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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Senate inquiry

On 29 November 2016, the Senate referred the following matters to the Economics References Committee for inquiry and report by the last sitting day of the autumn sittings of 2018.

The regulatory framework for the protection of consumers, including small businesses, in the banking, insurance and financial services sector (including managed investment schemes), with particular reference to:

(a) any failures that are evident in the current laws and regulatory framework, and enforcement of the current laws and regulatory framework, including those arising from resourcing and administration

(b) the impact of misconduct in the sector on victims and on consumers;

(c) the impact on consumer outcomes of executive and non-executive remuneration, incentive-based commission structures, and fee-for-no-service or recurring fee structures;

(d) the culture and chain of responsibility in relation to misconduct within entities within the sector;

(e) the availability and adequacy of redress and compensation to victims of misconduct, including options for a retrospective compensation scheme of last resort, and legal advice and representation for consumers and victims of misconduct, including their standing in the conduct of bankruptcy and insolvency processes;

(f) the social impacts of consumer protection failures in the sector, including through increased reliance of victims on community and government services;

(g) options to support the prioritisation of consumer protection and associated practices within the sector; and

(h) any related matters.

Comment

This is a very broad and long-running inquiry.  Two particular comments are made.  

The Senate has already issued a report on managed investment schemes – MIS“Bitter Harvest”, of 11 March 2016.  That report made a number of rather wide and perhaps impractical recommendations, to which there has been no government response. These recommendations covered financial literacy, the ethics and culture of financial planners, tax incentives and a government compensation scheme. It noted the “complicated task of untangling the interests of the various parties affected when an MIS gets into financial difficulties and ultimately fails” and recommended that the government act upon the CAMAC Report on MIS of 2014.  it is understood however that the government is looking at taking a broader approach of collective investment vehicles.

As to the availability and adequacy of redress and compensation to victims of misconduct, including their standing as claimants in the bankruptcy or liquidation of those who misled them, this is a settled issue as to what is a provable debt under s 82 of the Bankruptcy Act; and s 153, for example that certain debts, including those incurred by fraud, are not discharged by bankruptcy.  The Bitter Harvest report said that ASIC should “consider the practice of advisers using bankruptcy as a means to avoid recompensing clients who have suffered financial loss as a result of their poor financial advice and any possible remedies”, and that ASIC provide its findings to the committee.  That is unlikely to produce any resolution in favour of consumers.  

The report also noted that the Committee is currently inquiring into the inconsistencies and inadequacies of current criminal, civil and administrative penalties for corporate and financial misconduct or white-collar crime. That inquiry is due to report by 28 February 2017.

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