ACCG100 Accounting in Society: Banking Royal Commission Analysis

This case study examines the ethical misconduct within the Australian financial services sector, focusing on the findings of the Banking Royal Commission (2017-2019). The report highlights issues in banking, superannuation, and financial services. The analysis outlines key findings and recommendations, emphasizing ethical lapses. It delves into the specific case of ANZ Bank, detailing unethical remuneration practices, lack of effective risk management, and the impact on stakeholders, including customers and investors. The study explores the causes of ethical misconduct, attributing it to ineffective corporate governance and inadequate internal controls. It also underscores the role of accounting and reporting in encouraging ethical business conduct, particularly by linking rewards to performance and ethical behavior. The conclusion summarizes the ethical concerns within the financial services sector, emphasizing the impact of misconduct on consumers.

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ACCG100
ACCOUNTING IN SOCIETY

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Contents
Introduction......................................................................................................................................3
Part 1: Key findings/recommendations that has been provided in commissioner’s final report of
year 2019.........................................................................................................................................3
2. Ethical Misconduct in ANZ Bank as per Royal Bank Commission Report................................3
Part 3: Role of accounting and reporting in encouraging the ethical business conducts.................4
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

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Introduction
The present report has been developed in the context of gaining an analysis into the
inquiry held by the Banking Royal Commission during the year 2017-2019. The inquiry has been
carried out for evaluation of the business misconducts in the banking, superannuation and
financial services sector. This has been carried out by evaluation of the commissioner’s report
and outlining the key ethical misconducts and discussing one of them in detail with reference to a
real banking entity that is impacted by the finding of the commissioner’s report.
Part 1: Key findings/recommendations that has been provided in commissioner’s final
report of year 2019
The purpose of report given by Royal Bank Commissioner aims to make enquiry on
conduct of financial services entities that tantamount to misconduct and to check whether the
practices, conduct, business activities and behaviour of these entities fell below the standards and
community expectations. Enquiries by commissioner have led to find four main findings and on
the basis of these findings, various recommendations have been provided (Royal Commission
Volume 2, 2019). Firstly, in almost every case, conduct by the management was the serious issue
as there were issues related to distribution of remuneration to individual or profit for the
individual business. Rewarding scheme such as bonus, commission etc is based on sales and
profit but not on compliance with the law and proper standards. Secondly, commissioner has
noticed that entities and individual have acted in the way they did as they could. There are
defined deals with set terms, from which consumer have to choose. Consumers have little
knowledge of the transactions and they do not have power to make negotiation with the terms.
Third, it was noticed by commissioner that consumers dealt with the financial services entities
through intermediary. There are many cases where intermediary acted on the behalf of service
provider and consumer assumes that person standing between financial entities and client will
provide services in interest of clients but it is not so (Royal Commission Volume 1, 2019).
2. Ethical Misconduct in ANZ Bank as per Royal Bank Commission Report
Ethical Misconduct by ANZ and the Impact on Key Stakeholders
The banking royal commission report has identified ethical misconduct within the
operational activities of the bank ANZ in relation to its remuneration practices. The banking
commission in this context has identified that the executive bonus targets developed by the bank
fostered ethical misconduct as they emphasizes on achieved improved financial outcomes
without considering the outcomes for the consumers. The lack of an effective risk management
strategy within the bank is responsible for the occurrence of ethical misconduct in relation to its
remuneration systems. The inquiry carried out by the Banking commission has revealed
systematic problems within its incentive systems that were developed for rewarding staff for the

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sale of its products. The staff of the banking institutions in the sake of realizing rewards used to
sell the banking products to people who does not need or afford them. It has also been reported
that the bank is involved in unethical practices of charging customers for services that has not
been delivered and took fees from the dead client accounts. The key stakeholders that were
impacted by this type of ethical misconduct were the target customers of the banking institution
(Duran, 2018).
Impact on the Key Stakeholders by the Ethical Misconduct of ANZ
The ethical misconduct carried out within ANZ has negatively impacted the interests of
its investors that are the customers. The enormous incentive realized by the employees in
exchange of selling the banking products negatively impacted the interests of the consumers as
they purchase the wrong financial product recommended to them by the sales staff of the bank.
Also, they have been charged higher fees for purchasing such products and thus it can be said
unethical practices of the banking institution of ANZ has negatively impacted the trust of its
customers on the banking sector (Janda, 2014).
Causes of Ethical Misconduct
The cause of ethical misconduct within the ANZ banking institutions as stated by the
commissioner’s report is the lack of an effective corporate governance system. The lack of
effective internal control by the board and senior management has lead to the prevalence of such
unethical behavior within the banking institution. The risk management system of the bank was
not so effective to identify the problems in the culture and governance practices of the bank that
lead to the occurrence of unethical behavior within the banking institution. The absence of an
effective remuneration committee to oversee and monitor the rewards and remuneration practices
within the bank is responsible for the occurrence of such ethical misconduct (Colombo, 2019).
Recommendation
It has been recommended by the royal commission in the context of ethical misconduct
identified within ANZ that there exists a high need of developing a remuneration committee
within the financial service sector to regularly monitor and control the rewards and compensation
structure of the senior executive. This is essential for maintaining an internal control over the
remuneration policies by the Board to prevent the occurrence of any unethical issues (Australian
Institute of Company Directors, 2019).
Part 3: Role of accounting and reporting in encouraging the ethical business conducts
Accounting and reporting revolves in all processes of business and respective managers
are held responsible for accounting and reporting of performance of their respective department.
It encourages the manager to work hard and improve the performance of its department and also
bind him not to involve in such behaviour or practices that leads to ethical business misconduct.

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Linking the rewards with performance such as profits, sales, ethical conduct and consumer
relation will encourage managers to work ethically and achieve the required targets. In this
respect, financial reporting plays very important role as it helps to provide information on
company performance and also discloses information about the rewards for executives and
managers. In short, accounting makes manager responsible for each activity they perform and
reporting provides the output of what managers have delivered to the organization. So both
accounting and reporting have crucial roles in ethical business conduct (Babayanju, Animasaun
and Sanyaolu, 2017).
Conclusion
It can be stated form the overall analysis that Royal banking commission has identified
the ethical issues related to culture, governance and remuneration within the financial services
sector of Australia. The ethical misconduct related to unethical incentive and rewards system
sued by ANZ has been identified by the commissioner’s report that has negatively impacted the
interest of its consumers.

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References
Australian Institute of Company Directors. 2019. [Online]. Available at:
https://aicd.companydirectors.com.au/membership/membership-update/royal-commission-final-
report-executive-summary [Accessed on: 11 April 2019].
Babayanju, A.G.A., Animasaun, R.O. and Sanyaolu, W.A., 2017. Financial Reporting and
Ethical Compliance: The Role of Regulatory Bodies in Nigeria. [Online]. Available on:
https://www.researchgate.net/publication/313698565_Financial_Reporting_and_Ethical_Compli
ance_The_Role_of_Regulatory_Bodies_in_Nigeria [Accessed on: 11 April, 2019].
Colombo, E. 2019. The Royal Commission Report: a new path for the Australian finance
industry? [Online]. Available at: https://www.sustainalytics.com/esg-blog/royal-commission-
report-australia-finance-industry/ [Accessed on: 11 April 2019].
Duran, P. 2018. Australia's ANZ fired senior executives due to bad banking behavior: CEO.
[Online]. Available at: https://www.reuters.com/article/us-australia-banks-inquiry-anz/australias-
anz-fired-200-staff-due-to-bad-banking-behavior-ceo-idUSKCN1MM02G [Accessed on: 11
April 2019].
Janda, M. 2014. Banking royal commission questions ANZ exec bonuses, bank 'unclear' as to
why it paid some bonuses. [Online]. Available at:
https://www.abc.net.au/news/2018-11-28/banking-royal-commission-grills-amp-anz/10561454
[Accessed on: 11 April 2019].
Royal Commission Volume 1. 2019. Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry. [Online]. Available on:
https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-report.pdf
[Accessed on: 11 April, 2019].
Royal Commission Volume 2. 2019. Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry. [Online]. Available on:
https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-2-final-report.pdf
[Accessed on: 11 April, 2019].