Analysis of the Royal Commission's Impact on Australian Accountants

This report delves into the impact of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (BRC) on accountants, particularly those providing mortgage and financial advice, and accountants in general. The report begins with an introduction outlining the commission's formation and objectives, followed by a discussion of the commission's findings, which revealed structural problems, misconduct, and regulatory failures within the Australian financial system. Key findings include the need for greater information sharing between regulatory bodies like ASIC and APRA, and the emphasis on individual accountability and ethical behavior. The report analyzes the BRC's recommendations, highlighting their implications for accountants, including increased professionalism and ethical standards. The report also reviews the commission's observations regarding the roles of ASIC and APRA, emphasizing the need for improved governance and accountability. The report concludes by summarizing the key impacts of the commission, including increased pressure on accountants to behave ethically and the need for them to adapt to the evolving regulatory landscape.

Running head: IMPACT OF ROYAL COMMISSION ON ACCOUNTANTS
Impact of Royal Commission on Accountants
Name of the Student
Name of the University
Author Note

1IMPACT OF ROYAL COMMISSION ON ACCOUNTANTS
Letter of Transmittal
Dear Mr McCarthy,
Enclosed is the report that was commissioned by you on 5th August 2019 on the impact of the
Royal Commission into the Misconduct in the Banking, Superannuation and Financial Services
(BRC) on accountants who provide financial and mortgage related advice and other
accountants in general. The main findings of the report are:
 that there will be structural changes to the financial regulatory environment prevalent in
Australia and more information will be shared between the Australian Securities and
Investment Commission (ASIC) and Australian Prudential Regulation Authority (APRA);
 individual accountability and firm culture will undergo major changes and the
responsibility on accountants to report a misdoing will be more than before;
 there are 76 recommendations and 24 referrals which suggest punishment for criminal
conduct. Hence there is a pressure on the accountants to behave ethically than ever
before.
It should be noted that although Commissioner Hayne’s report did not mention anything directly
about the chartered accountants providing mortgage and financial services or any other
accountants, most of the recommendations suggested by him are to be implemented by them.
However, they should be cheerful about the fact that his recommendations lay more emphasis
on maintaining greater professionalism with an increased emphasis on ethical behaviour.
Finally, I would like to mention that I would be thankful to you for the opportunity this report gave
me to familiarise myself with recommendations of the Royal Commission report and its impact
on accountants.
Yours sincerely
*****

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Title Page
Title: Impact of BRC on Accountants
Author:
Date of Submission:
Submitted to:

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Table of Contents
Introduction.................................................................................................................................. 5
Discussion................................................................................................................................... 7
Background and Findings of the Commission..........................................................................7
Recommendations and impact of the Royal Commission........................................................9
Impact on Accountants...........................................................................................................11
Recommendations................................................................................................................. 11
Conclusion............................................................................................................................. 12
References............................................................................................................................. 14

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Executive Summary
This report contains an analysis of the impact of the Royal Commission into the Misconduct in
the Banking, Superannuation and Financial Services Industry (BRC) on accountants who are
involved in providing services in the mortgage broking service and financial planning, as well as
on the other accountants in general. It begins with an introduction which contains the
circumstances that necessitated the preparation of the report. After which, it delves into the
reasons for the appointment of the Royal Commission and the recommendations provided by it.
These details have been obtained from a number of articles published by renowned professors
all over the world. The official report of the Royal Commission is also used as a reference to
obtain the suggestions made by the Commissioner accurately. The findings are then analysed
thoroughly to understand their impact on the role of accountants involved in providing financial
and mortgage related advice. In the discussion part, a detailed description of the findings made
from the report are mentioned. This was an A$ 75 million commission which found that there
were structural problems in the financial system of Australia. It also emphasised the misdoings
of the Australian Securities and Investment Commission in the financial sector. The report also
found that the banks in Australia were responsible for wrongful activities like forgery, bribery and
other activities that caused losses to the Australian financial sector. It concluded by suggesting
that there was an increased necessity for proper information sharing between the regulatory
bodies and individual accountants should take more responsibility in reporting a likely fraud. It
provided around 76 recommendations and 24 referrals with increased emphasis on
professionalism and ethical behaviour. The report also makes recommendations which are
beneficial for the Australian financial system.

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Introduction
Background: Due to an increase in the inefficiencies in the financial sector of Australia, on 30
November 2017, the Australian Prime Minister Douglas Turnbull announced the formation of a
commission to understand the extent of irregularities occurring in the financial sector. Justice
Kenneth Hayne was announced as the head of the enquiry. This report was prepared to analyse
the impact of the Royal Commission into the Misconduct in Banking, Mortgage and Financial
Services Industry (BRC) on accountants who provide services related to mortgage and financial
planning and also on accountants in general. This was done on the recommendation of Mr
McCarthy, who was responsible for identifying the findings of the commission as extremely
important.
Purpose: This report is prepared for the benefit of the clients who want to understand the
significance of the commission. As the commission’s findings have been extremely important
and highlight the areas where the entire financial system can improve, this report is highly
significant for people willing to understand the impact that it would have on their professions.
This is particularly true in case of practising chartered accountants and accountants involved in
the providing mortgage related services.
Scope: This report discusses the circumstances which necessitated the appointment of Royal
Commission and the findings of the commission. It considers most of the recommendations and
referrals of the commission. However, due to the relatively fresh nature of the commission and
lack of clarity over some of the recommendations made by it, this report is unable to consider
some of the minor recommendations made by the commission.
Research methods: The information required for this report was mostly obtained from the
official document published by the Royal Commission itself. To analyse the impact, articles
published in renowned journals by professors who are extremely experienced in their respective

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fields are also used. Some newspaper articles are also gathered to understand the impact that
the commission had on the general accountants.
Definition and abbreviation of Terms: As the report is prepared on matters that are technical
in nature, the report tends to use some terminology that is technical in nature. They include
Australian Securities and Investment Commission (ASIC), Australian Prudential Regulation
Authority (APRA), Banking, Superannuation and Financial Services (BRC), Commonwealth
Financial Planning Limited (CFPL), Royal Commissions Act 1902, Australian Financial Services
License (AFSL), Self-Managed Super Funds (SMSFs), Non-banking Financial Entities (NBFEs)
and Authority Deposit-Taking Institutions (ADIs).
Limitations: As the reports and the recommendations suggested by them are relatively new in
nature, the interpretation could not be done in an exhaustive manner. With more time, a more
comprehensive analysis of the report would have been possible. The resources and information
that was available through research articles and the report was only used. However, due to the
lack of more data, only the major recommendations of the commission could be taken into
account. Some other minor recommendations could not be considered in an appropriate
manner.
Assumptions: It is assumed by the writer that the readers of the report have a basic
understanding of financial terms and their meaning. They also have a basic understanding of
the jobs performed by the accountant and the working of the mortgage and banking industry.
Other assumptions include that the findings and recommendations made by the Royal
Commission are reliable in nature and reflect the current situation of the Australian financial
sector in a reliable manner.

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Discussion
Background and Findings of the Commission
Royal Banking Commissions are inquiries that are public in nature and established and
governed by an act of parliament. These commissions are generally considered to be more
powerful than a regular commission and have more powers to obtain specific information about
a particular industry due to the coercive nature of the powers available with them. These powers
were set out in the Royal Commissions Act 1902 (Gilligan 2019). The long history of
whistleblowing cases and their impact on the financial sector of Australia was also cited as a
necessary reason for the appointment of a new commission (Matthews 2016). After the
establishment of the Hayne Commission, the main area of focus of the enquiry centred on
identifying the problems that existed in the relationship between the financial institutions and
firms and their consumers. It selected 61 customers from the financial sector to provide details
about misconducts or falling short of acceptable community standards that had occurred since 1
January 2008. It also suggested to APRA and ASIC to provide their responses about the report
of the misconduct that was reported by the consumers. Apart from that, the commission also
suggested that the financial bodies explain the reason behind the responses provided by them.
Out of all the responses, it picked up specific case studies to be examined in depth. It also
noted that there had been 73 inquiries and reviews made by parliamentary committees about
the work of the regulatory bodies since 2008. There were significant observations made the
Hayne Commission from the above mentioned responses. The first round of hearings began on
13 March 2018. The focus area of these hearings was related to the credit products provided by
banks such as credit cards, home loans and other loans. Executives from major Australian
banks like Citigroup, Commonwealth Bank, ING Bank and others were summoned to the
hearings. ANZ bank agreed that it had failed to meet the acceptable community standards and
involved in misconduct in the processing of cards and processing of finance. The commission

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observed that the bank had failed to properly verify the living expenses related to customers
referred to it by the brokers. It argued that such verifications are the responsibilities of the
brokers. This miscommunication led to the wrong calculation of interest rates and the bank
overcharged consumers by an estimated amount of $90 million. The Commonwealth bank
admitted that due to the implementation of a system of trailing commissions, it provided greater
rewards to consumers for encouraging customers to agreeing to home loans of longer duration
and higher interest rates. Employees of National Bank of Australia in Sydney were found to
accept bribes for facilitating loans that were based on false documentation in order to earn their
bonuses and meet their personal targets. All of these misdoings were ignored by the ASIC and
APRA even when they were aware of the misdoings by the financial institutions
(Royalcommission.gov.au. 2019). The Haynes Commission made a number of significant
observations regarding the roles played by ASIC and APRA as regulatory authorities. There are
three themes that outline the nature of misdoings that were undertaken by the regulatory bodies
(Hanrahan 2019). The first theme was that ASIC’s approach in dealing with the misconduct of
large financial institutions was deficient, as it placed too much emphasis on negotiated
outcomes and not directly charge the financial institutions for the misconduct. The second
theme is that APRA did not sufficiently supervise the compliance by the trustees of
superannuation funds with their statutory duties and duties of loyalty and care. The third theme
suggested that both APRA and ASIC failed to put their rules and regulations into practice in
case of situations where the problem was related to governance and accountability in large
financial institutions (Danckert 2018). All the findings of the commission through its report
indicated towards a particular problem. The unethical culture of conducting business in the
financial sector of Australia. Commissioner Hayne noted that the reward, incentive and bonus
culture that was extremely prevalent in the financial sector of Australia and it was limited to
measuring profit and sales but not whether the firms complied with the existing laws and
compliance standards. Profit making had become such a priority that people stopped

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considering whether what they did was correct or wrong. The commissioner also pointed out the
legitimate expectations of the Australian community and their right towards expecting a
reasonable compensation and accountability of the people involved in the wrongdoings. He
noted the absence of an extremely high level of regulatory response for any misdoings on the
part of large scale financial institutions. The large scale financial firms and financial regulatory
bodies were also conspicuous by the absence of fiduciary duty amongst any of their
stakeholders. Fiduciary duty suggests an unspoken and unwritten set of rules that anyone who
is in a responsible position in a company needs to follow. This involves ensuring that the
company is not involved in any misdoings that are likely to tarnish its reputation. Hence, this
puts a responsibility on the shoulders of accountants, managers, board of directors and the
promoters of a company to act in a manner that is always in the best interests of the
organisation. The term interests is not just limited to the financial interests but also includes the
reputation of the company and the well-being of the society.
Recommendations and impact of the Royal Commission
To overcome the problems that were existing in the financial sector, the commissioner
made two major recommendations (Australian Financial Review 2019). One of them included a
call for a deep change in the organisational culture prevalent in Australia. The other change
suggested by him was related to the change in the law enforcement culture. He provided both
common and a separate set of recommendations to both the banking related and insurance
related entities and regulatory bodies. The commissioner identified six norms that should
become deeply etched in the cultures of all Australian Organisations. They are related to
obeying the law, acting in an honest and fair manner, providing services that are fit for the
customer’s purpose, delivering the services in the best possible manner and acting by keeping
the best interests of the consumers in mind. With regards to culture, the commissioner also
made a set of recommendations that were deemed necessary by him. In order to see a proper

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change in the culture of an organisation, the commissioner suggested that every entity should
initially assess its culture and governance. They should then identify any potential or existing
problems within the culture of the organisation. After which, they should deal with the problems
by framing new policies to deal with the problems. These policies should then be reviewed in a
timely manner to assess their effectiveness over the years. He further went on to elaborate that
every entity is responsible for its own culture and it continues to behave as a product of the
culture existing within it. He also suggested that culture should not be static and should be
changed according to the changes occurring in the environment. Hence, he strongly
discouraged a situation where an entity selects its culture at once and then forgets about
everything that is related to it. With regards to APRA, he made recommendations that were
different from those made to ASIC and banking related financial institutions. He suggested that
APRA should undertake a supervisory program that focussed mainly on building culture and
mitigated the risk of misconduct. He further went on to suggest that reviews should be
conducted using a risk based approach and encouraged organisations to conduct sound
management of risk conduct and making entity governance better (Hargovan 2019). Although
the changes suggested by the commissioner are not relevant for the misdoings and crimes
found out by the Royal Commission, improving the potential of the regime is necessary for the
prevention of future breaches by the organisation. The observations made by the commissioner
also suggest an underlying tension between the financial regulatory authorities and the amount
of supervision undertaken by them with regards to the financial authorities operating in Australia
(Matthews 2016). The basis available for ASIC to act as a successful regulating body will be
strengthened and put an end to customer’s perception about the financial regulations in
Australia being very lenient. However, like every regulation formed by the Australian law
authorities, the success or failure of the new set of recommendations will also depend on how
strictly organisations tend to implement it in the long run.

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Impact on Accountants
One of the most lucrative and profitable areas in the Australian financial sector is the
mortgage broking sector. Due to the high amounts of commission available in this sector,
people become motivated to bring in more number of clients through false promises (The Value
of Mortgage Broking 2018). Although Commissioner Hayne refused to blame any single person
for the mishappenings in the Australian financial sector, the findings of his report made
everybody question the legitimacy of the regulatory bodies and the major financial institutions
operating in Australia. The main loss suffered by all the accountants is the loss of trust among
the household customers. The commission’s adverse report has necessitated it for the
accounting firms to rethink the manner in which they continue to do the business. Hence, the
recommendations of the commissioner suggest that conflicted remuneration from the times of
grandfathers should be removed. Life insurance commissions, along with annual consent fees
should also be reduced to zero. While similar recommendations by other committees and
reports were not taken seriously before, the impact of the Hayne Commission’s report is more
far reaching. This necessitates that the accountants behave in a more ethical manner. They
would be required to properly verify every transaction in a careful manner and make sure that
they follow the ethical guidelines at all times. Accountants providing mortgage services would
require to be more careful as the impact and scrutiny on their profession would be more than it
was ever before.
Recommendations
. Although these are only suggestions of the commission, the impact of the report has
been so widespread that the firms providing mortgage and financial services will be required to
increase the level of transparency in their business. The accountants involved in providing
broking services should identify and segregate each and every transaction in a careful manner.
They should also be careful in identifying the expenditures related to a client and avoid the

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misdoings that occur in processing the credit of a client. In case of finding any deficiencies in the
internal environment or control environment of an organisation, they should immediately
mention about their findings to the regulatory authorities. They should also make sure that
sufficient remedial measures have been taken by the organisation to reduce the previous
deficiencies in the control environment. They should make sure that they are updated with the
changes in the code of ethics and should train themselves in the changed regulations on a
regular basis. Any reports that are prepared by the accountants about a particular firm should
comply with the regulatory norms and should not intentionally avoid any information that is
essential to identifying a misdoing of that particular firm. The references that are obtained by the
accountant should be thoroughly checked and verified by him before placing an unconditional
trust in the information provided by such a reference document. The role of the regulatory body
governing the accountants in Australia should also undergo a change and it should be stricter
about any form misconduct by an accountant. They should also clearly identify how and when
their obligation regarding a particular transaction ends and should also mention about the
limitations of any particular task undertaken by them.
Conclusion
After doing a thorough research of the situations leading to the formation of the Royal
Commission and the observations and recommendations of Commissioner Hayne into
consideration, it can be suggested that the state of the financial sector of Australia was
unacceptable with regard to its impact on the household customers. The commission, due to the
extent of powers provided to it by the legislation, conducted an exhaustive research of the
misdoings by the major Australian financial institutions and highlighted the structural problems
existing in the system as a whole. Commissioner Hayne suggested both cultural and
enforcement related reforms that overcame the existing problems in the country’s system.
Although the commissioner did not blame any particular party for the misdeeds happening in the

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financial system, his recommendations are of high value to all the stakeholders. This includes
the accountants involved in the BRC and other accountants. They should ensure that they
thoroughly analyse every transaction that is taking place in their supervision and report any form
of misdoings immediately to the regulatory authority. They should also remain up to date with
the changes occurring in the code of conduct and should take training on a regular basis for the
same. They should never avoid any responsibility about doing their job in an appropriate
manner and should ensure that any hindrances which cause them to compromise their due
diligence are removed completely. Apart from these, they should always act by keeping the best
interests of their firm in mind and not indulge in any activity that causes damage to the
reputation of their firm. Finally, the accountants should never forget the impact that their role has
on the financial sector as a whole and ensure that they never knowingly contribute towards the
occurrence of a particular fraud.

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References
Australian Financial Review. 2019. Banking royal commission final report: Key
recommendations. [online] Available at:
https://www.afr.com/business/banking-and-finance/banking-royal-commission-key-
recommendations-20190203-h1at2v [Accessed 18 Aug. 2019].
Danckert, S. 2018. Weak watchdog slammed for reluctance on enforcement. [Online] The
Sydney Morning Herald. Available at:
https://www.smh.com.au/business/banking-and-finance/weak-watchdog-slammed-for-
reluctance-on-enforcement-20180927-p506fx.html [Accessed 18 Aug. 2019].
Gilligan, G. 2019. The Hayne Royal Commission – just another piece of official discourse?
Australia: Hart Publishing Law and Financial Markets Review.
Hanrahan, P. 2019. Twin peaks after Hayne: tensions and trade-offs in regulatory architecture.
Australia: Hart Publishing Law and Financial Markets Review.
Hargovan, A. 2019. Banking royal commission final report: Cultural issues and implications.
Australia: Chartered Secretary.
Marsh, T. and Phillips, G. 2019. The Hayne report – one giant leap forward for Australia.
Australia: Hart Publishing.
Matthews, A., 2016. The financial services industry: Whistleblowing and calls for a royal
commission. Precedent (Sydney, NSW), (136), p.35.
Millhouse, D. 2019. From Campbell to Hayne: W[h]ither Australia? Australian financial
regulation and supervision at a cross-roads. Australia: Hart Publishing Law and Financial
Markets.

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Royalcommission.gov.au. 2019. Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry. [online] Available at:
https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-2-final-report.docx
[Accessed 18 Aug. 2019].
The Value of Mortgage Broking. 2018. Australia: Deloitte.

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