MAA250 - Ethics and Financial Services: Royal Commission Report

This report examines the findings of the Royal Commission of Australia regarding misconduct within the financial sector. It analyzes three case studies—fees for no service at ANZ, inappropriate advice at CBA, and improper conduct by AMP advisers—to illustrate the culture of greed prevalent in these institutions. The report discusses how agency theory and misaligned incentives contribute to unethical practices. It further explores the failure of these institutions to comply with corporate governance principles established by the ASX, particularly regarding ethical and responsible conduct. Finally, the report compares Australian and US banking services, highlighting the stricter regulations and enforcement mechanisms in the US. The document concludes by emphasizing the need for Australian financial institutions to prioritize customer benefits alongside profit-making.

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CORPORATE GOVERNANCE

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Executive Summary:
The foremost aspire of this report is to elaborate the examination conducted by the Royal
Commission of Australia against the deceitful and delinquency of the financial sector of
Australia. There are three sections in this report which made discussion on various aspects on
Interim Report (Volume 1 & Volume 2) that is available by Royal Commission of Australia.

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Case studies
A royal commission is the main extemporized formal public inquiry into an elaborated concern
in some kingdoms. This commission has been held in Australia, UK, Canada and New Zealand.
The report has been published by RC that depicts the information of accusing the industry of
giving attention to more profits over the interest of people. It is the report that will demonstrate
the culture of greed taken by many financial institutions and banks of Australia. The interim
report has a number of issues explained regarding the misconduct with people that depicts the
poor behavior of the financial sector.
Corporate misbehavior and customer utilization issues have been heard through this report since
February 2018. To response such issues, Commissioner Kenneth Hayne raised the questions
regarding the misconduct that had happened in the banks and financial institutions. Moreover,
immoral and unethical decisions are criticized by the commissioner. The reason behind the
misconduct might be greed because financial institutions and the banks of Australian have taken
the advantages of the customer to earn a short-term profit. There was one more reason is there,
when misdemeanors were exposed, no actions have been taken in against of the misconduct
(Times, 2018).
There are three cases mentioned below by taking consideration of the interim report volume 2,
along with that process by which the below-mentioned case studies elaborate on the culture of
greed in the financial institutions and banks-
Fees for no service-
Australia and New Zealand Banking Group Limited are found under this misconduct and the
case of fees for no services is being done by the bank in the period of 2006 to 2013. It is the
period in which more than 1000 prime customers of ANZ paid fees for issued documented
annual review by the bank which is never entertained by the customers. It has been
acknowledged by ANZ from 2003 to 2015 that specific businesses liked with ANZ subtracted
fees for current services from the account of their customers which would be 2,900 members of
managed investment schemes and superannuation funds (Westbrook and Packham, 2018). This
charge has been imposed by the bank on a number of customers and in actuality they did not get

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any kind of advise from them. There were a big amount of $931,647 which has deducted from
their account. There are a number of a logical breakdown in the ANZ which included in this
conduct-
 ANZ unable to recognize the list of customers who had already canceled their ongoing
services.
 ANZ fails to identify the monitoring services within the bank in the relation to finding
financial obligations.
 ANZ fails to find out the list of those customers who were not involved in the
documented annual reviews for that they charged big amount.
The major cause behind this misconduct is the organizational culture, as there is lack of attention
by the management of ANZ to focus on such misconducts that have been taken place within the
bank for a long period. There is another reason behind this misconduct that the reliance of banks
on automatic periodic payments likes adviser service fees and sales commissions. There were
lack of adequate records of licensees and advisers in the context of monitoring and analyzing the
report. There were some licensees that unable to examine the procedures to protect system
failures.
Inappropriate Advice- in the context of in an inappropriate advice, it has been revealed by an
interim report that CBA had made 20 breaches to ASIC in the relation of breaches of the
corporation act by CFPL. CBA had inadequate services through which there was number of
customers who suffered. There were around 13 advisers who involved in the misconduct. ASIC
banning orders have been the reason of issue in CBA by which 15 former CBA employees are
accused (RC, 2018).
With respect to this misconduct, CBA paid around $96 million to customers who suffered from
this misconduct through ineffective advice by the financial advisers. Along with that, there were
various reasons behind this misconduct and one of them is the provision of poor financial advice
to the customers.
Improper conduct by advisers- it has been analyzed through a case study that AMP recognized
around 81 advisers concerned in the major compliance issues, which refers, these advisers were

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included in the misconduct that portrayed illegal, dishonest and fraudulent or gross negligence.
Moreover, many financial advisers of AMP were included that accused of breaching the rules of
standards of internal business.
Agency theory put focuses on the concept that depicts the involvement of the portfolio managers
and financial planners in the form of the agent who made an investment on behalf of their clients.
Although, there were a plenty of issues taken place within the organization due to the different
interest of agents and clients in the context of the different motivations. It can be said that there
could be different aims and objectives of different parties that be the reason of conflicts.
It has been found from above case studies of CBA, AMP, and ANZ that there were huge issues
taken in place in the organization due to the culture of greed and lack of motivation for the
financial advisers and employees in the remuneration framework. In the case of ANZ, there was
lack of measurement of rewards and recognition services that lead the business into the adverse
situation. In the case of AMP, the evidence has been given by Mr. Palmer that there was no
remediation received by the customers of AMP. In the case of CBA, it has been found through
Ms. Perkovic’s that CBA was involved directly in the misconduct of failures of recognition
about what is going on within the organization.
Due to showing self-interest by the agents to get temporary profit, it becomes the reason for
diverting the mind of customers to other incentives. The clients who attain the sales quota are
being the main focused client of the organizations which increase the unethical practices within
the business in the relation to the sales target. There are a plenty of financial institutions and
banks that develop incentives for attaining the financial advantages. It becomes the cause of
encourages the employees to deal in the interest of earning profits. It is required by the financial
institutions and banks to amend their policies by taking consideration of the interest of the
customers as well.
There are standard-principle agency models which can be applied by the banks to resolve the
issues and preventing this kind of unethical practices, as it facilitates the companies in
developing the win-win condition between the clients and the employees.

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Corporate Governance Principles:
There were a number of revelations regarding misconduct has been made in the interim report
which is made by the royal commission, and the revelations are being the major concern of
downfall of the market share of well-known originations around the country. The principles of
corporate governance are identified by this report in relation to non-compliance of ethical
standards (The Guardian, 2018). There were various cases reported in which specific process of
doing the business by well-known financial organizations such as CBA, ANZ, AMP, Westpac
and many more that being the reason of misconduct with customers. They have adopted a wrong
way to do business or to earn profits from the customers. Although, these techniques are not
optioned by the business even getting knowledge regarding the losses due to any amendments in
these ways reason competitive disadvantages for the company (The Conversation, 2016).
All listed banks in ASX have done misconduct with customers and involved in the broad level of
fraud, bribery, misbehave etc. along with that they have charged fees on that person who are not
alive which demonstrates the massive fraud of these banks. All these cases show that the banks
and financial institutions are failed to comply with corporate governance principles that are
developed by ASX.
It is apparently stated in the third principle that all listed businesses need to act ethically and
responsibly at the time of conducting business practices. It does not mean only to act ethically
and responsibly within the organization and made an act which is related to the dishonesty and
misconduct which hurt customers from the services they are getting from the organizations
(ASX, 2010).
There were many actions taken by the bank that show the culture where financial advantages are
considered to earn an only profit at the cost of unethical practices. It has been analyzed through a
case study that there were no actions are taken in the context of giving preference to the
customers that portray the self-interest of financial institutions and banks over the people
(Teebom, 2018).
It can be seen clearly that there is a massive need of giving attention to the standards in order to
give preference people over the profits.

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Comparison between Australian banking services and US banking services
In the reference of regulatory compliance, Australia’s businesses are taken regulatory
compliance on the basis of doing the business rather they should take consider that on the basis
of the entire business based on. It can be said that the role of the regulatory compliance is not
taken into consideration for conducting the transaction of the business through the financial
sector.
The involvement of regulators can be seen in this conduct of financial institutions and banks.
There is a lack of discipline in the financial organizations of Australia and it is because of the
existing regulatory framework. The resources of such organizations are being pressurized due to
the regulatory complexity that permits the organization to improve the culture within the
organization that permits the compliances to breach not in a direct way. The complexities in the
regulatory influence the conducts of the financial institutions and banks because of the
interpretation by them in the legal requirements (RC, 2018).
There were many issues occurred in the workplace of the Australia that could be handled by the
regulators in an efficient manner. There is an illustration of the failure of ASIC to develop the
needed results on the financial institutions and banks conduct. There was major involvement of
four banks i.e. Common Wealth bank, ANZ, Westpac and NAB (RC, 2018). It demonstrates that
the major target of these banks is to earn a profit and they did the same by breaching the
corporate governance principles that cause the damage of customers. There were no proves show
in the favor of ASIC at the time of negotiating the outcomes with the blamed businesses.
In such scenario, the regulators could play the role in an efficient manner in order to reduce the
impact of them over the people. However, there are laws for preventing these kinds of activities
and there is no need to make an amendment in the existing laws. There is only need to make
more strict rules to follow such guidelines which have been made in the favor of citizens of
Australia (Soos, 2018).
It has been stated by Mr. Frydenbergy that there is a requirement to lift the standards for the
financial sector in relation to handling with the customers. According to him, financial

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institutions and banks are required to keep focus on the benefits of the customer as well along
with the self-interest.
Furthermore, the conducts of banks are entirely different from the USA as there are strict
regulations framed in which punishments are imposed for them who are involved in such a
scenario. Forceful actions are taken into consideration in the US if any organization found
misconduct norms. The role of the regulators is keeping different role from Australia as there are
strict regulations for them who breach rules in the USA.
The stability has been ensured by the USA as any unstable activities can have an adverse impact
over the customers and another kind of national and international sectors. The USA has different
policies and structures to handle the operation o each bank and there is a proper framework of
handling the records which help banks to look after the statements and financial activities.
Hence, it can be stated that the rules and regulations of the banking system are entirely different
from Australia to USA (Deloitte, 2014).

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References
ASX, 2010. ASX Corporate Governance Council. Available at:
https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-
edn.pdf. Accessed on 27th November 2018.
Deloitte, 2014. Enforcement actions in the banking industry. Available at:
https://www2.deloitte.com/content/dam/insights/us/articles/bank-enforcement-actions-trends-in-
banking-industry/DUP1372_EnforcementActionsBanking_120815.pdf. Accessed on 27th
November 2018.
RC, 2018. Interim Report (volume 1). Available at:
https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-
volume-1.pdf. Accessed on 12th December 2018.
RC, 2018. Interim Report (volume 2). Available at:
https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-
volume-2.pdf. Accessed on 12th December 2018.
Soos, P. 2018. Banking inquiry has already exposed shocking corruption – but it needs more
time. Available at: https://www.theguardian.com/australia-news/commentisfree/2018/mar/22/
banking-inquiry-has-already-exposed-shocking-corruption-but-it-needs-more-time. Accessed on
12th December 2018.
Teebom, L. 2018. The Agency Theory in Financial Management. Available at:
https://smallbusiness.chron.com/agency-theory-financial-management-81899.html. Accessed on
12th December 2018.
The Conversation, 2016. A history of failed reform: why Australia needs a banking
royal commission. Available at: https://theconversation.com/a-history-of-failed-reform-why-
australia-needs-a-banking-royal-commission-64803 Accessed on 12th December 2018.
The Guardian, 2018. Banking royal commission condemns greed of financial sector in first
report. Available at: https://www.theguardian.com/australia-news/2018/sep/28/banking-royal-

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commission-condemns-greed-of-financial-sector-in-first-report Accessed on 12th December
2018.
The guardian, 2018. Banking royal commission: all you need to know – so far. Available at:
https://www.theguardian.com/australia-news/2018/apr/20/banking-royal-commission-all-you-
need-to-know-so-far Accessed on 12th December 2018.
Times, C. 2018. Banking Royal Commission is on track to expose a culture of greed. Available
at: https://www.smh.com.au/national/act/banking-royal-commission-is-on-track-to-expose-a-
culture-of-greed-20180313-h0xfc6.html. Accessed on 12th December 2018.
Westbrook, T. and Packham, C. 2018. UPDATE 2-Australia's banks put profit over people -
inquiry report. Available at: https://www.cnbc.com/2018/09/28/reuters-america-update-2-
australias-banks-put-profit-over-people--inquiry-report.html. Accessed on 12th December 2018.