Financial Sector Reform (Hayne Royal Commission Response - Protecting Consumers (2019 Measures)) Bill 2019 - Commentary on Ministerial Responses [2020] AUSStaCSBSD 19 (5 February 2020)

• Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Bill 2019
• Significant matters in delegated legislation 8

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Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Bill 2019

Purpose	This bill seeks to amends Acts in relation to unfair contract terms and insurance contracts, funeral expenses facilities, funeral benefits, mortgage brokers and mortgage intermediaries Schedule 1 seeks to extend the existing protection of unfair contract terms regime under the Australian Securities and Investments Commission Act 2001 (ASIC Act) to insurance contracts governed by the Insurance Contracts Act 1984 Schedule 2 seeks to ensure that the consumer protection provisions of the ASIC Act apply to funeral expenses policies Schedule 3 seeks to amend the National Consumer Credit Protection Act 2009 to: • require mortgage brokers to act in the best interests of consumers; and • address conflicted remuneration for mortgage brokers
Portfolio/Sponsor	Treasury
Introduced	House of Representatives on 28 November 2019
Bill status	Before House of Representatives

Significant matters in delegated legislation ^[8]

2.17 In Scrutiny Digest 10 of 2019 the committee requested the Treasurer's more detailed advice as to why it is considered necessary and appropriate to leave the circumstances in which a benefit will or will not be conflicted remuneration, as well as the circumstances in which conflicted remuneration is banned, to regulations; and whether it is appropriate for the bill to be amended to include at least high-level guidance in relation to these matters on the face of the primary legislation.^[9]

Minister's response^[10]

2.18 The Treasurer advised:

Issue 1: Use of Regulations
The Committee raised concerns about the potential for significant matters to be included in regulations.
The regulation-making power, which provides for regulations about when a benefit will or will not be conflicted remuneration, as well as the circumstances in which conflicted remuneration is banned is justified in recognition of the need to account for the variety of and complexity of benefits that may be given to mortgage brokers and mortgage aggregators in relation to credit assistance, and the variety of situations in which such payments may be given. Under these circumstances, the ability that the regulation-making power provides for the regime to respond to changes in industry practice and to ensure that the new regime operates for the benefit of consumers is important.
Further, regulations in relation to the circumstances in which a benefit will or will not be conflicted remuneration, as well as the circumstances in which conflicted remuneration is banned, will only have applicability in relation to a limited class of persons. Specifically, they will only have effect in relation to the giving of benefits to, or the acceptance of benefits by, mortgage brokers and mortgage intermediaries and their representatives.
Given the limited class of persons in relation to which the ban on conflicted remuneration in the Bill would apply, it is appropriate that the detail of these matters is dealt with in regulations, rather than in the primary law. If these matters were to be inserted into the National Consumer Credit Protection Act 2009 (the Act), they would insert, into an already complex statutory framework, a set of technical and specific provisions that would apply only to a relatively small group of persons. This would result in additional cost and unnecessary complexity for other users of the Act.
While I note the Committee’s concerns about the penalties that may be applicable as a consequence of matters described in part in the regulations, only civil penalties are applicable for breaches of the provisions concerned and that the penalties prescribed represent maximum penalties. These penalties would be set in the primary law, and would be consistent with other civil penalty provisions in the Act. A person liable to these penalties would be either a credit licensee or credit representative. This is consistent with the scheme of the Act, which holds these persons to high standards of accountability, in recognition of the responsibilities that accrue to holding a credit licence or to being authorised as a credit representative.
Issue 2: Amendments to the Bill
The existing provisions in the Bill provide an appropriate level of direction in the exercise of the regulation-making powers. In particular, the Bill contains limitations on the circumstances in which conflicted remuneration may be banned under the regulations. Specifically, the regulations may only prescribe the giving or accepting of conflicted remuneration when a benefit is given to a mortgage broker or mortgage intermediary, or the benefit is accepted by a mortgage broker or mortgage intermediary. As noted above, this is a limited class of persons. The penalties themselves, and the framework of the civil penalty provisions, would be set out in the primary law.
Further, any regulations made under the provisions in the Bill would be subject to parliamentary scrutiny, including the potential for disallowance by either House of Parliament, and would be subject to the consultation requirements set out in the Legislation Act 2003 before any regulation is made.

Committee comment

2.19 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that the regulation-making power, which provides for regulations about when a benefit will or will not be conflicted remuneration, as well as the circumstances in which conflicted remuneration is banned is justified in recognition of the need to account for the variety of and complexity of benefits that may be given to mortgage brokers and mortgage aggregators in relation to credit assistance, and the variety of situations in which such payments may be given. The committee further notes the Treasurer's advice that under these circumstances, the ability that the regulation-making power provides for the regime to respond to changes in industry practice and to ensure that the new regime operates for the benefit of consumers is important.

2.20 The committee further notes the Treasurer's advice that regulations in relation to the circumstances in which a benefit will or will not be conflicted remuneration, as well as the circumstances in which conflicted remuneration is banned, will only have applicability in relation to a limited class of persons. Specifically, they will only have effect in relation to the giving of benefits to, or the acceptance of benefits by, mortgage brokers and mortgage intermediaries and their representatives.

2.21 The committee also notes the Treasurer's advice that given the limited class of persons in relation to which the ban on conflicted remuneration in the bill would apply, it is appropriate that the detail of these matters is dealt with in regulations, rather than in the primary law.

2.22 While noting this advice, the committee reiterates that it has consistently raised scrutiny concerns about bills which rely heavily on delegated legislation to determine the scope and operation of a scheme. As the detail of the delegated legislation is generally not publicly available when Parliament is considering the bill, this considerably limits the ability of the Parliament to have appropriate oversight over new legislative schemes. In this instance, the committee continues to have scrutiny concerns regarding the extent to which the regulations may determine the scope and operation of the conflicted remuneration scheme.

2.23 The committee draws its scrutiny concerns to the attention of senators and leaves to the Senate as a whole the appropriateness of allowing regulations to:

• define the circumstances in which a benefit is or is not conflicted remuneration;^[11] and

• prescribe circumstances in which the ban on conflicted remuneration applies, or does not apply, to a benefit.^[12]

2.24 The committee also draws this matter to the attention of the Senate Standing Committee for the Scrutiny of Delegated Legislation for information.

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[8] Schedule 3, item 5, proposed section 158NA of the National Consumer Credit Protection Act 2009, and item 6, proposed item 3 of Schedule 10 to the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009. The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(iv).

[9] Senate Scrutiny of Bills Committee, Scrutiny Digest 10 of 2019, pp. 6-8.

[10] The minister responded to the committee's comments in a letter dated 18 December 2019. A copy of the letter is available on the committee's website: see correspondence relating to Scrutiny Digest 1 of 2020 available at: www.aph.gov.au/senate_scrutiny_digest

[11] Schedule 3, item 5, proposed section 158NA of the National Consumer Credit Protection Act 2009.

[12] Schedule 3, item 6, proposed item 3 of Schedule 10 to the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009.