Corporate Governance: Royal Commission's Effect on Commonwealth Bank

This case study analyzes the impact of the Royal Commission into the financial sector on the Commonwealth Bank of Australia (CBA). It explores the context of the Royal Commission, triggered by scandals and allegations of misconduct, including money laundering and breaches of statutory reporting responsibilities. The study examines the potential benefits of the Royal Commission, such as restoring public trust and holding responsible parties accountable, alongside potential drawbacks like increased interest rates. It delves into the Royal Commission's focus on CBA, particularly in relation to the AUSTRAC court case and its implications for lending standards and regulatory oversight. Furthermore, the analysis considers the challenges faced by CBA executives and the broader implications for the bank's operations and governance. Ultimately, the case study assesses the value and consequences of the Royal Commission for CBA and the wider financial system.

Corporate Responsibility and Governance 2
Editorial 1: The Australian
Australia is the only nation which has been able to weather the financial crisis which
loomed a decade ago, and with 2018, the nation is set to enter its twenty seventh year of
unbroken expansion. All this is possible due to the sound banking regulations in the nation.
However, the recent years have seen a fair share of scandals, which has presented a different
image in the minds of the people. This has led to the Royal Commission being called on the
finance sector.
The launching of Royal Commission in financial sector is of particular significance for
Commonwealth Bank. The major reason for it lies in the allegations made against the bank,
which could be established or rebutted through the royal commission. This is crucial for
understanding how Commonwealth Bank had been able to ignore the money laundering for
drug syndicates, and turned a blind eye towards financing of terrorism, along with complete
ignorance of the statutory reporting responsibilities for over three years, where it has three
quarters of million accounts.
The severity of these issues is a matter of concern for the stakeholders of
Commonwealth Bank, which not only includes its customers, but the general public as well. The
chief reason for this lies in the lost faith in the bank, and even in the banking system, as a result
of the allegations made into the workings of Commonwealth Bank. Royal Commission would
allow for the depths of the wrongdoings of Commonwealth Bank to be exposed and hold the
pertinent parties responsible for their misdeeds. As a stakeholder, some of the top managerial
personnel would have to bear the negative impact of royal commission, due to their misdeeds
coming in spotlight; but for the people who have put in their faith in the bank; it would be of
particular help.
However, a key negative impact which the Royal Commission into the financial factor
would have is the interest rates being pushed higher. And yet the decision to call Royal
Commission is an important one. This is due to the undermining of confidence in the financial
system of the nation, which has a negative impact over the national economy. It is a responsible
and comprehensive investigation, which is crucial for exposing the governing and cultural
issues. This would allow for the new reforms to be introduced in the financial system, in order
to deal with the consequences of misdeed like the ones took place in Commonwealth Bank and
to strengthen the system to avoid such instances from taking place. This is particularly
important due to the significance which the Commonwealth Bank holds for the people of the
nation, as being the trusted bank.
All in all, the Royal Commission into Commonwealth Bank is set to hold the liable
individuals responsible for their misdeeds, and is set to work in favour of the general public, in
terms of their trust. However, in doing so, the consumers still may have to bear a hole in their
pockets, owing to higher interest rates. So, is Royal Commission really worth it?

Corporate Responsibility and Governance 3
Editorial 2: The Financial Review
Royal Commission announcements are a manner of installing the trust back in the
different stakeholder groups. The latest Royal Commission was the one announced into the
financial sector. This announcement is set to have an impact over the Commonwealth Bank,
due to the allegations made against the bank in the recent history.
With every Royal Commission announcement, the very first impact is seen on the stock
market reaction, like is the case with any major announcement. The announcement of Royal
Commission into the financial sector resulted in small falls in the prices of NAB, Westpac, and
ANZ, but the Commonwealth Bank had a major fall in its price. This is true even when the Royal
Commission is focusing on the entire financial sector. The reason for this lies in the nuances of
the matter, where it is clear that the Royal Commission would be going after the largest public
company, i.e., the Commonwealth Bank.
It is quite a common known factor that the strong profit earning companies are
subjected to a higher pressure in comparison to the ones below it. Particularly the pressure is
applied on such companies who have a history of financial troubles. The allegations against the
Commonwealth Bank are the possible reason for it falling in this category, even when nothing
has been proved as of now. As a result of this announcement, Royal Commission would be
looking in all of the aspects of the Commonwealth Bank’s business. This is particularly in
context of the AUSTRAC court case which covers over 5 million bank accounts, where the
allegations have been made of money laundering resulting in terror financing. This would bring
out a range of new regulations on the lending rules, which would result in the Commonwealth
Bank making the announcement that it is upgrading is lending standards in a substantial
manner. This would also result in the APRA regulator imposing a review over the board and the
executive appointments, resulting in them being vetoed. And also, some sort of challenges in
areas surrounding high technology would be presented.
This is very hard for the people inside the Commonwealth Bank, as they would have to
gather the most incredible amount of detailed information, which would then be examined by a
high skilled group of people, who have a specific focus over looking for multiple scandals. This is
going to take toll on the executives who would not be able to take the pressure. With the CEO
of the Commonwealth Bank leaving, the new person who comes to supervise and to run the
operations of the bank would particularly have to face a difficult time.
All in all, even though the Royal Commission into financial sector is seen as a manner of
protecting the interests of the general public, it does come with a lot of unnecessary hassles for
the Commonwealth Bank and the individuals associated with it. And at times, this proves harsh
for the entities into which such Royal Commission is undertaken.

Corporate Responsibility and Governance 4
Bibliography
ABC News. (2017). Here's what we know about the banking royal commission. Retrieved from:
hhttp://www.abc.net.au/news/2017-12-04/banking-royal-commission-heres-what-we-
know/9210214
CDN. (2017). Royal Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry. Retrieved from:
https://cdn.tspace.gov.au/uploads/sites/72/2017/11/DRAFT-TERMS-OF-REFERENCE.pdf
Gottliebsen, R. (2017). The Royal Commission and big bank theories. Retrieved from:
https://www.eurekareport.com.au/articles/141886/the-royal-commission-and-big-
bank-theories
Karp, P., & Hutchens, G. (2017). Malcolm Turnbull orders Royal Commission into banks and
financial sector. Retrieved from:
https://www.theguardian.com/australia-news/2017/nov/30/malcolm-turnbull-orders-
royal-commission-into-banks-and-financial-sector
Sweeney, L., & Yaxley, L. (2017). Malcolm Turnbull backflips on banking Royal Commission after
big four call for inquiry to restore public faith. Retrieved from:
http://www.abc.net.au/news/2017-11-30/banking-royal-commission-announced-by-
pm-after-big-four-letter/9209926
The Economist. (2017). Australia is to hold a Royal Commission into the finance industry.
Retrieved from: https://www.economist.com/news/business-and-finance/21731891-
what-looks-climb-down-prime-minister-scandal-plagued-banks-will
Verrender, I. (2017). How the Commonwealth Bank laid the groundwork for a royal commission.
Retrieved from: http://www.abc.net.au/news/2017-08-07/commonwealth-bank-laid-
the-groundwork-for-royal-commission/8779598
Verrender, I. (2017). Royal Commission into banking: The inquiry that could kill the Government.
Retrieved from:
http://www.abc.net.au/news/2017-11-27/how-bad-are-our-banks/9194984