Ethics and Governance in Finance: Royal Commission Report Analysis

This report analyzes the importance of ethics and governance within the finance industry, drawing on the Hayne Royal Commission's final report. It examines unethical operations and applies ethical theories like Utilitarianism and standards from APES 110 to address these issues. The report focuses on the Royal Commission's findings, particularly in banking and insurance, and includes a case study on Freedom Insurance. The analysis covers the application of ethical principles, the identification of ethical issues, and the evaluation of remuneration and sales practices. The report emphasizes the role of ethics and governance in maintaining moral values, ensuring good behavior, and promoting lawful corporate behavior within the financial sector. It also discusses the relevance of Utilitarianism in policy development and conflict resolution, highlighting its importance in financial decision-making. The report highlights the ethical issues associated with Freedom Insurance, including inappropriate sales practices and the failure to adequately train staff. It emphasizes the importance of integrity, objectivity, professional skill, confidentiality, and professional behavior as core principles for accountants and financial professionals.

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Ethics and Governance
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4/10/2019
The report was prepared so that the importance of the ethics and the governance in the organization
can be explained. Ethics and governance plays the essential role in the industry of the finance, banks
and insurance as it helps them in maintain the enthusiasm in the working organization. In this report
the major issue or the problem was the unethical operations done by the organization so to solve
those issues ethical theories and principles are applied so that the ethical working can be done. The
Code of Ethics of APES 110 was studied which focuses on the five principles of integrity,
confidentiality, objectivity, professional behavior and professional skill and due care to maintain the
ethical profession. Ethics and governance are essential as it strengthen the moral and ethical values
and ensures the good behavior in the organization. The good governance maintains the ethical and
legal standing and also maintains the integrity in the organization. By using the APES 110 the
safeguards to prevent the threats were analyzed. The theory of the Utilitarianism ethics is linked with
the Royal Commission to promote the development policies and resolving the conflicts of interest.

Ethics and Governance 1
Contents
Introduction.................................................................................................................................................2
Questions.....................................................................................................................................................3
Your use of a theory of ethics..................................................................................................................3
Your evaluation of the ethical issues associated with Freedom Insurance...............................................5
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9

Ethics and Governance 2
Introduction
The report is prepared so that the ethics and governance in the organization can analyze.
In this report, the Hayne Royal Commission has recently published its final report in the
banking, superannuation and the financial services industry. In any business to do the unethical
things is not a new phenomenon but by using the business ethics the company can improve its
working. In the industry sector of the banking and insurance the major problems are found in
using the practices of the mortgage broker which will be explained in this report. The report also
put the major focus on the use of the theory of ethics and the APES 110 to evaluate the ethical
issues.
The major issue, which was driven out, was not only about the entity’s pursuit of the
profit but also about the individual pursuit of the gain. The conduct of the individual is examined
to analyze the relevant acts done by them so that the reward can be conducted. Ethics and
governance are very essential in any organization as it helps in ensuring the lawful and effective
corporate behavior and proper operations are conducted or not. The ethics and governance
clearly state the lawful activities which are very helpful for the professional accountant for taking
effective decisions. In any industry, the ethics are very important as it integrates the values and
also the vital component of corporate governance.

Ethics and Governance 3
Questions
Your use of a theory of ethics
Ethics are the principles, which govern the behavior of the person and conduct the
activity in an honest manner. Ethics deals with many moral principles which are essential on the
business for the smooth running of the business. In business, ethics are very important to
maintain the proper business environment (Van and Tarr, 2014). Good business ethics reflects
many things such as honesty, loyalty, fairness, integrity, etc. Ethical misconduct is the biggest
issue as people disrupt with the operational activities and also threaten the operations and the
activity of the business. When something is not right in the business or any industry than the
theory of ethics are applicable so that proper operations of the activities can be done.
The theories of Utilitarianism are suitable for the response of the Royal Commissioners.
Utilitarianism states that when something produces the greater many of the goods than it is moral
or good for a large number of people (Menzel, 2016). In this theory, those actions are taken
which are making people happy. In this theory, there is the absence of pain and the existence of
pleasure.
This theory is very helpful in analyzing the actions of the individual whether they are
doing the right action or not. This theory approaches the actions in terms of the outcomes and the
consequences. This theory is very important in the industry of banking and the insurance as it
promotes the development of the policies for the well-being and the general benefit (Van and
Tarr, 2014). It is also helpful in resolving the conflicts of interest which is the major issues find
in the business. It also promotes effective decision making and gives better results.
A royal commission is the one who investigates the policies and the crime and
corruption, which is taking place in the business (Van Akkeren and Tarr, 2014). There are many
unethical things have been noticed such as the drug syndicates the financial institutions are
involved in the money laundering process, there was the lack of regulatory interventions by the
appropriate government authorities, they were ignoring the statutory reporting requirements.
As the industry of the finance is emerging so the Australian begins to the deregulate its
financial market and also done the successive changes to the tax treatment of superannuation. In

Ethics and Governance 4
the capital market, there are getting higher exposure which is seeking the financial market. There
were many financial institutions and the insurance companies which are giving the financial
advice but they cannot give the advice regarding the commission based cultural prevailed, sales
were driven and the comprehensive advice (Hollander and Patapan, 2017). The CLERP was
introduced but it did not take into the account as much as usually made with the consumption
payment instead of the investment in the mind.
The Utilitarianism theory is required in the company as prevailing market conditions of
the globalization and the deregulation is displacing the banks from the financial service advisor
and core functions to the disaggregate and specialize. This theory is needed as there were many
scandals are seen in the industry of the banks and insurance regarding the storm financial so this
theory helps in assisting in resolving the conflicts of interest and also promotes the development
of the policies which are created in the favor of the people.
This ethics is work for the happiness of the people while the mortgage broker’s act in the
connection of the home lending instead they must act as the best interest of the intending
borrowers. The major issues arise between the conflicts of duty and interest. The mortgage
brokers owe borrowers the best interest’s duty (Trung, 2016). The theory of the Utilitarianism
assists in resolving the conflict of the interest. If any relevant decisions have to be taken
regarding the financial devices or about the developments of the plans and making the general
policies than this theory is very effective as it helps in promoting the focused decision making.
This theory states that only those actions are taken into the banking and insurance sector,
which maximizes the pleasure of the majority of people. In some policies or actions are made
which are not as effective for the people of Australia as these policies are not taken into
consideration.
As per the theory of the Utilitarianism, there should be the proper financial modeling in
the business so that an accountant can easily decide what things are serving best to the company
and what things are not. By using the cost-benefit analysis the company can perform best and
provide the outcomes which are good for the people. This theory has also justified as the means
and is not much concerned about the results (Russell, 2013). This theory is very helpful in taking
the appropriate decisions as it promotes the results and focused on the right things that are

Ethics and Governance 5
beneficial to the people. This theory also works with the theory of the egoism which states that
what is good for me is good for you.
Your evaluation of the ethical issues associated with Freedom Insurance.
As per the case study of the Freedom Insurance, the remuneration and incentives
practices are highly inappropriate and aggressive sales practices. The major reason behind these
inappropriate activities is that there was a lack of assurance and disciplinary processes in quality
matters. The causes behind the Freedom’s failure are that they do not provide the training to its
staff about the dealing of the vulnerable consumers. Without the needs of the consumers, the
sales agents were encouraging the sell aggressively and contributed to the culture.
As per the case study, Mr. Stewart’s son has taken out the three plans, which cover the
accidental death, funeral, and accidental injury. He said that the premium of funeral would not be
due for the 12 months but for the accidental injury and death, the premium can be cover due after
12 days. The company has acknowledged that they are engaged in the misconduct which is
putting the standards and the expectation of the community down, provided to the commission in
August.
The Freedom has also filed the breach report on the 7 September 2018, in relation to the
treatments of tits vulnerable consumers. They have breached many sections of the Corporate Act
told by the ASIC when they are taking together the the conduct of the sales and sales agents. As
per the act the Freedom has to ensure about the all the financial services are covered in the
Australian financial services license so that the financial services can comply with the laws and
provide the honest, fair and efficient services (George, et. al., 2014). They should also ensure
that whether the representatives are properly trained or not and providing effective financial
services or not.
As per the code of ethics of APES 110, it gives the standards of ethics to the profession.
APES 110 was formed in 2006 by the APESB (Accounting Professional and Ethical Standards
Board) which was the major accounting association in Australia. It is the ethical standards which
are adopted by the members of the professional body (APESB, 2013).

Ethics and Governance 6
There are many ethical issues with the Freedom so the APES 110 should apply to
Freedom Insurance Group so that the five basic principles of the professional accountant can
maintained.
Integrity: While doing the dealing in the insurance the sales agents should be honest and
straightforward and should not hide anything from the consumers. He should explain all the
policies and the programs clearly and also clarify the due and maturity period of the insurance
claim (Coleman, 2016). For the professional accountant, integrity is the bedrock of every
successful as the consumers rely on them. While doing any dealing with the consumers the sales
agents should be true and fair and make the business relationship honestly.
Objectivity: Another essential principle, which the accountant should have, is that
objectivity as it is the virtue of the professional accountant. Any professional person such as the
accountant should not take any decisions or the judgments in the undue influence, biases,
emotions or the threat (Fennell, 2015). The sales agents should not make any deal with the
conflict of the interest.
Professional skill and due care: Freedom should give training to their skilled employees
so that they can ensure the clients that they have received competent Professional Services. This
principle maintains the skill and knowledge and acts as diligently when providing the services
with the professional standards and the applicable technical (APESB, 2013).
Confidentiality: The documents provided to the professional person should kept
confidential; it should not be made publically available. Any documents provided to the sales
agents should be kept confidential and they should respect the privacy of the consumer while
dealing with the things. It maintains the member client relationship which was the lack in the
freedom insurance company.
Professional behavior: It is not necessary to have the appropriate knowledge about the
profession you have but you should also act like it so that while dealing with the consumers or
clients, the respect can maintained. The behavior of the clients while taking to the consumers
should be humble and does not do the things that bring into the disrepute (Black, 2014).

Ethics and Governance 7
Based on the financial outcomes, the financial rewards are avoided for the accountant or
the organization. The safeguards are applied so that the threats can be eliminated and reduced
where it is necessary to an acceptable level. APES 110 is the regulatory level which safeguards
the professional level as it has a strong sense of what is ethical. The safeguards which are
available while using the APES 110 are:
The self-interest threatens - The judgment or the behavior by the member that tempts
the member by influencing his or her own self-interest instead of the public interest (Whiteside,
2014). By using the reevaluation of the asset the true and fair valuation of the asset can be done
which also motivates to boost up the profit and help in avoiding the financial rewards based on
the financial outcomes.
The self-review threat: The person cannot evaluate his own performance, which is the
biggest threat. By undermining the principle of objectivity, own work can be reviewed. The sales
agent has to review the work of the consumers, which is the threat for the organization (Mitchell,
2018).
Advocacy threat: The member also has the threat of becoming the salesperson for the
client of his or her own professional judgment and objectivity. The sales agents or the clients
should not disclose any details to the third parties and try to become the advocate.
The intimidation threat: It is the direct threat to the member’s objectivity, as it feels
pressurized to act other than the public interest (Richardson and Avoidance, 2012).The threat
that whatever is involved is illegal in the auditing so, it is auditor’s job to act as honest to the
report while making the financial statements of the organization.

Ethics and Governance 8
Conclusion
From the above report, we had concluded that ethics and governance are very important
for the organization as it maintains the rules, regulation, and policies, which helps in running the
function of the organization smoothly. In this report, the ethics and the theory of the ethics are
explained which are explaining the Royal Commissioner's response. In this report, the
Utilitarianism theory was explained which promotes the development of the policies for the
wellbeing and the general benefit. This theory is also very helpful as it assists in resolving the
conflicts of interest and promotes effective decision making. The report also puts the major focus
on the APES 110 code of ethics which are based on the five ethical principles which were also
explained in this report.
Ethics deals with many moral principles, which are essential on the business for the
smooth running of the business. In business, ethics are very important to maintain the proper
business environment in the industry of banking, finance, and insurance. APES 110 give the
standards of ethics to the profession which has explained in this report. Being a member of the
CPA Australia, the attention has been out that all the accounts and the financial statements of the
company should be proper and it produces the true and fair report. The case study has been
studied of the Freedom insurance and the ethical issues of the inappropriate sales tactics have
been resolved by using the principles of integrity, confidentiality, objectivity, professional
behavior, and professional skill and due care.

Ethics and Governance 9
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Black, J. (2014). The development of risk based regulation in financial services: Canada, the UK
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