Misconduct in Banking: AMP Limited Case Study

This report evaluates the issue of misconduct in the banking sector, focusing on the case of AMP Limited. It analyzes the parties involved, the recommendations of the Banking Royal Commission, and an article by Adele Ferguson. Recommendations for resolving the issue are also provided.

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Banking Theory and Practice

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Table of Contents
1. Introduction........................................................................................................................2
2. Analysis of the Issue/Misconduct.......................................................................................3
3. Parties Involved in the Misconduct....................................................................................4
4. Royal Commission Recommendations...............................................................................4
5. Analysis of an Article...........................................................................................................6
6. Recommendations..............................................................................................................7
7. Conclusion...........................................................................................................................9
8. References........................................................................................................................10

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1. Introduction
The Royal Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry (the Baking Royal Commission) was established by the Australian
Government on 14th December 2017 pursuant to the Royal Commissions Act 1902 (Legg,
2019). The objective of this commission was to inquire and report on misconducts
committed by major banking corporations in the banking, financial services, and
superannuation sector. The implementation of this commission highlighted many shocking
issues in the sector which are conducted by Major Australian banking corporations that
leads to violation of many legal provisions. The Banking Royal Commission published its
finished report on 1st February 2019 in which it examined and identified many issues, causes
and responses and recommendations (Royal Commission, 2019). The objective of this paper
is to evaluate an issue or misconduct which is identified by the Royal Commission and
identify the parties that involved in these misconducts and describe how they are affected.
The issue which is selected in this report is highlighted in the fourth observation of this
report which provides that financial services, often time, broke the law and they were not
properly held accountable for their actions. An example of AMP Limited will be evaluated in
this case to evaluate this issue. This report will evaluate the recommendations made by the
Royal Commission for this issue. A media article will be selected in this report to analyse
how this issue has been reported and evaluate the perspective of the author. Lastly, this
report will provide suggestions to effectively resolve this issue and evaluate whether this
issue was sufficient to form part of the Royal Commission’s final report.

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2. Analysis of the Issue/Misconduct
One of the key issues which are highlighted by the Banking Royal Commission in its final
report is that the banking corporations and their members who engaged in misconduct did
not face any legal consequences. The Royal Commission provided that financial services
entities broke the law too often and they were not properly held accountable for their
actions (Royal Commission, 2019). Misconduct will be deterred only if the parties who are
engaging in the misconduct know that it will be detected by superior authorities and they
will be denounced and justly punished for those actions. However, in the case of banking
corporations, the misconduct, especially related to profits, is not deterred in the industry
and those who engaged in the misconduct do no more than paying compensation for their
wrongdoings. These wrongdoings were not denounced to the public by issuing a media
release. It is expected in the Australian community that if an entity violates any law and
cause damage to its customers, then it will be responsible for compensating those
customers (Remeikis, 2019). Moreover, the community also expects that the entity will be
held accountable for their illegal actions and regulators will recognise their illegal actions,
and they will take reasonable steps to ensure that the wrongdoer compensates those who
were harmed.
The final report of the Banking Royal Commission provided that it is common for banking
corporations to engage in misconduct, still, they were not denounced by the regulators even
when they prioritised profit generate above the interest of customers. The Banking Royal
Commission provided various recommendations in order to increase accountability of
financial services providers to ensure that they face appropriate legal consequences for
their illegal actions (Financial Review, 2019). In order to understand this issue, the example
of AMP Limited can be analysed which is one of the leading financial services company in
Australia. During the investigation of the Banking Royal Commission, there were around 20
occasions in which the company was found guilty of blatantly lying to the corporate
regulators without facing any legal consequences (Ferguson, 2018). Moreover, a whistle-
blower provides evidence regarding the actions of the company in which it interfered with
the “independent” investigation conducted by the Australian Securities and Investment
Commission (ASIC) (Letts, 2018). The company did not face any legal charges for this

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misconduct as well. Moreover, the company also charged higher interest rate from its
customers which it admitted was caused due to an administrative error; however, it was
later found out that the executives of the company knew about this defect, but they did not
take appropriate steps to eliminate this error (Ferguson, 2018). Even after this deliberate
decision of the management of AMP Limited, the wrongdoers did not face any legal
consequences for their actions.
3. Parties Involved in the Misconduct
The key parties that were involved in the misconduct of AMP Limited were its senior
executives who failed to take reasonable steps to ensure that they conduct its operations in
an ethical manner. The executives of the company interfered with the independence of the
investigation conducted by the ASIC in order to hide their illegal practices. They deliberately
engaged in unethical or illegal practices which lead to negatively affecting the customers of
the company who were also affected due to these misconducts (Beck and Paton, 2018). The
company charged higher fees from them by stating that it was an administrative error
whereas in reality they were aware regarding this defect, but they did not take any
reasonable step to resolve these issues.
Employees of the company were also involved in many illegal and unethical practices in the
company because they prioritised their personal interest above the interest of customers of
the company. An internal whistle-blower made a report and sent it to the CEO of the
company in which he provided information regarding illegal actions of employees and
managers who were openly discussing different ways to bypass the laws; however, the CEO
denied to check the report, and these practices continued (Ferguson, 2018). The regulators
such as ASIC also affected by the actions of AMP Limited because they were not able to
discharge their duties. They did not take appropriate steps to protect the interest of
customers of the company.
4. Royal Commission Recommendations
Various recommendations are given by the Banking Royal Commission which is focused on
eliminating these misconducts and promoting accountability in the industry to ensure that
the interest of customers is prioritised by organisations (Royal Commission, 2019). Following

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are various recommendations which are given by the Banking Royal Commission that apply
on this issue.
 Recommendation 1.2 – Best Interest duty
As per this recommendation, it is the duty of mortgage brokers that they must put the best
interests of the intending borrowers above their personal interest and they must ensure
that they did not engage in any practices that negatively affect their best interest. In case
this obligation is breached by the parties, then a civil penalty can be imposed on the
defaulters (Chalmers and Worthington, 2019). The objective of this recommendation is to
ensure that parties did not take any action which contradicts with the interest of customers.
AMP Limited did just the opposite because it was charging higher fees from its customers
and its employees were also putting their personal interest above the interest of its
customers.
 Recommendation 1.8 – Amending the Banking Code
As per this recommendation, banking institutes should amend their Banking Code in order
to ensure that they work with customers to identify suitable ways through which they can
get access to banking facilities. As per this recommendation, they must also ensure that they
did not charge dishonour fees on basic accounts. However, AMP Limited deliberately
charged higher fees with customers which show that it has failed to comply with the
recommendation (Neil, 2018).
 Recommendation 2.3 – Quality of Advice
This recommendation provides that the government must in consultation with the ASIC
measure the regulators and financial services entities in order to improve the quality of
financial advice to make sure that the interest of customers can be fulfilled. It is
recommended that companies must prioritise their interest of customers by ensuring that
they provide them high-quality financial advice while considering their interest. In the case
of AMP Limited, the employees of the company were focused on their personal interest,
and they were giving advice to customers in order to increase their profits rather than
focusing on their interests (Hargovan, 2018).

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 Recommendation 2.8 – Reporting Compliance Concerns
As per this recommendation, the financial advisers must report ‘serious compliance
concerns’ about individual financial adviser to ASIC (Royal Commission, 2019). This
recommendation was not followed by the executives of AMP Limited who did not disclose
information regarding unethical practices of the company which comes within the definition
of ‘serious compliance concerns’ to the ASIC.
 Recommendation 5.6 – Changing culture and governance
According to this recommendation, all financial institutes must take reasonable steps to
ensure that they implement positive culture and governance practices in order to identify
problems or misconducts and deal with these problems by determining the necessary
changes. In the case of AMP Limited, the CEO of the company rejected the report given by
the whistle-blower regarding the negative corporate culture in which employees and
managers were openly discussing about ways in which they could bypass the law, and no
actions were taken by the CEO to eliminate this culture (Vickovich, 2018).
5. Analysis of an Article
The article posted by The Sydney Morning Herald titled ‘Stinking AMP reveals our soft line
on corporate dishonesty’ has reported on the key issues faced by AMP Limited after the
beginning of the Banking Royal Commission (Ferguson, 2018). This article is written by Adele
Ferguson who evaluated a wide range of evidence in order to build a case against AMP
Limited and understand how its management engaged in dishonest practices. The article
provided that the company has found guilty in over 20 occasions for blatantly lying to
regulators. Ferguson (2018) also provided that the senior level executives of the company
interfere with the independence of the investigation conducted by the ASIC. Ferguson
argued that although a large number of people were involved in these dishonest and illegal
practices; however, none of them were reported to the appropriate authorities. Ferguson’s
perspective matches with the issue identified by the Banking Royal Commission which is
that although a number of people were involved in these dishonest practices; however, they
were not punished, but actually they landed new senior positions.

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Ferguson is not biased in her opinion since she evaluated examples of different banking
institutes and evaluates their previous cases to make her arguments. She did not misquote
any facts regarding the actions of the senior level executives of AMP Limited. Ferguson
provided that the company deliberately made the decision to charge higher fees from its
customers and cover it up which shows the unethical practices of the company (Ferguson,
2018). Some examples were more disgraceful such as the interference by AMP with the
audit of PwC and lying to the ASIC regarding the fact that ‘no systemic issues are identified’
in the audit (Han, 2018). This article has a positive impact on the public since it stated facts
regarding the misconduct of the company and how it negatively affects the customers.
6. Recommendations
The issue of misconduct by banking institute which goes unnoticed and they did not face
legal consequences for their illegal practices is a major issue which is sufficiently relevant to
form part of the Royal Commission’s final report (Royal Commission, 2019). If this issue
would not have included in the final report, then appropriate recommendations would not
have made by the commission to ensure that legal obligations are imposed on these entities
to ensure that they did not engage in these practices in the future. Following are possible
resolutions which will be effective while resolving this issue.
 The corporations should be enforced to issue a periodic report in which the senior
level executives must include details regarding the actions taken by them along with
their justification to ensure that they did not engage in unethical practices.
 Public reporting should be mandatorily implemented on banking corporations in
which they should be enforced by the authorities to make public announcements
whenever they engage in misconduct (Casonato, Farneti, and Dumay, 2019).
 Regulators such as ASIC should receive more enforcement powers to make sure that
they are able to enforce companies to take appropriate steps towards the
implementation of banking royal commission’s recommendations.
 It should be mandatory for these companies to adopt corporate social responsibility
(CSR) structure in order to increase obligation on their management to make sure
that they can be held accountable towards a wide range of stakeholders. The CSR
structure will ensure that the management maintains transparency in the operations

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and they will not engage in unethical practices that adversely affect the interest of
customers and the public (de Jonge, 2018).

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7. Conclusion
Based on the above observations, it can be concluded that the Banking Royal Commission’s
final reported that a major issue in the financial services, banking, and superannuation
sector is that the entities engaged misconduct most often and they did not face any
negative consequences for these wrongdoings. AMP Limited has engaged in this misconduct
since the company charged higher fees from its customers, prioritised personal interest
above the interest of the company and interfere with the independence of the investigation
of the ASIC. Various recommendations given by the ASIC for this issue are analysed in this
report such as quality of advice, changing culture and governance, reporting compliance
concerns, amending banking code and ensuring the best interest of customers. An article
posted by Adele Ferguson is evaluated in this case to evaluate the facts of the case and
understand the perspective of its author. Lastly, recommendations are given in this report
which can assist in the resolution of this issue such as the implementation of CSR structure,
periodic announcements, public reporting of misconduct and more power to regulators.
Compliance with these recommendations will reduce the number of misconducts in the
banking and financial services sector which will benefit the customers and society.

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8. References
Beck, J. and Paton, G. (2018) Corporate law: The Royal Commission: Corporate culture
spotlight: Where is all this heading?. Governance Directions, 70(6), p.351.
Casonato, F., Farneti, F. and Dumay, J. (2019) Social capital and integrated reporting: losing
legitimacy when reporting talk is not supported by actions. Journal of Intellectual
Capital, 20(1), pp.144-164.
Chalmers, S. and Worthington, B. (2019) Banking royal commission calls for compensation,
crackdowns and an overhaul of financial regulators. [Online] Available at:
https://www.abc.net.au/news/2019-02-04/banking-royal-commission-report-at-a-glance/
10777188 [Accessed 29/03/2019].
de Jonge, A. (2018) Corporate Social Responsibility Through a Feminist Lens: Domestic
Violence and the Workplace in the 21st Century. Journal of Business Ethics, 148(3), pp.471-
487.
Ferguson, A. (2018) Stinking AMP reveals our soft line on corporate dishonesty. [Online]
Available at: https://www.smh.com.au/business/banking-and-finance/stinking-amp-reveals-
our-soft-line-on-corporate-dishonesty-20180417-p4za66.html [Accessed 29/03/2019].
Financial Review. (2019) Banking royal commission final report: Key recommendations.
[Online] Available at: https://www.afr.com/business/banking-and-finance/banking-royal-
commission-key-recommendations-20190203-h1at2v [Accessed 29/03/2019].
Han, M. (2018) Banking royal commission: AMP's misleading of ASIC explained. [Online]
Available at: https://www.afr.com/business/banking-and-finance/banking-royal-
commission-amps-misleading-of-asic-explained-20180430-h0zfy9 [Accessed 29/03/2019].
Hargovan, A. (2018) Governance in practice: Hayne royal commission interim report:
Unclogging the central artery. Governance Directions, 70(11), p.691.
Legg, M. (2019) Litigation: Haynesplaining: Lessons for litigators from the banking Royal
Commission. LSJ: Law Society of NSW Journal, (53), p.70.

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Letts, S. (2018) AMP could face criminal charges for misleading ASIC, banking royal
commission told. [Online] Available at: https://www.abc.net.au/news/2018-04-27/asic-
fronts-hayne-royal-commission/9702662 [Accessed 29/03/2019].
Neil, M. (2018) AMP ‘lied’ to regulator about advice fees. [Online] Available at:
https://www.news.com.au/finance/business/banking/amp-lied-to-regulator-about-advice-
fees/news-story/0481d2677ca7514d338d8a2695f3d045 [Accessed 29/03/2019].
Remeikis, A. (2019) Key points and recommendations of the banking royal commission
report. [Online] Available at:
https://www.theguardian.com/australia-news/2019/feb/04/key-points-and-
recommendations-of-the-banking-royal-commission-report [Accessed 29/03/2019].
Royal Commission. (2019) Final Report. [PDF] Available at:
https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-
report.pdf [Accessed 29/03/2019].
Vickovich, A. (2018) CBA Whistleblower: Bonuses To Blame. [Online] Available at:
https://www.ifa.com.au/news/13113-cba-whistleblower-fofa-won-t-fix-broken-system
[Accessed 29/03/2019].