“Hayne’s ethical assessment is all the time slipping over into a legal analysis which might affect the way the law currently speaks and the interpretation by the courts of the way the new laws are expressed,” Dr Austin told the seminar in Sydney on February 18.
He referenced the test for conflicted remuneration under section 963A of the Corporations Act – whether the benefits conferred could reasonably be expected to influence the choice of financial product if offered to a customer or the advice provided.
“The commission loves that definition,” Dr Austin said. “It says ‘if you read that definition you can see precisely why conflicted remuneration should never be allowed’ …
“Value-based commission paid by lenders to mortgage brokers are apparently necessarily a form of conflicted remuneration.
“As an equity lawyer I find myself being left a little bit behind by this analysis.
‘Already forgotten’
“I am wondering whether the courts when they come to see it will remind Mr Hayne of what he has already forgotten about since he left the bench, with respect.”
Mr Hayne served 23 years on the bench, including 17 years on the High Court (1997-2015).
Dr Austin suggested Commissioner Hayne’s approach might be inconsistent with “fundamental equitable doctrine”, according to which conflicts of interest can be removed by fully informed consent.
“There needs to be a more thorough review than what the commission has done as to whether full informed consent can ever solve conflicts of conflicts of interest problems in the financial services industry.
“There are grounds for thinking disclosure is sometimes not going to be an adequate answer to the conflict problem.”
Dr Austin said the inquiry report’s “direct impact on governance and effecting change in large institutions may turn out to be quite transient”.
“If you look at what it says, for example about, corporate culture, there’s not really any powerful punch in it …
Left ‘scratching your head’
“The report’s more enduring effect may be in the legislative changes it recommends. If you think about how some of these changes can be implemented you will find yourself scratching your head.
“You’d be wondering what exceptions are really needed and how can we make this a sensible piece of law rather than a moral proposition.”
The report “makes many useful and important recommendations and creates a public environment for legislative and regulatory change”, Dr Austin said.
“It’s that latter bit that I am most worried about …
“There may be overreactions to the misconduct found by the royal commission which may well go well beyond the commission’s careful and specific recommendations.
“If you look at what some of the politicians have been saying in the context of the federal election you will know what I’m talking about.”
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