services?

The parameters or “Terms of Reference” of the Royal Commission into the Banking, Superannuation and Financial Services Industry in Australia (“RC”) indicate that, basically, the RC’s purpose is to inquire into, and gather evidence of any misconduct by financial services entities.

A primary focus of the RC’s inquiries is expected to be “consumers”, although there is no reason why affected parties cannot include other financial services entities, or indeed businesses of any size, and potentially government entities too.

If aggrieved or injured parties are found to exist then presumably existing laws for protection and/or redress by affected parties are likely to be deemed inadequate or ineffective. The RC will be expected to recommend improvements to make these mechanisms and laws more effective in the future.

A corollary is the question of the adequacy or appropriateness of the commercial culture and governance practices within entities falling under the RC’s remit.

So the RC is all about investigating allegations of financial chicanery and sharp practices amongst players in the financial services sector, and whether anything can be done about them.

When is the Royal Commission happening?

The establishment of the RC was announced on 30^th November 2017, with publication of the Terms of Reference. The next day the Commissioner was announced as a former judge of the High Court, Kenneth Hayne QC. The RC has already begun work, sending out requests for information or grievances that persons or entities may have concerning the financial sector.

The RC is expected to run for 12 months, with an interim report to be delivered by September 2018, followed by a final report in February 2019.

How will the Royal Commission work?

As is the convention, the Commissioner appointed ‘counsel assisting’ to initiate the inquires and evidence gathering. These appointees are generally barristers or other lawyers of some seniority, usually drawn from one of the States where the Commission will hold most of its hearings. So far Commissioner Hayne has appointed four “counsel assisting” from the Melbourne bar.

The RC’s counsel, with the help presumably of support staff, will have the right to obtain and compile publicly available information, conduct research, and consult privately and publicly with experts. The RC will also have the power to summon and examine witnesses under oath, whether publicly or confidentially.

Towards the end of its Inquiry process, the RC will begin compiling its findings and recommendations, most likely into a substantial report, for presentation to the government for its review.

Will the Royal Commission have any effect?

Since 2006 hardly a year has gone by without a public inquiry into some aspect of the financial sector – think of the “Ripoli Inquiry” in 2009, leading to the Future of Financial Advice (“FOFA”) laws, or in 2014 an inquiry into the stability and future of the financial system.

An obvious difficulty for implementation of the RC’s recommendations is that its final report is due around the end of the current electoral cycle. The existing government may conceivably be distracted by the election process, whilst it is possible another government will be in power by the time the report is presented.

However, any feeling of inquiry fatigue may be balanced by the fact that following from the inquiries in previous years governments on both sides have invariably made regulatory and legal changes to the financial system.

Keypoint Law has particular expertise in advising on Royal Commissions, including assisting a party called as a witness or wanting to make a submission.

Allan McDougall, Consulting Principal, Keypoint Law

January 2018