Analysis of the Royal Commission into Misconduct in the Banking Sector

This report provides an analysis of the Royal Commission into Misconduct in the Banking and Financial Services Industry in Australia. The report examines the executive summary, which highlights unethical practices within the financial sector and the commission's recommendations for reform, including the interconnection of conduct and reward, conflicts of interest, and the asymmetry of information and power. It applies justice theory, focusing on procedural, distributive, and interactional justice, and references the Australian CPA's ethical guidelines. The report details the commission's findings across banking, insurance, financial advice, and superannuation, emphasizing issues like profit maximization over customer satisfaction, misconduct, and the need for ethical standards. The commissioner identified key injustices, including the rewarding of misconduct, the setting of standards that favored entities, and the lack of accountability for financial institutions. Recommendations include changes to mortgage broker remuneration, and the report also discusses ethical breaches by Freedom Insurance, illustrating failures in sales tactics. The report concludes by summarizing the commissioner's efforts to enforce justice in the financial sector and prevent future misconduct.

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Running Head: The Royal Commission Into Misconduct In The Banking And Financial
Services Industry
The Royal Commission Into Misconduct In The Banking And Financial Services Industry
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The Royal Commission Into Misconduct In The Banking And Financial
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Executive summary
As it is well known unethical practice in the financial service sector is the worst that the
country can experience. Australia has experienced the unethical practices in her financial
institutions, and hence the royal commissioner came up with several recommendations and also
guiding principles to guide the sector. The royal commissioner identified several issues in his
report which included; the interconnection of conduct and reward, the effect of conflict resulting
from duty and interest, the holding entities to account and finally the symmetry of information
and power between b customers and entities. Among the standards that the commission
established was; acting fairly, obeying the laws, avoiding misleading others, provision of fit
services and finally delivery of reasonable services. Justice theory is a concept of moral
righteousness, due rewards and fair treatment to all. Under the justice theory, there are three
major types of justice which include; procedural, distributive and interactional justice. This
theory is more applicable to this paper as the royal commissioner is trying to advocate for justice
to all at an equal level (Cooper & de Valores Mobiliários, 2006). More so the Australian CPA
advocates for justice in the financial sector. Several safeguards exist whereby as a member of the
Australian CPA you are protected when in your work if at all you have the following characters;
integrity, professional behaviour, confidentiality, professional skills and due care and finally
objectivity.

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The Royal Commission Into Misconduct In The Banking And Financial
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Introduction
The royal commission released its final report on the financial services entities
misconduct and the normal rules to be introduced. The commissioner has chosen four main areas
to dwell on in the financial sector they are as follows’ banking, insurance, financial advice and
superannuation. The theory of injustice has been selected to explain what the commissioner is
saying in the final report as the theory well explains the issue the customer's experience and the
remedies which are expected to barn those misconducts. In Australia financial market there have
been several misconducts which have never been taken into consideration or taken action
against. As the commissioner explains several misconducts such as profit maximization and
personal gains rather than customer satisfaction, neglecting service provision to customers, and
finally, misusing the market freedom while providing less information to clients by use of
intermediaries (Cooper & de Valores Mobiliários, 2006). The royal commissioner decides to be
dedicated to making sure certain misconducts and injustices never happen again in the country.
Several rules and principles have been set including; respecting and obeying the law, avoiding
misleading customers, be fair in all the operations, provide just services to all without
discrimination, delivering services with care and reasonable skills.
Equality and justice ethics
This theory has its roots from Rousseau who had published contents covering social
contracts which he addressed in terms of equality and inequality. According to him for a person
to surrender his freedom was troublesome. Through his publication, he laid the base for the
introductory of justice ethics. As an ethical theory justice theory tries to explain how individuals

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The Royal Commission Into Misconduct In The Banking And Financial
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can productively and socially live together. During the 20th century, another advocate for social
justice who well and strongly advocated for this theory arose by the name John Rawls. Rawls
was strongly influenced by Rousseau philosophies. He believed that all good results must be for
every person, and not for the majority or a group of individuals. Through his philosophy, this set
the big difference between this theory and utilitarianism. Justice ethics puts fairness for all at the
front while it recognizes the right of others in the second place. Justice theory is a concept of
moral righteousness, due rewards and fair treatment to all (Rawls, 2009). Under the justice
theory, there are three major types of justice which include; procedural, distributive and
interactional justice.
Procedural justice majorly is based on processes which are responsible for producing
results. On the other hand, distributive justice represents outcome evaluation of any business
relationship. Finally, interactional justice is dedicated to communication process evaluation
which is used in relationships based on businesses. Justice theory according to Rawls is based on
ignorance of one position or status in the society; hence fair treatment should be exercised to all
regardless of their social status. This theory has two main principles which are equal rights, and
social and economic inequality should be arranged to be of benefits o those who are less
advantaged and also offices positions should be open to all under the law of equality (Rawls,
2009). According to Rawls each most is treated similar to all other people.
From the final report of the royal commission, it is evident that the commissioner is much
concerned about the equality theory. This is evident from his claims in this report as follows; the
aim of the report was to inquire and to check on any conduct in the financial entities in Australia

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The Royal Commission Into Misconduct In The Banking And Financial
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had amounted to an unfair treatment or misconduct, more so, the report also aimed at looking to
whether the behavior and conducts in those entities fell below what the community expected.
The commissioner identified several conducts which had prolonged for many years in Australia
financial services entities which had resulted in substantial losses to many customers. The
opposite of this is that all the loss injustice received by customers resulted in a high volume of
profit to the entities; hence this indicates the injustice that the entities are involved in. More so,
the commissioner identifies that the misconducts were totally against the rule of law (Harding,
2001).
In this report, the commissioner identifies four issues that surround the financial services
entities in the nation. The royal commissioner first identified the interconnection that exists
between rewards and conducts in the entities. In almost every case that the commission
identified an injustice by the entity was spotted, whereby in more than ninety percent of the cases
researched by the commission, the conduct was found to be driven by the entities pursuit to
profit rather than customer satisfaction. More so, rather than the entities pursuit to gain another
issue was identified whereby some individuals in the institution also had a pursuit of gaining
from every activity rather than practicing justice for all. In this case, the companies should have
operated with justice and focus on maximizing profit as well as maximizing customer
satisfaction. Moreover, the service delivery which is supposed to be the number one priority of
the entity was prioritized as number two (Zubcic & Sims, 2011). From the companies,
perspective sales were identified more important than the employees and customers, and the
confusion of duties also was experienced in the entity.

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The royal commissioner, on the other hand, identified another injustice practice which
was the rewarding misconduct. Commission incentives in most of the analyzed cases were
found to be measuring the sales volume and profit rather than compliance and meeting the right
standards. An injustice identified in this case is that rewards were given regardless of the means
through which the sales were made or through which the profit was generated. Unethical
rewarding was also another issue that the commissioner identified where the rewards were even
given to people who were not qualified to be awarded. Individuals and entities were found to
have misused the freedom given by the law. Injustice was identified by the royal commissioner
whereby the financial entities set standards which they would manage and customer power and
knowledge about the market was not considered (Argyriades, 2006). The entities set standards
which only favour their motive and customers were left with no power in the financial market.
There was confusion which was unfair to the customer as the customers ended up making
uninformed decisions due to lack of proper knowledge of the market. In the Australian financial
market there existed an imbalance between the service renders and the receivers. Another
injustice issue identified was that financial service entities used intermediaries and hence
customers had limited access. Another issue was that financial service entities which went
against the laws were not held to account as required. This is a great injustice as miscionmd8uct
will keep on compiling themselves as the law is not strict and whoever suffers are the client and
not the entity. Lack of compensation to customers is a great injustice and unethical as the
customers will suffer for what they are not supposed to suffer for. The royal commissioner
promises to apply the theory of justice to all whereby sorry would not be enough, but n action
against any misconduct will streamline the financial market in the country (Zubcic & Sims,

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The Royal Commission Into Misconduct In The Banking And Financial
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2011). The commissioner also promises not to allow any misconduct to happen again in this
sector.
All the misconduct of injustice in the financial entities in the country are as a result of
neglecting of duty by those managing the entities and also those responsible for guiding and
overseeing the entities, more so, the board and senior managers. The commissioner indicates that
those few individuals who were associated with misconduct will be reliable for the followed
consequences. All the injustice associated with this financial sector lies on the hands of those
responsible for primary activities of the entities (Thory, 2016). To enforce justice in the
financial sector the royal commissioner identified four main questions which will act as the pillar
for the policies to be made. The questions included; what else extra can be made for effective
and good leadership to be achieved and also to create an appropriate culture in the financial
service firms?
What more can be done to improve entity compliance with the law, and the effectiveness
of the law, to be able to deter misconducts and also ensure punishment of the fault is met?
Whether the conflict of interest management should be removed or controlled? Finally, to what
extent can the law be simplified for the intent to be met, instead of the most commonly used term
compliance and how can this are achieved? The royal commissioner believes that to do away
with injustice in the financial entities the above-listed questions can help to protect the
consumers (Jackling, Cooper, Leung & Dellaportas, 2007). The royal commissioner has also
given several recommendations on the final report regarding mortgage remuneration for brokers
where he indicates that the borrower should be responsible for paying a fee to the mortgage

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The Royal Commission Into Misconduct In The Banking And Financial
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broker. Moreover, the mortgage fee changes should be changed after two to three years.
Furthermore, in cases where the mortgage broker is charged with misconduct, he should be
reported and held responsible.
Through using APES 110 as the guideline, freedom insurance has several unethical
practices which involve their sales tactics and also their response to customers during making
sales call or requesting for emailed details. Among the ethical issues that freedom does not
consider in making their insurance cover sale through calls includes; in making critical decisions
on the change of insurance policies the company did not publish any document to get her
customers informed. Moreover, the company lacked official means of marketing her policies as a
call sale may not be much reporting and also may not provide room for consultation or
understanding the needs of the customer conversing (Davis & Welton, 2011). The freedom
insurance company also was involved in another misconduct which was an informal way of
collecting client’s data including crucial data such as the debit card number of the client. More so
the sales agents who were involved in the marketing and sales phone call by Mr. Stewart, son
was not made responsible for taking advantage of the disabled and vulnerable client,
The salesperson who sold the insurance policy to Mr. Stewart, the son claimed that it was
not even essential to know whether the client was disabled or not, this is unethical business
conduct whereby some assumptions do not work, and such valuable information needs to be
corrected to separate all clients into their respective groups. Freedom insurance has failed in
offering human resource training; this is evident from the kind of response Mr. Stewart receives
from the sloes agent and other employees of the company. Furthermore, the company doesn’t

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The Royal Commission Into Misconduct In The Banking And Financial
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consider people with disability and handle them with more care as compared to others. As the
royal commissioner identified in his final report, most of the financial service entities are focused
on profit-maximizing rather than customer satisfaction. Also, it can be seen that the company
took advantage of Mr. Stewart son disability and collected his debit card number and forced a
purchase which the son was not even aware of.
Freedom insurance also made a breach of the law which guards the financial services
entities in the country through making unprofessional sales and also taking advantage of their
disabled customers for the sake of profit maximization. Moreover, as explained by Mr. Orton the
company also lacked a department of quality assurance which is much unethical as they dealt
with personal finances and hence there was a need of quality assurance which ensures that all the
services rendered are up to the set quality. Furthermore, it was found out that most of the
salesperson who had been unethical by collecting critical information and forcing policy
purchase were not appropriately punished (Davis & Welton, 2011). This is a practice of injustice
as a representative who acts against the set standards should be made accountable for their
causes of action. Freedom insurance was much unethical as they promoted unscrupulous phone
call sales as far as they maximized their profits.
From the case study, it is also clear that Freedom Company had feedback problems as
Mr. Stewart used to inquire for more information about his son deal with the company though it
used to take the time or even he was forced to call the company again. As a service company
freedom insurance should be perfect on their feedback to the customers. From the case, study
freedom insurance is also found to have a poor history of ethics whereby it had more than

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twenty-seven cases of retention and cancellation issues which were below the community
expectations. Finally, the company is also unethical as they are not ready to be responsible for
any harm that they cause to their clients. This is evident from the case of Mr. Stewart’s son.
Through the use of APES 110 there exist several safeguards which keeps a member of
the Australia CPA from any spot of misconduct while solving unethical practice in the financial
sector in the nation; among the safeguards includes; integrity, this means that one must be a
straight forward person who people knows and understands. More so as a profession one must be
honest and trustworthy which will be beyond doubts. Another safeguarding is objectivity, as an
accountant one should avoid being driven by bias or even emotions or even peer influence. All
the judgment that one makes should be evidenced (Accounting Professional and Ethical
Standards Board (APESB), 2013). Another safeguarding in the Australian CPA is professional
skills and care; this means that one should be a person who maintains his professional skills and
knowledge at a higher level.
Also the profession should act according to the policies and standards of the accounting
profession. The forth safeguarding is confidentiality; this means that one should have higher self-
esteem and also should have the courage to deal with all issues that he encounters in his
profession. Privacy means being bold and standing for your opinion or the truth (Accounting
Professional and Ethical Standards Board (APESB), 2013).The final safeguard is the
professional behavior, having a professional qualification is not the only consideration, but
having and behaving by the professional requirement keeps one at a better state. This means
having respect to all, respecting the laws, and finally being a person with a curtsey.

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Conclusion
In conclusion, it is evident that justice theory is a more significant theory in regulating the
finance sector of a nation. It is a very critical theory which advocates for equality of all people
regardless of their social class. From the commission’s final report it is evident that players in the
financial service sector in Australia have been more self-centered than customer-centered and
hence there was a need for more guiding principles to be set. The royal commissioner promised
to ensure that all the offenders are held accountable and that such offences won’t occur again.
Unethical behaviors by various companies in the financial sector can be represented by the case
of the freedom insurance company in Australia which had so many unethical practices against
her customers. Several safeguards exist whereby as a member of the Australian CPA you are
protected when in your work if at all you have the following characters; integrity, professional
behavior, confidentiality, professional skills and due care and finally objectivity.

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References
Accounting Professional and Ethical Standards Board (APESB). (2013). APES 110 Code of
Ethics for Professional Accountants.
Argyriades, D. (2006). Good governance, professionalism, ethics and responsibility.
International Review of Administrative Sciences, 72(2), 155-170.
Cooper, J., & de Valores Mobiliários, C. (2006). The integration of financial regulatory
authorities–the Australian experience. Speech to Comissão de Valores Mobiliários, 4-5.
Davis, J. R., & Welton, R. E. (2011). Professional ethics: Business students' perceptions. Journal
of Business Ethics, 10(6), 451-463.
Harding, D. (2001). Australia gets closer to financial services reform. Int'l Fin. L. Rev., 20, 57.
Jackling, B., Cooper, B. J., Leung, P., & Dellaportas, S. (2007). Professional accounting bodies'
perceptions of ethical issues, causes of ethical failure and ethics education. Managerial
auditing journal, 22(9), 928-944.
Rawls, J. (2009). A theory of justice. Harvard university press.
Thory, K. (2016). Developing meaningfulness at work through emotional intelligence training.
International Journal of Training and Development, 20(1), 58-77.
Zubcic, J., & Sims, R. (2011). Examining the link between enforcement activity and corporate
compliance by Australian companies and the implications for regulators. International
Journal of Law and Management, 53(4), 299-308.