Ethics & Financial Services

This article discusses the Royal Commission of Australia's investigation into financial misconduct and the adoption of ASX corporate governance principles to improve ethical operations in the financial sector. It also highlights the similarities between the unethical measures taken by Australian and US banking companies and the need for enforcement of existing laws and regulations.

Running head: ETHICS AND FINANCIAL SERVICES
Ethics and Financial Services
Name of the Student
Name of the University
Author’s Note

1ETHICS AND FINANCIAL SERVICES
Table of Contents
Answer to Question 1.................................................................................................................2
Answer to Question 2.................................................................................................................5
Answer to Question 3.................................................................................................................6
References..................................................................................................................................9

2ETHICS AND FINANCIAL SERVICES
Answer to Question 1
It needs to be mentioned that the Royal Commission of Australia has investigated
certain cases of financial misconduct and the commission has provided all the details of these
case in their interim report. The following discussion shows four specific cases mentioned in
the interim report of the Royal Commission.
The Case of ANZ Responsible Lending: In this case, the commission encountered that ANZ
was heavily relied on their brokers for making enquiries into the financial situation of the
customers. With the aim to provide more loans to the customers for the high income of the
bank, the management of ANZ did not take any steps for verifying the provided documents of
the Statement of Financial Position of the customers by the brokers. This process resulted
inconsistences in the lending process (financialservices.royalcommission.gov.au 2018).
The Case of ANZ Basic Accounts: Under this particular case, the commission discovered the
fact that one of the clients of the bank was charged extra fees each time she checked her
balance through ATM or tried to withdraw money. At the same time, the client had to incur
significant amount of ATM fess along with dishonour fees and overdrawn fees from her
baking transactions. In addition, the client also faced resistance from a staff of the bank at the
time of opening an appropriate account for her (financialservices.royalcommission.gov.au
2018).
The Case of Aussie Home Loans Broker Misconduct: Under this case, the commission
encountered financial misconduct from four brokers of AHL Investments Pty Ltd (Aussie).
On a more specific note, these four brokers were involved in misconducts like falsification of
the submitted documents to lenders for supporting the home loan application like the
statement of bank, letters of employment, payslip and others. For each of these loans from

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these brokers, both the Aussie and these four brokers would receive major amount of
commission (financialservices.royalcommission.gov.au 2018).
The Case of Fess for No Services: AMP: Under this case, the commission encountered two
specific types of misconduct in AMP Limited (AMP). First, AMP was charging fees for
providing no services; second, AMP was reporting the same conduct to the regulators. Later,
the commission encountered major issue in AMP related to the dealing of the company with
the authority of ASIC in respect to the fees for providing no services to the clients
(financialservices.royalcommission.gov.au 2018).
It can be seen from the above discussion that all these four cases includes misconduct
where aims were to earn money from the clients in unlawful and unjustified manner. With the
aim to discuss these cases more deeply, it is required to apply the concept of Agency Theory:
Agency Theory: Agency Theory assists in explaining the process for effectively organizing
relationships in which one party determines the task while another party is responsible for
doing the task (Pepper and Gore 2015). In this relationship, an agent is hired by the principal
for doing the work or for performing the task that the principal is unable to perform. As per
this theory, both the agent and the principal has their self-interest that works as motivation
inevitable and this aspect leads to unavoidable inherent conflicts. Yet, it is the responsibility
of the agents to act in the sole interest of their principles (Mitnick 2015).
The above-discussed cases of financial misconduct can be explained in the lights of
the agency theory. As per the principles of this theory, the managements, brokers and agents
of ANZ, AMP and Aussie should work as the agents as they have the responsibility to do the
jobs of the principals that are the customers in the forms of providing different banking and
financial services (Shi, Connelly and Hoskisson 2017). Thus, it is their responsibility to act in
the sole interest of their customers. However, the presence of different situation can be seen

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in the above-mentioned cases as the presence of greed can be seen in the intention of the
management, brokers and staffs with the aim to earn high by depriving the customers or
illegal manner (Bendickson et al. 2016).
It can be seen from the first case that ANZ has developed a dishonest work culture
where the aim of the organization is not to check the statements of financial position of the
applicants in effective manner. In addition, they also refused the applications based on their
incorrect assessments for their own benefits (financialservices.royalcommission.gov.au
2018). In the second case, it can be seen that the bankers of ANZ did not fees the necessity to
explain the availability of fee-free accounts in the presence of the entitlement of the users to
open these accounts. At the same time, with the aim to gain dishonour and overdrawn fees,
the bankers was involved in the dishonest practice of opening inappropriate account for the
customers (financialservices.royalcommission.gov.au 2018). In the next case, it can be seen
that all the four brokers of Aussie were involved in fraudulent conduct like falsification of
signature in the home loan document and others. In addition, ineffective work culture was
there in the company such as not meeting the responsible lending obligations, the absence of
robust monitoring and quality assurance, the presence of insufficient risk management
activities and capabilities. It can be seen from the fourth case study of AMP that the company
developed a dishonest attitude towards ASIC in regards to the extent and nature of fees for no
services (financialservices.royalcommission.gov.au 2018).
The above discussion indicates towards the fact the managements, staffs and brokers
are involved in dishonest business operations in all the companies with the aim to earn high
amount of remuneration (Chun et al. 2013). In the most specific manner, it can be said that
the above-discussed companies are operating in a culture of greed where the managements
want to accomplish high-earnings in falsified manner. In order to achieve this, the bankers,
financial managers, mortgage brokers and others have developed a tendency not to comply

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with the required rules and regulations (De Bruin 2015). In this process, the companies are
ignoring the execution of the existing laws and standards. All these aspects help the
management of these companies in earning misincentives that is meant to be an incentive in
the absence of any effect (Grace and Cohen 2013).
Answer to Question 2
The statement of Frydenberg’s directly proteas the problems that is faced by
the current financial sector of Australia, which mainly reduces the standard of the financial
sector. The royal commission has relevantly portrayed different level of corporate governance
principles and recommendation that needs to be followed by banks in Australia the Royal
Commission has highlighted and relevant the unethical corporate behaviour that is been
conducted by the banks in Australia. Hence, the statement of Frydenberg is relevantly true,
where improvement in the overall banking operations needs to be conducted for raising the
bar of the financial sector. Therefore, the report from the Royal commission indicated that
financial sector companies were charging high amount of fees and remunerations, which was
not being disclosed by the ASX corporate governance principles. Thus, the organisation in
Australia needs to put people before profits, which can be achieved by implementing the
identified corporate governance principles.
The relevant adoption of different level of ASX corporation governance principles
needs to be conducted by the financial sector organisation for adequately improving their
ethical operations and reducing the poor corporate behaviour of the management. The
relevant principle such as Lay solid foundations for management and oversight, Structure the
board to add value, Act ethically and responsibly, Safeguard integrity in corporate reporting,
make timely and balanced disclosure, Respect the rights of security holders, Recognise and
manage risk, and Remunerate fairly and responsibly. These identified principles can
eventually allow the financial sector organisations to improve the level of ethical operations

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and increase the balanced disclosures. Hence, the adoption of the overall principles would
ensure the financial sector complies with the relevant operations and lift the standards of their
operations. Furthermore, the continuous maintenance of the Royal research commission
could ensure that the financial sector companies in Australia comply with the principles and
provide high level of services, while reducing the unethical actions
(Financialservices.royalcommission.gov.au 2018).
Answer to Question 3
The relevant actions of the Australian banking companies and USA banking
companies were mainly similar, as both of them violated the laid down rules and used
unethical measure for increasing their profitability. The US banking companies and financial
service providers mainly violated the ethical principles laid down by the regulations, which
initiated the financial crisis and reducing the operational capability of the companies. In the
similar context, the Australian banking and financial services sector relevantly used unethical
measures and did not comply with the regulation laid down by the ASX corporation
governance principles. This non-following the of the principles lead to the misrepresentation
of hiding the essential information from the investors. This has relevantly hampered the level
of operations of the companies listed in the financial sector. The US companies were also
responsible for not following the appropriate operations in their annual report to the investors.
Moreover, the financial sector companies also hide the details regarding the services and
profits that was being provided by the client. The same measure has been used by the
Australian financial sector companies, where they hid relevant information from the client,
which reduced the disclosure requirements that is needed as per the guided principles
(Financialservices.royalcommission.gov.au 2018).
The repeat of the Interim Royal Commission findings cannot be prevented in
Australia if the warning of Mr Frydenberg is heeded. The regulations and principles were

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relevantly present before the start of the Royal Commission, which can be detected that
companies chose to use the ethical measure for increasing their financial performance and
discard the laid down rules. Therefore, the warning of Mr Frydenberg cannot be fruitful, as
without the implementation of the adequate monitoring process the companies will lead to
unethical practises, as their main aim is to increase the level of income over the period of the
fiscal year. The enforcements of the overall existing laws cannot be conducted, as
organisation tend to maximise the level of profits by ignoring the ethical activities.
Regulators relevantly need to comply with adequate enforcement for the existing laws, which
can eventually help in minimising the unethical measure that are conducted by the companies
(Asx.com.au 2018).
There are different cases that can be identified, which directly represent the unethical
measure that has been used by companies over the period of time. The relevant case study
case study regarding the big companies in Australia are depicted in the interim report of the
Royal commission. The case study of CBA, Aussie Home loan, ANZ, Westpac car loan,
AMP, and NAB is mainly evaluated in the interim report of the royal commission, which
helps in highlighting the unethical measure that has been conducted by the company. These
companies relevantly provide the viable annual reports and other documents to the investor,
while the unethical measures were conducted on certain activities for increasing their
profitability. This was the same condition in US before the financial crisis, where financial
sector companies mainly aimed to increase the level profits and ignored the ethical ground,
while conducting the operations. These kinds of major frauds was relevant conducted in US
before the financial crisis, which directly indicates that the enforcement of the laws is not
enough and the organisation needs to be scrutinized and evaluated by the regulators for
improper activities (Niven 2015).

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There are relevant legislations and regulations that have been evaluated for enforcing
the relevant measures for reducing the implications of unethical measures. The legislation
used in enforcing the ethical scenario are Australian Securities and Investments Commission
Act 2001, Australian Small Business and Family Enterprise Ombudsman Act 2015, Banking
Act 1959. Competition and Consumer Act 2010, Corporations Act 2001, Fair Work Act
2009, Farm Business Debt Mediation Act 2017, Farm Debt Mediation Act 2011, Financial
Services Reform Act 2001, Income Tax Assessment Act 1997, Insurance Contracts Act 1984,
National Consumer Credit Protection Act 2009, Privacy Act 1988 and Royal Commissions
Act 1902. The identified legislations mainly help in minimising the overall unethical measure
that can be conducted by the Australian banking and financial services sector. Hence, with
the implementation of the above legislation and the monitoring process conducted by the
Royal commissions could eventually help in minimising the unethical measures taken by the
financial sector of the Australian companies (Wright, Swain and McPhillips 2017).

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References
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Bendickson, J., Muldoon, J., Liguori, E. and Davis, P.E., 2016. Agency theory: the times,
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Chun, J.S., Shin, Y., Choi, J.N. and Kim, M.S., 2013. How does corporate ethics contribute to
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organizational citizenship behavior. Journal of Management, 39(4), pp.853-877.
De Bruin, B., 2015. Ethics and the global financial crisis. Cambridge University Press.
Financialservices.royalcommission.gov.au. (2018). Interim Report Royal Commission into
Misconduct in the Banking, Superannuation and Financial Services Industry. Retrieved 7
December 2018, from https://financialservices.royalcommission.gov.au/Documents/interim-
report/interim-report-volume-2.pdf
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https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-
volume-1.pdf [Accessed 7 Dec. 2018].
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https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-
volume-2.pdf [Accessed 7 Dec. 2018].

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