Impact of Royal Commission on HRM in Banking Sector

This report focuses on understanding the various recommendations stated by the Royal Commission in Australia. It discusses the impact of the Royal Commission report on employment issues, HRM issues, and morale of employees in the banking sector. It also provides recommendations for the HR department.

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Contents
Contents...........................................................................................................................................1
Introduction......................................................................................................................................2
Employment background to working in banking sector in Australia, Impact of the Banking Royal
Commission on the job market........................................................................................................3
HRM issues in the banking sector post Royal commission report..................................................3
Royal commission can generate a revamp of hiring practices at banks..........................................4
Human resource issues and challenges to be addressed by the HR department..............................5
Questions.........................................................................................................................................7
Recommendations for human resource department......................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
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Introduction
The report focuses on understanding the various recommendations stated by the Royal
Commission in Australia. The banking royal commission was founded in December after several
pressures from public, comprising consumer groups, labor and whistleblowers. The Royal
commission has categorically put, that the individuals of the financial sector did not pay any
heed towards customer service; all that was essential for them was enhancing their sales and
profits. The recommendations have shaken up the financial industry and have managed to
highlight some very critical issues. This report presents some of the recommendations that were
laid down in the report of the Royal commission. The report majorly has pointed out the effect of
the Royal commission report on employment issues, HRM issues and morale of employees after
the release of the Royal commission report. But before this discussion the report discusses the
response of both the government as well as the opposition in context of the financial scandal and
the recommendations and the response of the banks and their zeal to gain back the customers
confidence. The various HRM issues that have arisen because of the recommendation of the
Royal commission report are discussed and recommendations are given henceforth (Australian
Government, 2019).
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Employment background to working in banking sector in Australia, Impact of the Banking Royal
Commission on the job market
After the recommendation of the Royal commission report, the number of employees across
banking industry has fallen down. National Bank of Australia has plans of bringing down its
employees to 33422 from 4000 employees. There is only 13 % increase in the candidates who
are seeking for compliance role in Australia. The industry is welcoming employees who have
transferable skills and is promoting applications for junior positions with salary of $74,142 and
senior positions with salary of $130,776 (Williams, 2019)
HRM issues in the banking sector post Royal commission report
After the release of the Royal commission report a survey was conducted of the employees and it
was noted that the financial employees find their jobs to be extremely stressful and have started
feeling insecure towards their job. According to the study 25% of the financial sector employees
feel that their job is very stressful and 13% are dedicated towards their work, in comparison to
19% of national average. This data itself states that the employment in the financial industry in
the coming times is extremely challenging. Several employees have felt the impact of this
inspection at their private stature and thereby this has impacted them mentally (Fisk & Howes ,
2019). The feeling of job insecurity is high and thus it will impact the recruitment of managers
from other countries too. The present situation has bought ambiguity in the minds of employees
about the future of the industry and their job security. 29% of the employees said that they did
not have the requisite skills to perform their jobs. The role of leaders to create a united culture in
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the organization is also found out to be 8.4 % which is way less than 16.3 % at the national level
(Schneeberger, 2019).
Royal commission can generate a revamp of hiring practices at banks
There can be a great impact on the generation of employment practices. It is suggested that in
order to reinstate the trust of the customers and the society as a whole, the employment should be
undertaken as per personal characteristics like flexibility and ethics instead of explicit
proficiency and education. It is essential that the candidates are now recruited with more rigors.
The candidates have to be evaluated on their soft skills rather than technical expertise. It is
presumed that technical skills can be learnt with time and experience. The need of the hour is to
recruit people with strong ethical and moral values. In Australia the four major banks including
ours have 160000 employees and the cost of these employees is 20 billion a year. The similar
sum is paid to indirect individuals like contractor, supplier and consultants. The Royal
commission report has categorically stated that there is the culture of greed prevailing in the
banking sector (Speiser, 2018). Therefore, it is critical as per the current situation that the
employment should now be specifically done on the basis of key skills like wisdom, courage,
flexibility, ethics and toughness. At the fast paced changing times it is imperative and also
suggested that the selection of the candidates be done on the basis of the fact that who is ideal for
the banking industry in terms of customer orientation rather than who is ideal for a specific role.
It is a challenge now for us to hunt for employees who possess required soft skills instead of hard
core technical skills. As per the analysis it is ascertained that Digital know-how, international
comprehensive alertness and creativity are the essential attributes to be looked for while hunting
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employees both from national and international locations. It is the need of the hour that the
candidates should possess the capacity to identify with the customers, question them to get
detailed and authentic information and takes a stand when they see problems. Westpac Banking
Corp, chief executive Brian Hartzer had also taken up a project named “Navigate”, after the
report came out by the Royal commission, the main theme of the project Navigate is that the
essential news gets communicated to the top management at the earliest, a similar approach on
these lines can be adopted by our bank too (Farrer, 2019). It would help in ascertaining any
misconduct at a very early stage. It is important for creating a safe environment for employees
who handle clients to inform poor practices to the top management. It would also make sure that
the senior employees fulfill the requirements laid down by the government. Another issue that
has arisen is that of remuneration, as of now we have only individual financial target based
remuneration but as per the current situation it is imperative that their team based financial
targets rather than individual’s targets to remove sale based standards prevailing in the industry.
Inherent remuneration needs to be given to promote the culture of personal attribute. Employees
should be working with an ethical purpose in mind and their main purpose should be client
satisfaction (Wilks, 2019).
Human resource issues and challenges to be addressed by the HR department
Throughout the discussion it is understood that there was a great shortage of individuals with
strong ethics across the financial sector in Australia. There should be efficient devises for
individuals to be able to take a stand; a framework should be formulated whereby appropriate
actions are taken for the misconduct so that the same is not repeated. In the report by the royal
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commission also it was stated that no actions were previously taken in case of defaulters. There
has to be a lucid culture prevailing in the organization where the employees are not doubtful
about what is acceptable and what is not. There has to be more training programs to make the
employees aware about the organizational culture and appropriate behavior required of them. As
of now the employees focuses only on earning remunerations by way of fulfilling their financial
targets. A suitable remuneration model needs to also be in place for rewarding ethical and good
behavior and reprimanding bad behavior (Martin, 2019).
A gap analysis of HR’s systems and processes by an independent third party after every three
years can be undertaken to ensure that the people do the right thing always. Field audits are
essential to be taken seriously on periodical basis and these should be reported to the higher
management (Kluwgant, 2019).
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Questions
1. What did the Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry have to say about
misconduct in the banking sector in Austral
The report of the Royal commission was mocking of a sales culture prevailing in the financial
industry. Their practices had led to great customer exploitation. The committee suggested
striking changes to the compensation of the brokers and financial planners. This would have a
great impact on several others who might eventually want to leave the industry. The royal
commission has also stated that there would be criminal charges levied for fees with no service.
The Royal commission has categorically put, that the individuals of the financial sector did not
pay any heed towards customer service; all that was essential for them was enhancing their sales
and profits. There were bonuses and incentives given across the financial sector that have
measured sales and profit, however there were no observance of the law or ethics in any manner
(APO, 2019).
The Royal commission has firstly banned trailing commissions to mortgage brokers. This would
have a huge impact because trailing commissions meant that if a customer has taken a loan for a
period of 20 years. The broker would also be getting fees for next 20 years.
The commission has also suggested that the planners have to apply for yearly renewal of the
continuing fees, whereby the customers would be sent a catalog of all the services that would be
given and a written document must be given for the fees. This is basically to ensure that there is
no fee for any service scandal, because there were cases where the fees were levied to the dead
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customers for several years. The Royal commission also stated that the grandfathers’
commissions that were permitted by FOFA to be revoked from January 2021. The life insurance
commission also should be lowered down to zero; though it is stated that this suggestion can be
revoked if ASIC has s valid explanation for keeping the same (Chalmers & Worthington, 2019).
2. How did the federal government respond to the recommendations of this Royal
Commission?
As per the Governments first reaction on the Royal commission it stated that it was working on
all 76 suggestions that were given in the report and in many regions it is going even one step
further. The Government responded positively that the misconduct should be stopped now and
the customers should be kept as a priority and the system of profit maximizing at the cost of the
client should change from now onwards. As per the recommendation of the Royal commission
report the Government has declared the founding of an industry funded scheme that would be
managed y the Australian Financial Complaints Authority (AFCA). The government also said
that it will give $30 million as damage charges payable to 300 customers and Small businesses
for unpaid amount by Financial Ombusdsman. The government also declared that the farmers
will be given fresh aid in solving their clash with the bankers. The government also redefined the
definition of small businesses. It agreed that the small businesses will be with less than 100 staff
and whose bank loan is less than $5 million (Harris, Harrison, & Floro, 2019). This way more
establishments will have the protection of banking code of practice. Secondly the Royal
commission had also suggested banks to ban commissions to brokers. However, because loan
commencement of all small financial institutions is dependent on them, the government has
taken watered down version of this suggestion. All the trailing commissions and other
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commissions have to be banned by 2020 and a review for the same will be conducted in 2023
and then it would be decided whether the brokers have to be shifted to borrower pay system.
3. How did the federal Opposition respond to the recommendations of this
Royal Commission?
The opposition after the report came out, had called two extra parliaments sitting in order to rush
through changes made by the Royal commission. The opposition was quite clear that it wanted to
accelerate the recommendations in order to exit the grandfathered commission for financial
advice and alter the laws of banning hawking of superannuation. The opposition had also drafted
various bills to deal with the 5 recommendations of the 76 recommendations laid down by the
Royal commission. According to the opposition, the bill will force the banking institutions to
apprise about their progress in the cultural change that is asked by the commission. The
opposition will also authorize the Australian securities and ASIC to supervise the management of
insurance claims. The opposition party also stated that $160 m would be raised every year to
support the measures. 500 new counselors would be there to aid the wounded customers of the
scandal (E&Y, 2019).
4. How did the banking industry respond to the recommendations of this
Royal Commission?
ANZ, the Commonwealth Bank of Australia, NAB, Westpac, Suncorp, MyState Bank, and the
Australian Banking Association (ABA), have all issued responses to the commission’s final
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report There are certain amendments undertaken by the banks, firstly the banks will look for a
certain way to deal with customers who live at far off places and are not good with using the
English language. Secondly without previous express agreement with the client, they will not
permit overdrafts. Thirdly dishonor fees will not be levied on basic accounts. Any group having
less than 100 employees and who have applied loans for less than $5 million would come under
the category of small business (Dorney, 2019). They will also not levy interest on loans on
drought impacted agricultural land. The CEO of the banks has categorically accepted that they
have made mistakes and they are making sincere efforts to regain the trust of its clients’ all over
again. The CEO of NAB stated that he is in a state of recharge and reflect, and had also cancelled
his long service leave to look into the matter. ANZ, CBBA and Westpac have also shown their
dedication to implement the said reforms. ANZ CEO has stated that they have learnt a lot and
have acknowledged the responsibility. They would make efforts to gain the trust and respect of
the clients and make sure that these failures do not occur again (Denisenko & Shepherd, 2019).
There will be an improved banking system in the future for Australians. The CEO of Wetpac
also stated that the report was an eye opener and will help in regaining the trust of the society
and they will work sincerely in the reform process. They said they would work with the
policymakers and learn from the mistakes. Suncorp CEO, Mystate CEO and ABA CEO also
issued their statements on the same lines that that there will be a positive change in the industry
from now on. Commonwealth Bank had also stated that it admits the clear requirement of
change. Other institutions, Metlife, CEO also said that the recommendations will provide long
term sustainability and would help the sector towards a better customer oriented sector (Ziffer,
2019). There has to be properly stated standards of behaviors for the employees and obligations
towards role of directors, executive’s trustees, regulators and advisors. The CEO of integrity life
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also said that in life insurance industry it is the need that integrity is bought back. Synchron
director also stated that his organization is happy that the commission did not ban the vertical
integration model as it is essential for providing advice to customers. But it is also essential to
explain clearly the association between the product manufacturer and advice network to the
customers. Financial Services Council also welcomes the report and stated that this sector should
be free from untrue incentives and should be directed towards safeguarding the savings of the
countrymen. With this report he said that we would work towards repairing the sector
(Richardson, 2019).
5. What, if anything, do these recommendations mean for employment in the
banking industry?
In the royal commission report there is a direct link showcased between poor customer service
and remuneration of the banking sector. However, there are no propose caps that are levied on
remunerations by the report of Royal Commission. But still the senior management should
periodically evaluate the remuneration system. An outside agency can also be hired to check the
remuneration systems and employees should be recruitment on the basis of their soft skills and
not just the hard skills (Star Media Group, 2019).
The HR software’s of the banking industry are updated and fully digitalized. They are well
equipped with adequate mechanism in itself to attract, recruit, exit, plan, assess and enforce
compliance. Therefore, it is right to say that the HR technology used in the banking sector did
not fail the banks but a low appreciation of people – data science capability did. The focus on
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people issues has to more from now onwards. The HR System is capable but it is important that
engagement with the employees is paid more heed. There is need to have a correct vision
throughout the sector, along with surrounded by good expertise to be able to have business
insights by way of data analysis (Tobin, 2019).
Recommendations for human resource department
 It is important that the managers dealing with clients be given the time and training to
prevent workplace stress post release of the Royal commission report
 The top leaders should be made to focus on bringing about a positive impact on the
mental health of the employees as it will help in bringing about innovative workplaces
where employees can flourish (Taylor, 2018).
 Role of positive leadership is very essential to uplift the morale of the banking employees
 At the time of recruitment ethics should also be given equal importance as the candidates’
financial capabilities
 Any misconduct should be punished but care should be taken that the correct message
goes down the line and overall negativity does not prevail.
 Provide aid in fair and transparent audit processes. Audits should be transparent and
involvement of the senior management is of paramount importance (APRA, 2019).
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Conclusion
The response of the three parties that is, the Government, oppositions and banking sector is
massive. The parties have ensured that they are taking concrete steps to handle the situation and
are sure to bring back the trust and confidence of the customers back. But the morale of financial
employees in Australia is very low and needs top management support for morale boost.
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References
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Services Industry. Retrieved from https://apo.org.au/node/132221
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Financial Services Industry. Retrieved from
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Chalmers, S., & Worthington, B. (2019). Banking royal commission calls for compensation,
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Superannuation and Financial Services Industry . Retrieved from
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f3e13540477b
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