This document provides a high level summary of the actions taken or planned to be taken in response to each of the 76 recommendations1 made by the Financial Services Royal Commission. HAYNE RECOMMENDATION WHO2 ACTIONS TAKEN TIMING: COMMENCEMENT/PROPOSED COMMENCEMENT Recommendation 1.1 — The NCCP Act The NCCP Act should not be amended to alter the obligation to assess unsuitability G ▪ The government's response to the Commission's final report said that the government 'agrees to this recommendation and the Commissioner’s findings that "not unsuitable" remains the appropriate standard for responsible lending obligations within the National Consumer Credit Protection Act 2009 (NCCP Act)'. ▪ The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 proposes to implement major changes to consumer credit laws including rolling back responsible lending obligations. Subject to the passage of the Bill, Schedule 1 would amend the NCCP Act so that responsible lending obligations will only apply to small amount credit contracts and consumer leases (and small amount credit contract-equivalent loans by ADIs). ▪ Consumer groups have interpreted this as contrary to the FSRC's recommendation. ▪ Subject to the passage of the Bill, the changes in Schedule 1 will generally commence the day after Royal Assent. The proposed commencement date for the best interests obligations is 6 months after that day. 1 The table does not include actions to implement the 18 'additional commitments' included in the government's implementation roadmap. 2 G = government; I = industry Last updated 28 July 2021 Hayne Commission Recommendations: Status report Disclaimer: This update does not constitute legal advice and is not to be relied upon for any purposes MinterEllison | 2 ME_183543045_1 HAYNE RECOMMENDATION WHO2 ACTIONS TAKEN TIMING: COMMENCEMENT/PROPOSED COMMENCEMENT Recommendation 1.2 — Best interests duty The law should be amended to provide that, when acting in connection with home lending, mortgage brokers must act in the best interests of the intending borrower. The obligation should be a civil penalty provision G ▪ The Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Act 2020 gives effect to the government's response to four recommendations: 1.2 (mortgage broker best interests duty); recommendation 1.3 (mortgage broker remuneration); recommendation 4.2 (removing the exemptions for funeral expenses policies); and recommendation 4.7 (Application of unfair contract terms provisions to insurance contracts). ▪ Schedule 1 which implements the government's response to recommendation 4.7: commenced 5 April 2021 ▪ Schedule 2 which implements the government's response to recommendation 4.2: commenced 18 February 2020 ▪ Schedule 3 which implements the government’s response to recommendations 1.2 and 1.3 was to commence 1 July 2020. ASIC then deferred commencement until 1 January 2021. ASIC released guidance - Regulatory Guide 273 Mortgage brokers: Best interests duty (RG 273) - on the best interests obligation in June 2020. Recommendation 1.3 — Mortgage broker remuneration The borrower, not the lender, should pay the mortgage broker a fee for acting in connection with home lending. Changes in brokers’ remuneration should be made over a period of two or three years, by first prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, then prohibiting lenders from paying other commissions to mortgage brokers. Recommendation 1.4 — Establishment of working group A Treasury led working group should be established to monitor and, if necessary, adjust the remuneration model referred to in Recommendation 1.3, and any fee that lenders should be required to charge to achieve a level playing field, in response to market changes. G ▪ The government's 2019 implementation roadmap states that the Council of Financial Regulators and the Australian Competition and Consumer Commission will conduct a review of changes to mortgage broker remuneration and the operation of upfront and trail commissions in 2022. ▪ Review scheduled for 2022 [Note: It is not clear whether the planned review will be deferred (due to COVID-19). The government's May 2020 announcement does not mention reviews.] Recommendation 1.5 — Mortgage brokers as financial advisers After a sufficient period of transition, mortgage brokers should be subject to and regulated by the law that applies to entities providing financial product advice to retail clients G ▪ The government's 2019 roadmap indicates that this recommendation will be progressed following the review of financial advice reforms (recommendation 2.3 – planned for 2022) given that that review may recommend changes to the regulation of financial advisers. ▪ After the review scheduled for 2022 is completed. [Note: It is not clear whether the planned review will be deferred (due to COVID-19). The government's May 2020 announcement does not mention reviews.] Last updated 28 July 2021 Hayne Commission Recommendations: Status report Disclaimer: This update does not constitute legal advice and is not to be relied upon for any purposes MinterEllison | 3 ME_183543045_1 HAYNE RECOMMENDATION WHO2 ACTIONS TAKEN TIMING: COMMENCEMENT/PROPOSED COMMENCEMENT Recommendation 1.6 — Misconduct by mortgage brokers ACL holders should: ▪ be bound by information sharing and reporting obligations in respect of mortgage brokers similar to those referred to in Recommendations 2.7 and 2.8 for financial advisers; and ▪ take the same steps in response to detecting misconduct of a mortgage broker as those referred to in Recommendation 2.9 for financial advisers. G ▪ Schedules 10 and 11 of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 implement the government's response to recommendations 1.6 (misconduct by mortgage brokers); 2.7 (reference checking and information sharing); 2.8 (reporting compliance concerns); 2.9 (misconduct by financial advisers); and 7.2 (implementation of the ASIC Enforcement Review recommendations). ▪ Commencement: 1 Oct 2021 ▪ To support implementation of recommendations 1.6 and 2.7 ASIC has made a new protocol - ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429 - outlining licensees' obligations to undertake a reference check and share information on an individual seeking to be employed or authorised as a financial adviser or mortgage broker. The new protocol will commence on 1 October 2021 (to align with the commencement of the new reference checking obligations). ▪ To support compliance with the new reference checking requirements, ASIC has also released guidance documents - Information Sheet 257 ASIC reference checking and information sharing protocol (INFO 257) and example references for a financial adviser and mortgage broker). Recommendation 1.7 — Removal of point of sale exemption The exemption of retail dealers from the operation of the NCCP Act should be abolished. G ▪ The government's 2019 implementation roadmap indicated that this measure was to be consulted on and introduced by 30 June 2020. ▪ On 8 May 2020 the Treasurer announced that the government' implementation timetable had been deferred six months (due to COVID-19). Recommendation 1.7 was due to be consulted on and introduced by the end of 2020, but this has not yet occurred. ▪ Unclear - legislation was planned to be introduced by the end of 2020. Last updated 28 July 2021 Hayne Commission Recommendations: Status report Disclaimer: This update does not constitute legal advice and is not to be relied upon for any purposes MinterEllison | 4 ME_183543045_1 HAYNE RECOMMENDATION WHO2 ACTIONS TAKEN TIMING: COMMENCEMENT/PROPOSED COMMENCEMENT Recommendation 1.8 — Amending the Banking Code The ABA should amend the Banking Code to provide that: banks will work with customers: ▪ who live in remote areas; or ▪ who are not adept in using English to identify a suitable way for those customers to access and undertake their banking; ▪ if a customer is having difficulty proving his or her identity, and tells the bank that he or she identifies as an Aboriginal or Torres Strait Islander person, the bank will follow AUSTRAC’s guidance about the identification and verification of persons of Aboriginal or Torres Strait Islander heritage; ▪ without prior express agreement with the customer, banks will not allow informal overdrafts on basic accounts; and ▪ banks will not charge dishonour fees on basic accounts I ▪ The Australian Banking Association revised the Banking Code and the changes came into force in March 2020. The changes were approved by ASIC at the end of 2019. ▪ March 2020 Recommendation 1.9 — No extension of the NCCP Act The NCCP Act should not be amended to extend its operation to lending to small businesses. G ▪ Implementing this recommendation required no specific action to be taken. ▪ The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 proposes to remove the 'ambiguity regarding the application of consumer lending laws to small business lending'. ▪ Schedule 1: The day after Royal Assent (subject to the passage of the Bill) Last updated 28 July 2021 Hayne Commission Recommendations: Status report Disclaimer: This update does not constitute legal advice and is not to be relied upon for any purposes MinterEllison | 5 ME_183543045_1 HAYNE RECOMMENDATION WHO2 ACTIONS TAKEN TIMING: COMMENCEMENT/PROPOSED COMMENCEMENT Recommendation 1.10 — Definition of ‘small business’ The ABA should amend the definition of ‘small business’ in the Banking Code so that the Code applies to any business or group employing fewer than 100 full time equivalent employees, where the loan applied for is less than $5 million. I ▪ The government said it supports the Australian Banking Association 'acting on' the recommendation. ▪ The ABA has committed to implementing the recommendations of the 2020 Independent Review of the definition of small business in the Banking Code of Practice (Pottinger Review). Recommendation 5 of the Pottinger Review recommended that: – The definition of 'small business' in the Banking Code (other than for the purposes of financial products or services regulated by the Corporations Act 2001) should be amended to mean a business that employs fewer than 100 full time equivalent employees or, in the case of a business that is part of a group of companies, the group employs fewer than 100 full time equivalent employees – The provisions of the banking Code that relate to credit should apply to a small business credit facility only if it is below A$5 million ▪ An independent review of the Banking Code was launched on 6 July 2021. It's envisioned that the Pottinger Review recommendations will be included in the Banking Code, together with changes flowing from the Review recommendations, following a consultation process. ▪ Review of the Banking Code was launched on 6 July 2021. The planned commencement date for the revised Code (including changes to the definition of small business) is the later of either six months after ASIC notifies its approval or 1 January 2023.