Fears simmer about repeat of Storm Financial fallout

One fintech firm fears that the political reaction to the Hayne royal commission will result in more ineffective reforms, similar to the ones arising from the collapse of Storm Financial crisis.

Raiz chief executive George Lucas said that when the royal commission hands down its final report by 1 February 2019, the odds are that it will call for more regulation.

The government of the day will duly oblige, said Mr Lucas, rightly fearing “the political fallout if it fails to implement the report’s recommendations in the wake of the malevolent behaviour being unveiled”.

“The legislation will pass the parliament, giving the regulators more power to keep the top end of town in line, and the regulators, whose reputations have been mauled in Justice Kenneth Hayne’s courtroom, can be expected to finally bite more than they bark,” he said.

“Will more regulation prove the answer – or will it just be a political panacea for government. I suspect the latter.”

Mr Lucas referred to the Storm Financial implosion in January 2009, which resulted in the FoFA reforms coming into effect on 1 July 2012.

“That legislation addressed conflicted remuneration structures, required financial advisers to act in their clients’ best interests, had an opt-in obligation requiring advice providers to renew their clients’ agreement to ongoing fees every two years, and gave ASIC more powers,” he said.

“Yet clearly it was no solution. It led to an acceleration in the vertical integration model, also encouraged by regulators to reduce the number of entities to regulate. The result was to produce the very issues being aired at the royal commission.”

Mr Lucas said governments that receive recommendations from inquiries like the royal commission, should be questioning the industry’s structure, the over-arching policy goals and, in this instance, consumer behaviour before responding.

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Source: Fears simmer about repeat of Storm Financial fallout – SMSFAdviser Magazine