Financial sector misconduct must end and consumers must be put first, Treasurer Josh Frydenberg says.
In its response to the 76 recommendations of the banking royal commission, the government - which had reluctantly agreed to the inquiry - has outlined a series of steps including a new compensation scheme of last resort.
"My message to the financial sector is that misconduct must end and the interests of consumers must now come first," Mr Frydenberg said in the government's written response released on Monday.
"From today the sector must change, and change forever."
Mr Frydenberg said the focus of the response would be on restoring trust in the financial system, delivering better outcomes for consumers, while keeping credit flowing and ensuring competition in the market.
"These objectives are vitally important to the health of the economy and therefore to the health of our community."
He said too often conduct in Australia's financial institutions had breached existing laws and fallen well below community expectations.
"Businesses have been broken, and the emotional stress and personal pain have broken lives."
Existing consumer protections will be strengthened with a ban on a range of lender-paid commissions on new loans from mid-2020, an end to conflicted remuneration from 2021, stronger anti-hawking laws and a national scheme for farm debt mediation.
Insurers and super funds will face the same executive pay restrictions as banks (known as the BEAR) and the two key regulators ASIC and APRA will get expanded powers and wider coverage of the sector.
As well an extra $170 million is being provided to ASIC, APRA, the Commonwealth Director of Public Prosecutions and the Federal Court to deal with misconduct cases.
Following evidence of the regulators' failures in dealing with shonky conduct, an independently-chaired regulator oversight body will be put in place.
Having already put in place the new Australian Financial Complaints Authority - a one-stop shop for external dispute resolution - the government will also pay $30 million in compensation owed to almost 300 consumers and small businesses for the unpaid determinations of the Financial Ombudsman Service and the Credit and Investments Ombudsman.
As well a key step will be a new compensation scheme of last resort to ensure that consumers can have their case heard and be confident that where compensation is owed it will be paid. The scheme will be paid for by the industry.
AFCA will be able, for a 12-month period, to deal with disputes dating back to January 1, 2008.
To oversee the work, an existing task force in Treasury will become the Financial Services Reform Implementation Taskforce and an independent inquiry will be convened in 2022 to check on the progress of reform.
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