University Report: Royal Commission and Ethical Breaches in Finance

This report examines the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Hayne Royal Commission) in Australia. It focuses on the commission's role in investigating and identifying misconduct within the financial sector, particularly highlighting failures in governance, organizational practices, and remuneration systems. The report includes a detailed case study of Freedom Insurance Group Limited, which was investigated for unethical sales practices, including selling insurance products to vulnerable customers, such as a boy with Down syndrome. The analysis evaluates the company's breaches of ethical codes, emphasizing the principle of integrity and the violations committed by the sales agents. The report also discusses the commission's recommendations for improving governance, accountability, and ethical conduct within the financial services industry, drawing upon the final report's principles and recommendations for the banking, superannuation, and insurance sectors. The report highlights the need for companies to adhere to ethical standards and improve customer handling practices to prevent future misconduct.

Running head: ROYAL COMMISSION
Royal Commission
Name of the Student
Name of the University
Author Note

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Executive Summary
This report highlights the functioning of the Royal Commission in Australia. The Royal
Commission has set a code of ethical protocols to be followed by the financial sectors,
banking and superannuation industry. One of the investigations done by the Royal
Commission of an insurance company is discussed. The company breached the professional
code of ethics to sell its customers several insurance policies. Thus the discussion will aid in
better understanding of the watchdog body and its function to maintain ethics in
organizations.

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Table of Contents
Introduction................................................................................................................................3
Freedom Insurance Group Limited............................................................................................4
Case Study Evaluation...............................................................................................................5
Theory of ethics..........................................................................................................................7
Conclusion..................................................................................................................................9
References................................................................................................................................11

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Introduction
The Royal Commission into Misconduct in the banking, Superannuation and financial
services industry which is known as Hayne Royal Commission and the Banking Royal
Commission is a commission established by the government of Australia to probe enquiry
and identify misconduct in the financial and banking superannuation service industry. Justice
K.M Hayne was the commissioner for the tenure. The final report released by the Royal
Commission highlighted the major failures in governance of arrangements, organizational
customs and in the remuneration system. The commission examined misconducts in these
sectors. Justice Hayne believed that investigation conducted in any of the sector will reinforce
improvement of the other arenas and gradually minimize the risks of future misconducts.
Hayne insists upon the importance of role play in supervising the culture, remuneration and
governance of an organization to bring about change and reduction in intrinsic misconducts
(Telfer, 2017). Non financial risks are also considered under supervision of entities. The final
report throws light on various other entities like to initiate the proper information flow and
challenge management to help the board in easy discharge of duties. The Royal commission
will need the board to consider methods improve governance using appropriate metrics to
identify lag indicators, the right stakeholder s to engage with and other external independent
support if required (royalcommission, 2019). The report presented by the commission lays
down distinctive principals, which the board must clearly abide by. The principals include:
proper management of challenges, the right to satisfy and receive information which will help
them in deciding in a complex situation. Measurement of the corporate arena and monitor
governance to provide oversight of different kind of risks including both financial as well as
non-financial risks is also mentioned (Bulmer, 2015). Hayne’s recommendations in the final
report are well supported by the AICD which includes the periodic assessment of governance
and culture (Coleman, 2016). The report contains no such recommendation that will lead to

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the disruption of the corporate model of Australia. The report holds suggestions about the
significance of segregation of the management and board. The prominent superannuation
recommendations are: covenants breach will result in civil penalties, role adjustment of ASIC
and APRA and accountability regime (Apseb, 2019). Hayne’s recommendation for the
banking sector includes: to help track individuals responsible for breaching lending laws by
expanding the Banking Executive Accountability Regime. Next recommendation was to ban
lenders from payment of trailing commissions for 2-3 years. Mortgage brokers will be
subjected to similar kind of law as for that of financial advisors. For the insurance sector, the
recommendation of the commissioner is one- removal of claims for handling exemption Two,
removal of funeral insurance sale and thirdly the prohibition of hunting of insurance products.
He also recommended imposition of cap on amount which car dealers need to be paid for
selling of additional insurance commodity (Gayathri & Mahesh, 2019). The compensation
scheme dictates to establish a scheme for individuals who are unable to acquire the
compensation. Each case was addressed individually and distinctively by the commissioner
and instances of possible misconducts were noted and reported to APRA and or to the ASIC
as relevant to decide if further actions are needed to be taken.
Freedom Insurance Group Limited
Freedom insurance is an insurance company that provides administrative services to
customers. The ideology of the company is to provide high quality of service and looking
after their customers (Freedom, 2019). The different insurance plans of the company provide
several insurance policies to its loyal customers trying to secure their life. The company
ensures its customers to guide them every step of the way to help them select the right
insurance and claiming process for their wellbeing. The company initially sold and
distributed its insurance commodities on call to its customers (Freedom, 2019).

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Recently the company has faced severe criticism from the Banking Royal
Commission for the company’s pressurized sale protocols which has disrupted the business
model. The investigation leads to the discovery of the fact that the insurance organization
sold insurance products to customers who were not interested or did not require an insurance
plan. The company was aggressively selling insurance products over phones. The sales agents
were lured with lucrative incentives to perform well in the company. The company was
conducting and encouraging unscrupulous sale strategy to increase its revenue. One of such
strategy was used to sell an accidental death cover insurance policy to boy with Down
Syndrome. The company started losing out customers as well as employees and the share
price drastically plunged.
Case Study Evaluation
The Royal Commission looked into the case of Freedom Insurance Group Limited
and Mr. Bruce Stewart’s son. Mr. Stewart’s son is a Down syndrome patient. His son faces
complexity in understanding the quality and value of a product though he is financially
enabled to purchase commodities. Though his son has the right to be independent, yet his
mental health bars him from making rational decision about his finances. For this he is
assisted by Mr. and Mrs. Stewart. In the year 2016, Mr. Stewart’s son was sold an insurance
policy by Freedom Insurance (royalcommission, 2019) At that point in time his only source
of financial support was Disability Support Pension. It was later learnt by Mr. Stewart about
his son buying insurance from Freedom insurance after he received one letter from the
insurance company. His son bought the Freedom Protection Plan. The letter covered the
detail of the insurance policy bought by Mr. Stewart’s son. The insurance product bought
included three insurance cover – accidental death, funeral and accidental injury. The premium
details of the policy were mentioned. In the letter it was mentioned that premium for

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accidental injury and death cover will be due from twelve days later. However the funeral
cover will not have dues for twelve months. The mentions in the letter perplexed Mr. Stewart
as he could not gather the idea and understanding of how and why is his son signed up for the
plan. When his son was questioned about his purchase, he mentioned that he spoke to
someone over the phone and remembers to provide the person details of his debit card. Mr.
Stewart then contacted Freedom Insurance to get the policy plan cancelled. The company
instead of initiating the process of cancelling the plan, they suggested him that they will look
into the matter and analyze the recorded phone call between the company and Mr. Stewart’s
son. Later Mr. Stewart was told that the representative who sold his son the insurance plan
had no prior knowledge about his mental disability. The company did not revert back to the
mail sent by Mr. Stewart. At the next call the Stewart family was connected to the policy
retention wing of the company which persuades customers from not cancelling plans
purchased from them. The retention officer desperately tried to explain and emphasis on the
benefits of the plan to Mr. Stewart. He also mentioned that that company had no means to
acquire knowledge about Mr. Stewart’s son disability. The persuasion did not work and
finally the company agreed to cancel the plan bought. When Mr. Stewart’s son was asked to
give a formal statement stating his wish to get the policy terminated, he could not state the
facts lucidly. Mr. Stewart asked for the sales call recordings and the company did not provide
them to him until in August of 2018 (royalcommission, 2019). When the calls were played as
a part of evidence, the second call was a long eighteen minute call where the sales agent sold
the boy the insurance plan. Mr. Stewart pointed out the fact that his son had no
comprehension about the product he was sold. The fact was also agreed upon by Mr. Orton,
Chief of Operations of Freedom Insurance Group of Company. It was accepted by the
operations head that the sales agent engaged himself in troubling conduct. Freedom Insurance

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Company agreed and accepted its misdemeanor of selling insurance products to vulnerable
customers.
Freedom Insurance Company inducted special training for handling vulnerable
customers. Freedom filed a report and mentioned to ASIC that their sales agents may have
breached certain sections of the law regarding financial services. Freedom Insurance later
showed plans of inducting new changes in their business model. The company apprised the
Commission its intention to cease the sale of all its insurance products excluding loan
protection coverage and funeral insurance over calls. Though there was no valid recorded
evidence for the same and hence the decision was not documented legally. On investigating
the Royal Commissioner has identified misconduct in client handling by the company.
Freedom implemented that this particular incident was an isolated incident and should not be
associated with the overall conduct of the company. Freedom accepted its breach to certain
article of Corporations Act. The policy cancelling method of Freedom is complicated and not
transparent. Freedom failed to identify the community expectations in respect to retention
instances. Freedom lacks disciplinary procedures to address any complex controversial
conduct by the agents. Freedom has drastically suffered from insufficient customer handling
qualities as it can be clearly understood from the case study.
Theory of ethics
Theory of ethics has certain principal dealing regarding morality and being just and
unjust in terms of rights, fairness, obligations and benefit to the society to name a few (Hunt,
2016). The good way to lead a life in encompassed in ethics. It describes the basic human
responsibilities and the language and action of good and bad (Heti, 2019). There are multiple
theories on ethics put forward by renowned philosophers. Business ethics highlights the

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ethics that are used by organizations to perform in the contemporary world (Peels, 2016). The
ethics to be considered for the case of Freedom Insurance Group of Company is integrity
(Crane & Matten 2016).
Integrity is an elementary merit to measure an organization’s ethical values comes
under virtue ethics. This principal of ethics involves exhibiting honestly and fairness in
professional relations (MacCormack 2016). Professional integrity obliges an employee to
conduct his or her work with morality and the person should abide by the professional code
of conduct. Upholding integrity is choosing the right path which is by free of hypocrisy.
Integrity connects moral action and ethics (Issac, 2017).
Integrity obliges every member to be honest in business relationship. Members are not
supposed to be associated with communications, reports or any kind of information which
contains recklessly furnished information or any misleading statement (Jentzsch et al., 2016).
The principal states to disassociate the member who is knowingly connected to such cases.
In the case of Freedom Insurance Company, the sales agent who made the call to Mr.
Stewart’s son and sold the insurance product to him violated the integrity of the company.
The first call made to the buy in the absence of his mother was not of any business use. The
second call which lasted for eighteen minutes had the sales agent seek for bank details from
the boy to sell him an insurance product. The sales agent before selling the insurance
commodity to the boy made no effort to understand him better as the company claims in its
ideology to help understand customers better to provide them insurance products. The Down
syndrome affected boy without any comprehension on the insurance commodity being sold to
him, purchased the commodity. This goes against the integrity of the company (Friedman &
Heinle, 2016). The company as mentioned earlier believes and promotes to knowing its

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customer better before providing service for the well being of the customer, clearly violated
the professional code of ethics in this case (Dierksmeier et al., 2016). It was clearly evident
from the case study that when the boy was asked to state his consent for termination of the
policy bought, he was unable to articulate his point. Selling insurance products to such
vulnerable customers without conduction a proper background scanning is unethical. The
company also failed to produce recordings of the call to Mr. Stewart when he demanded it for
evidence. The company provided him the record after a long time which is surely unethical
on the company’s front. Royal commissioner identified .loopholes in the company’s ethical
conduct (Cox, Caze & Levine, 2018). The company did not provide any training to its sales
agent on how to handle vulnerable customers. The company has also faced similar uses
regarding mishandling of other vulnerable customers in the recent past. Considering the
above case of Mr. Stewart’s son the company should have conducted a background check
before selling the commodity to his son as the phone record clearly produced evidence of the
boy not understanding the value of the commodity he is purchasing. To build its integrity
back, the company should conduct trainings for handling vulnerable customers to provide
them with best covers and plans. This will rebuild the integrity of the company and help the
company perform better. The company should redevelop its business model from collapsing
as the current share scenario of the company is not well placed in the market.
Conclusion
The final report published by the Royal Commission contains the ethical code of
conduct for business in banking, financial service and superannuation industry. The
commissioner has laid down certain code of conduct both ethical and professional to prevent
and reduce the risks of misconduct in organizations mean of conducting business. Each rule

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will benefit consumers of the certain industry and the organizations will work under the
watchdog of the Commissioner. One of the most highlighted cases investigated by the Royal
commissioner was the case of Freedom Insurance group who sold accidental death plan to a
person affected by Down Syndrome. The company as accepted breached certain moral
grounds in conducting its business. It has promised to look into the matter and improve its
professional ethical conduct to improve the business model of the company.

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References
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Kluwer Law & Business.
Bulmer, M. (2015). Social Research and Royal Commissions (Routledge Revivals).
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Coleman, W. (Ed.). (2016). Only in Australia: The history, politics, and economics of
Australian exceptionalism. Oxford University Press.
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Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
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Retrieved from https://www.freedominsurance.com.au/
(Apseb, 2019). Retrieved from
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