Banking and Finance Report: Analysis of the Royal Commission

This report provides an overview of the Royal Commission into misconduct within the Australian banking, superannuation, and financial services industry, established in December 2017. It examines the commission's objectives, which included investigating misconduct, unethical practices, and the effectiveness of existing regulations. The report details the major scandals that prompted the commission, such as money laundering, inflated real estate market practices, and fraudulent activities by banks like Commonwealth Bank, ANZ, and NAB. It highlights issues like lack of corporate governance, flawed remuneration structures, and lack of accountability. The report also presents specific instances of misconduct, including false financial advice, overcharging, and denial of insurance claims, along with the financial repercussions for these institutions. The analysis emphasizes the need for transparency, regulatory reforms, and improved governance within the financial sector.

Running head: BANKING AND FINANCE
Banking and Finance
Name of the Student:
Name of the University:
Author Note

1BANKING AND FINANCE
Table of Contents
Introduction......................................................................................................................................2
Literature Review............................................................................................................................2
The Royal Commission...............................................................................................................2
Recommendation.............................................................................................................................8
Conclusion.......................................................................................................................................8
References and Bibliography...........................................................................................................9

2BANKING AND FINANCE
Introduction
The Royal Commission into misconduct in the banking, superannuation and financial
services industry had been established on 14th December 2017 by the governor general of the
Commonwealth of Australia, His Excellency General the Honorable Sir Peter Cosgrove AK MC
(Retd).
With increasing misbehavior of the financial services industry in Australia, the
government had declared a Royal Commission wholesomely into the banking institutions and
other financial service institutions. The Government had allegedly stated that the Royal
Commission launched by it would take up a conventional and focused approach. The results of
the Royal Commission are due on February 2019.
Literature Review
The Royal Commission
A majority of the population in Australia are the potential consumers of banking,
superannuation and other financial services. The superannuation system accounts for more than
over $2 trillion retirement savings pool and are growing rapidly, which has resulted in most of
the Australians deferring income for their retirement (Merrington 2015).
The matters into which the commission will investigate and inquire are as following:
 The type of the misconduct, its impact and extent by any financial services entity has
been intended to examine and scrutiny
 The practices, behavior or operational activity carried out by a particular financial
services entity that does not meet up to the recognized standards of integrity and
expectations have also been investigated
 The royal commission has also been executed by the government to look into the existing
regulations and mechanisms that evaluate the effectiveness of these regulatory procedures
that control the conduct of the financial services industry

3BANKING AND FINANCE
 It further carries out a scrutiny of the financial institutions by scrutinizing their existing
policies and laws, internal controls that have been implemented within the organization
and the codes of conduct followed by the employees of the organization.
 The Commission also has enough independence to give due importance to the matters
that it thinks to have greater potential to harm the society
 The Commission will not be required to investigate into or refer to any kind of
recommendations in case of the macro-prudential policy, oversight or regulations
An overview into the objectives of the commission primarily indicates that the Royal
Commission was a much needed action that had been finally executed by the government in
order to clear the irrational behavior by the banks and other financial institutions in Australia
(Smith 2017).
According to the sources, the major reasons behind the government of Australia
launching a Royal Commission in the financial sector of the economy had been that the banks of
Australia had been going through one scandal after another over the past financial years. This
can be evidently cited from the incidents that have taken place in the banking economy since the
financial crisis. After the financial crisis the banks in Australia had paid fines of amounts as huge
as $1 billion for unethically acquiring money from their customers or clients by fooling them
(Smith 2017).
The Commonwealth Bank in Australia had been dealing in money laundering practices,
which involved 55000 breaches. There also had been other incidents, which triggered the
government to launch the Royal Commission in the banking sector. However, the major event
that grabbed the attention of the entire world was that around 20 national Australian banks had
been sacked for inflating the real estate market by rapidly sanctioning bad loans or loans that had
no chances of being paid back by the customers, as they did not meet the credit worthiness. Thus,
the Royal Commission was a rightly taken decision by the government (Coleman 2016).
The primary motive of the banking industry that is accumulation of profit has also
hampered the integrity standards that have not been maintained by the banks. Moreover, the
banks in Australia did not have the necessary corporate governance structure. This means that
the organizations had no particular clue in regards to the exact position where the responsible

4BANKING AND FINANCE
managers had been placed and the effectiveness of the operations carried out by the managers in
the due course of business. Furthermore, the remuneration structure of the banks had essentially
been flawed as they did not set out the objectives and the structure of the remuneration
arrangements that accounted for the approval of the remuneration policy by the board. The
remuneration framework of the banks gave no due importance to the factors like incentives for
protecting or preserving the interests and meeting up to the expectations of the stakeholders of
business, the long-term financial strength of the trustee and the risk management framework of
the trustees (Carnegie and O’Connell 2014).
The other reason behind the government launching the Royal Commission has been that
the banks have been continuously robbing off its clients. The list of the fraudulent banks has not
excluded the big players of Australia like the ANZ bank, Commonwealth Bank of Australia and
other banks. For instance, the banks in Australia had unethically schemed out as much as $178
million. This had been essentially achieved by the banks by imparting false financial advices to
its customers. The particular scandal that had been carried out by the Commonwealth Bank of
Australia had been that the biggest bank of Australia had resorted to the unethical standards for
gaining revenues. The bank now is liable to pay $106 million plus interest (Virgo 2015).
Name
of the
Bank
Compensation
that have
been agreed
to be paid
Estimated
future
compensation
Total
(estimate)
AMP $2,120,000 $2.4 million $4.6
million
ANZ $16,202,860 $33.5 million $49.7
million
CBA $575,587 $105.1 million
plus interest
$105.7
million
plus
interest
NAB $3,523,500 $13.4 million
plus interest
$16.9
million
plus
interest
Westpa
c
$1,244,659 N/A $1.2
million
Totals $23,666,606 $154.4 million $178
million
plus
interest

5BANKING AND FINANCE
The above table shows the segregated values of the fines that are to be paid by the
different financial institutions like the AMP, ANZ, CBA, NAB and Westpac for carrying out the
fraudulent activities with its customers.
Furthermore, the lack of accountability on the part of the banks has been a major issue in
the banking sector of Australia. The culture of the private banks has essentially been sales driven
and this has resulted in the banks refusing anyone in a senior position to account. There have
been numerous examples of scandalous events taking place in Banks like the ANZ and
Macquarie banks. Such occurrences of events have asked for immediate reaction by the upper or
senior level management. However, the lack of taking on the blame or accountability on the part
of the executives that belong to the higher level of hierarchy aggravate the misconduct of the
banks. Therefore, it has been necessary for the government to execute a Royal Commission into
the financial services industry of Australia (Steen, McGrath and Wong 2016).
The particular financial scandal that had particularly grabbed the attention of the entire
world economy had been the financial fraud carried out by the Commonwealth Bank of
Australia’s financial planning scandal. The scandal particularly included the bank misleading its
customers by recommending speculative investments, which robbed them off, of their respective
money. The bank had also committed frauds such as forging signatures, overcharge of the fees
and the creation of investment accounts that are unauthorized in nature particularly for their
clients without merely informing them (O'Brien 2015).
Earlier there had been proposals or recommendations for the launch of an inquiry in the
activities that have been carried out by the banks. However, the federal government had rejected
the proposal. Nevertheless, the former bank planner belonging to the Commonwealth Bank of
Australia who had also played the role of a whistleblower, had announces to the media that
serious talks were going on in regards to the conducting of a Royal Commission. The Senate
committee felt that it was the only option, that could change the financial services industry in
Australia (O'Brien 2015).
He argued that for the launching of a Royal Commission into the banks, so that the public
would get to know the institutions in which they deposited their hard-earned money.

6BANKING AND FINANCE
The particular area where the banks needs to be reformed is that they have to carry out
more transparent processes in regards to the actions that they incorporate for the purpose of
compensating the customer money. This means that they should have provided reports about the
steps already taken by them to compensate their wrongdoings. But this had not been achieved by
any of the banks as they lacked the integrity to compensate their customers. Moreover, the
ongoing review with the Commonwealth Bank of Australia had not been satisfactory, as the bank
had not reported all the breaches to the ASIC. After the acceptance of committing the fraudulent
activities, there had been no further reports by the financial service providers in regards to the
governance regulations adopted or the internal controls implemented within the organization for
minimizing the further occurrence of such actions (McIlroy 2017).
In this regards, the ANZ bank had reported that the management of the organization had
sacked more than a dozen financial planners in the past twelve months. The bank had also
reported that more than $30 million have been planned to be refunded to around eight thousand
financial planning customers. Hence, it is evident from the discussed information that there have
been mere apologies and planning by the banks, but they have executed no legible action plans
or operations (McIlroy 2017).
To add up to this, the insurance arm of Commonwealth Bank of Australia also had been
charged as guilty for the use or adoption of unethical practices to avoid the payment of legitimate
claims. The insurance arm of Commonwealth bank, popularly known as CommInsure is one of
the top life insurer companies of Australia. It holds a customer base of about four million policy-
holders. The insurance company had been caught red handed for the adoption of unethical
practices for denying legitimate insurance claims of its customers. They also delayed certain
payments to clients who had genuine reasons and needed the money from the insurance. The
whistleblower in such a case had been Dr Koh who worked as the chief medical officer in the
organization. Dr Koh had reported to the media there were several files missing and the
information on numerous files had been altered in order to avoid the payments of insurance.
When the doctor and his team had asked the IT department of the insurance company to look
into the matter and find the actual matter of the fact, the request had been denied (O'Brien 2015).
Dr. Koh then carried his concerns to the Board of Directors hoping to find a solution
there. However, instead of getting the issue resolved, the doctor had been dismissed from his job

7BANKING AND FINANCE
role. There had also been several instances where the employees of the organization itself or of
the parent entity, that is the Commonwealth Bank of Australia had not been paid their legitimate
amount of insurance claims or had been paid at a later period of time. The adoption of the trick
of outdating the medical definition in the contracts for the purpose of delaying or denying
payments to the policyholders was a major misconduct and has affected the public in a huge
way. Moreover, there had been reports that no employees were sacked in the due process
(O'Brien, 2015).
The government now has been strict with such fraudulent and unethical institutions and
has pressurized the banking body to accept more than 54,000 breaches that the bank had
committed at different occasions. The Commonwealth Bank of Australia now faces about one
trillion worth of fines (McIlroy 2017).
The banks had never wanted a Royal Commission, as that would mean further analysis of
the still undiscovered frauds carried out by the unethical financial institutions. As a result, of
which, the banks especially the big four banks of Australia had decided to drop the ATM fees.
However, such a measure could not mitigate the proposed Royal Commission into the
financial services sector of Australia. This is because the Royal Commission had been proposed
by the government in order to address and highlight the instability and chaos that the financial
sector of the country is heading on to (Boersma 2015).
The fraudulent behavior by the top banks of the nation is not only harmful for the public
but also for the worldwide image of the nation. The banking sector in Australia is gradually
losing trust and respect from the entire world and the impending outcome is that the economy of
the country will face a huge financial disaster affecting the world economy as a whole (Adams
caes et al., 2017).
However, it should be further noted here that the government in spite of mentioning the
happening of a Royal Commission for the betterment of the public and the banking and finance
sector as whole, has been under quite pressure. This is the actual reason why, despite so many
rejections by the banking bodies the Royal Commission is being conducted (Adams caes et al.,
2017).

8BANKING AND FINANCE
The key factor at play here are the elections. With two by-elections under the way, the
government does not want to frustrate the public, further. Moreover, the opposition party has
been calling for a Royal Commission for a period of more than eighteen months (Adams caes et
al., 2017).
Recommendation
Thus, all these factors have contributed to the Royal Commission. This decision,
irrespective of the fact whether it had been considered for winning votes or voluntarily by the
government is the only and the most apt solution for the increasing misconduct by the financial
services industry in Australia. A Royal Commission will not only help in understanding the
actual frauds that had been carried out by the banks but also implement the potential solutions.
Conclusion
The conclusion that can be arrived at from the literature review is that a Royal
Commission is very much needed in Australia especially in the financial services and banking
sector. This is because a major portion of the common people have been hampered due to these
banks and they deserve rightful compensation.

9BANKING AND FINANCE
References and Bibliography
Adams, M., Borsellino, G., McCalman, J. and Young, A., 2017. Australia’s proposed Banking
Executive Accountability Regime: regulatory panopticon or fail-safe?. Governance Directions,
(9), pp.528-531.
Boersma, M., 2015. How Does Sustainable Banking Add Up?.
Carnegie, G.D. and O’Connell, B.T., 2014. A longitudinal study of the interplay of corporate
collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s.
Critical Perspectives on Accounting, 25(6), pp.446-468.
Coleman, W. ed., 2016. Only in Australia: The history, politics, and economics of Australian
exceptionalism. Oxford University Press.
Gilligan, G., Ali, P., Godwin, A., Hedges, J. and Ramsay, I., 2015. An Analysis of Penalties
under ASIC Administered Legislation: Scoping the Issues.
Gilligan, G., Godwin, A., Hedges, J. and Ramsay, I., 2017. Penalties regimes to counter
corporate and financial wrongdoing in Australia–views of governance professionals. Law and
Financial Markets Review, 11(1), pp.4-12.
Gilligan, G., Godwin, A., Hedges, J. and Ramsay, I., 2017. Penalties Regimes to Counter
Corporate Misconduct in Australia–Views of Governance Professionals.
Matthews, A., 2016. The financial services industry: Whistleblowing and calls for a royal
commission. Precedent (Sydney, NSW), (136), p.35.
McIlroy, J., 2017. Banks halt ATM fees to head off royal commission. Green Left Weekly,
(1155), p.11.
McIlroy, J., 2017. Re-nationalise the commonwealth bank. Green Left Weekly, (1149), p.11.
Merrington, S., Lauchs, M., Bell, P. and Keast, R., 2015. An exploratory study of noble cause
corruption: The Wood Royal Commission New South Wales, Australia 1994-1997. International
Journal of Management and Administrative Sciences, 2(4), pp.18-29.

10BANKING AND FINANCE
O'Brien, J., 2015. The tyranny of distance and the paucity of imagination: an evaluation of the
Australian Financial System Inquiry.
O'Brien, J., 2015. The tyranny of distance and the paucity of imagination: an evaluation of the
Australian Financial System Inquiry.
Smith, K., 2017. Australia to boycott nuclear disarmament negotiations. Green Left Weekly,
(1127), p.7.
Steen, A., McGrath, D. and Wong, A., 2016. Market Failure, Regulation and Education of
Financial Advisors. Australasian Accounting Business & Finance Journal, 10(1), p.3.
Virgo, G., 2015. Principles of the Law of Restitution. Oxford University Press, USA.