Report: Corporate Governance Failures and Fraud in Australian Finance
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This report examines corporate governance and fraud within the Australian financial services industry, focusing on the findings of the Banking Royal Commission. The report highlights key issues such as breaches of directors' duties, kickbacks and commissions, shoddy financial advice, pursuit...
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Running head: CORPORATE GOVERNANCE AND FRAUD
Corporate Governance and Fraud
Name of the Student
Name of the University
Author Note
Corporate Governance and Fraud
Name of the Student
Name of the University
Author Note
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1CORPORATE GOVERNANCE AND FRAUD
The Banking Royal Commission in its final report in 2019 laid down certain 76
recommendations and 24 referrals to the Banking, Superannuation and Financial Services
Industry (financial services industry) in terms of their corporate misconduct, leading to
governance failure. Commissioner Kenneth Hayne AC made the recommendations in the
light of the severe corporate misconducts and failure, in reference to the ASX Corporate
Governance Principles (Gergis 2019). The Commission identified the issues and
subsequently laid down its causes, reasons and recommendations (Final Report: Royal
Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry 2019). The misconducts pointed out in the report are:
1. Breach of Director’s Duties
The directors breaching their fiduciary as well as the statutory duties as directors are the
one of the main actors affecting the corporate governance, eventually leading to a collapse. It
has been thoroughly discussed that the directors have been misusing their duty “to act in good
faith” for the best interest of the company, which must have a purpose as held under section
181 of the Corporations Act 2001 (Cth). Thereby, directors are often found to be hiding
behind the ‘business judgment rule’ where they could do anything arbitrary and justify it as a
necessity for the best interest of the business.
2. Kick-backs or Commissions
Most of the brokers and advisors do not disclose the fact that they are being given
commissions to recommend financial products like insurances to customers by the insurance
providers or lenders. In a way, it is a kind of fraudulence that are customers put through every
day, thereby the brokers are gaining a bad name for the financial institutions.
3. Shoddy financial advice
The Banking Royal Commission in its final report in 2019 laid down certain 76
recommendations and 24 referrals to the Banking, Superannuation and Financial Services
Industry (financial services industry) in terms of their corporate misconduct, leading to
governance failure. Commissioner Kenneth Hayne AC made the recommendations in the
light of the severe corporate misconducts and failure, in reference to the ASX Corporate
Governance Principles (Gergis 2019). The Commission identified the issues and
subsequently laid down its causes, reasons and recommendations (Final Report: Royal
Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry 2019). The misconducts pointed out in the report are:
1. Breach of Director’s Duties
The directors breaching their fiduciary as well as the statutory duties as directors are the
one of the main actors affecting the corporate governance, eventually leading to a collapse. It
has been thoroughly discussed that the directors have been misusing their duty “to act in good
faith” for the best interest of the company, which must have a purpose as held under section
181 of the Corporations Act 2001 (Cth). Thereby, directors are often found to be hiding
behind the ‘business judgment rule’ where they could do anything arbitrary and justify it as a
necessity for the best interest of the business.
2. Kick-backs or Commissions
Most of the brokers and advisors do not disclose the fact that they are being given
commissions to recommend financial products like insurances to customers by the insurance
providers or lenders. In a way, it is a kind of fraudulence that are customers put through every
day, thereby the brokers are gaining a bad name for the financial institutions.
3. Shoddy financial advice

2CORPORATE GOVERNANCE AND FRAUD
There has a huge number of reported cases where the customers have been fraudulently
sold financial advices by the financial services industry of Australia, leading to hardship for
poor families.
4. Pursuit of Profit
The financial institution’s choice of putting its own interest and profit above the interest
of the customers is a major misconduct by most of the players in the financial services
industry.
5. Legal non-compliance
The financial institutions are not only disregarding the interest of the customers, but also
not complying with the legal regulations and the Corporate Governance Principles and
Recommendations as laid down by the ASX Corporate Governance Council like scrutinising
the structure of the board, safeguarding the integrity of the corporate reports, timely
disclosure of matters important for people to know who might be dealing with the specific
institution, respecting the rights and interest of the security holder, et cetera (Gergis 2019).
6. Others
Misconducts like alleged case of bribery, forging documents, selling insurance to the ones
who cannot afford it, failure to verify living expenses of customer before lending money, et
cetera.
The above-listed misconducts are the major causes behind the Corporate failure of the
financial services industry in Australia. The Royal Commission has recommended the
industry to follow the 76 recommendations and 24 referrals along with the ASX Corporate
Governance Principles for recovering from their present collapsed conditions and
maintenance compliance with the laid down industry standards.
There has a huge number of reported cases where the customers have been fraudulently
sold financial advices by the financial services industry of Australia, leading to hardship for
poor families.
4. Pursuit of Profit
The financial institution’s choice of putting its own interest and profit above the interest
of the customers is a major misconduct by most of the players in the financial services
industry.
5. Legal non-compliance
The financial institutions are not only disregarding the interest of the customers, but also
not complying with the legal regulations and the Corporate Governance Principles and
Recommendations as laid down by the ASX Corporate Governance Council like scrutinising
the structure of the board, safeguarding the integrity of the corporate reports, timely
disclosure of matters important for people to know who might be dealing with the specific
institution, respecting the rights and interest of the security holder, et cetera (Gergis 2019).
6. Others
Misconducts like alleged case of bribery, forging documents, selling insurance to the ones
who cannot afford it, failure to verify living expenses of customer before lending money, et
cetera.
The above-listed misconducts are the major causes behind the Corporate failure of the
financial services industry in Australia. The Royal Commission has recommended the
industry to follow the 76 recommendations and 24 referrals along with the ASX Corporate
Governance Principles for recovering from their present collapsed conditions and
maintenance compliance with the laid down industry standards.

3CORPORATE GOVERNANCE AND FRAUD
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4CORPORATE GOVERNANCE AND FRAUD
References
ASX Corporate Governance Principles and Recommendations (4th Edition)
Corporations Act 2001 (Cth)
Gergis, C., 2019. Key Findings From The Banking Royal Commission Final Report. [online]
Australian Institute of Company Directors. Available at:
<https://aicd.companydirectors.com.au/membership/company-director-magazine/2019-back-
editions/march/royal-commission> [Accessed 30 March 2020].
Treasury.gov.au. 2019. Final Report: Royal Commission Into Misconduct In The Banking,
Superannuation And Financial Services Industry. [PDF] Available at:
<https://treasury.gov.au/sites/default/files/2019-03/fsrc-volume1.pdf> [Accessed 30 March
2020].
References
ASX Corporate Governance Principles and Recommendations (4th Edition)
Corporations Act 2001 (Cth)
Gergis, C., 2019. Key Findings From The Banking Royal Commission Final Report. [online]
Australian Institute of Company Directors. Available at:
<https://aicd.companydirectors.com.au/membership/company-director-magazine/2019-back-
editions/march/royal-commission> [Accessed 30 March 2020].
Treasury.gov.au. 2019. Final Report: Royal Commission Into Misconduct In The Banking,
Superannuation And Financial Services Industry. [PDF] Available at:
<https://treasury.gov.au/sites/default/files/2019-03/fsrc-volume1.pdf> [Accessed 30 March
2020].
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