Analysis of the Royal Commission into Banking Misconduct in Australia

This report provides a comprehensive analysis of the Royal Commission's inquiry into misconduct within the Australian banking, superannuation, and financial services industries. It examines the background of the commission, highlighting issues such as weak governance, inappropriate financial advice, and disputes over insurance claims that have damaged public trust. The report reviews relevant literature, including key studies on customer relations, governance, and the impact of misconduct. It then analyzes the commission's objectives, scope, and approach to investigating various financial issues, including money laundering and the use of superannuation funds. The report emphasizes the importance of the commission in restoring public confidence and ensuring a fair and efficient financial system. Finally, it summarizes the key findings and recommendations, including the need for accountability and improved regulatory oversight within the banking sector.

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Why A Royal Commission Into Misconduct In The Banking, Superannuation And
Financial Services Industry?

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Contents
Introduction......................................................................................................................................3
Research literature survey................................................................................................................3
Analysis...........................................................................................................................................8
Recommendations............................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
Australian banking system has been recognized in the world for its strongest financial
services. The banking system in the country is famous for its systematic underpinning of rules
and regulations. All the Australian citizens have the right to be treated fairly and justly with their
banking operation, financial services and superannuation. The banking sector in Australia is
linked with good governance and cooperative working culture. These standards are strictly
regulated in order to provide efficient banking services to the people of the country (Verrender,
2017). In addition to this timely monitoring helps in maintaining the trust of the people in the
banking services of the country.
Issues related to weakness in governance, inappropriate financial advice by the banking
institutions, disputes over insurance claims and money laundering have seriously hurt the
goodwill of the financial and banking sector of the country. The government of Australia has
created Royal commission to inquire in all these matter. The Royal commission inquiry into the
issues of the banking sector will help in gaining back the trust of people (Australia to hold royal
commission inquiry into banks, 2017). The report critically examines the issues occurring in the
banking sector of Australia. Apart from this, the working of royal commission is also analyzed in
order to gain a better understanding. Suitable recommendations related to the issue are also a
major part of the report. In the end a brief conclusion summarizes the findings of the report.
Research literature survey
According to, Lui (2016), managing good customer relations, supervision, resilience and
good governance are the key for a successful and healthy banking sector. In recent years the

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banking sector of Australia has faced major issues related to good governance, customer
satisfaction, insurance claims etc. All these issues have hampered the country’s banking sector
badly. Australian banking institutions are known for their strong financial services. In order to
remain to work efficiently, the banking sector of the country are abide by the strict rules and
regulations. In recent years the banking sector organizations have shifted their attention from
conduct and good governance. The misconduct in financial sector has a devastating result (Lui,
2016). Australian banking sector is known for its efficient working operations. The
superannuation and other facilities provided by the Australian banks have made the customer of
the country satisfied. In recent past the country has faced issues such as misconduct, misleading
information to the customers, weakness in governance has proved quite harmful to the banking
and financial sector of Australia.
In the views of (Gup, 2006), superannuation services in Australia are at their rapid
growth rate, these funds are quite attractive choice in Australia. These are the self managed funds
which are high in demand in Australia. Australian banking sector offers attractive schemes for
superannuation funds. However in recent past this area has also witnessed risk due to the
misconduct and lack of good governance. The problematic incidents have adversely impacted the
customers in the financial and banking sector of the country (Gup, 2006). The financial services
in Australia were quite strong and it has remained independent in the wake of the recession also.
When all other financial and banking institutions were taking assistance from government,
Australian banks were independent and maintained their financial environment effectively.
In the views of Barwell (2017), the financial sector of the country was devious of any
misconduct but in recent times the banking and financial sector has witnessed certain issues
which has shaken the whole banking and financial sector of the country. Due to all these

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situations in the country, the government after thorough research has created a commission
called Royal commission to inquire into the matter that has disturbed the calm and peaceful
financial and banking sector of the country. Royal commission is likely to work best in the
matter which consist of wide ranges of issues and concerns (Barwell, 2017). The Royal
commission in its inquiry should give priority to issues which matters most in their opinion have
greater potential to harm the financial and banking sector. The commission is required to submit
the report to the government so that appropriate actions against the situations can be taken.
According to Wilson (2014), with the establishment of royal commission the government
is ensuring that the financial system is resilient, fair and efficient. Royal commission is aim to
achieve variety of concerns, which involve various types of financial issues, culture, ethics and
governance problems. The use of superannuation member’s retirement savings in any other
purpose that does not meet the community standards is not considered to be the best practice by
the royal commission and it required taking appropriate steps against the financial entity. Due to
recent issues the trust has taken a back seat. The government has decided to establish royal
commission in order to ensure that the financial sector of the country is efficient and effective
(Wilson, 2014). The Royal commission takes a conventional and focused approach regarding the
issue and tries to resolve the issue so that it cannot hurt the goodwill and reputation of the
country’s financial sector. A new stop shop is established in order to solve the issues and
grievances of the customers. This step has significantly encouraged and strengthened the powers
of the Australian Securities and Investments Commission.
In the views of Acharya and Beck (2014) a framework has been created in order to hold
the financial and banking sector people accountable for their behavior and actions. The step has
been taken in order to boost banking and financial sector competition. Royal commission is

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prepared in order to find the solution of the problem as soon as possible. The government of
Australia ensured that any kind of politicizing work with the royal commission cannot occur.
The sensible, focused and efficient inquiry by Royal Commission into misconduct and ill
practices which are falling below the community standards and expectations is the key to
success. The issues regarding money laundering in the financial and banking sector has gained
the headlines in the recent past (Acharya and Beck, 2014). These kinds of issues hurt the foreign
direct investment of the country and the government of the organization is quite serious about the
issue. Australian Securities and investments commission highlighted that conduct, culture and
accountability are certain issues that are hurting major banks and financial sector of the country.
In recent times the Australian banks and financial sector has witnessed the cases of breach of
money laundering and terrorism financing laws.
According to Wilson (2014), the banks and financial sector has developed certain kind of
biasness regarding the perception of the information. It has helped in increasing lack of trust in
the people and customers of the Australian banks and financial sector. The customers of the
banks and financial sector are linked with transparency and good conduct, lack of shareholder
pressure has certainly removed counter balance and mitigates the incentive of not doing the right
thing (Wilson, 2014). This means that the banks and financial sector has to work hard in order to
gain the trust and meet the expectations of the customers.
According to Mayes and Wood (2013), in the time of distress in the financial sector and
banking industry the government of the country has created Royal commission in order to
inquire into the matter that has drastically affected the financial sector of the economy. Royal
commission is used as a mechanism for gaining back the trust and confidence of customers in the
Australian banking and financial sector. Australian banks and financial sector has faced various

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kinds of allegations such as serious misconduct which also includes rate rigging, insurance fraud
and financial fraud. The Australian interest rate benchmark was manipulated for hundreds of
millions of dollars in illegal profits (Mayes and Wood, 2013). There are certain big banks which
plays a vital role in the calculation of the benchmark. Another financial issue has changed the
methodology. Royal commission is public inquiries that are governed by the act of parliament.
The commissions can be called for any disturbance created in the peace, order and good
governance in the commonwealth or any public purpose in the country (Ashley, 2016).
In the views of Gospel, Pendleton and Vitols (2014), royal Commission investigate
misconduct in the financial and banking sector of the country, so in this way, banks which are
giving false advice to customers and spends people’s retirement savings and other behavior that
generally falls below community standards and expectations of the customers are to be
questioned by the Royal Commission. The commission covers the small and big banks, wealth
managers, superannuation providers, insurance companies etc and takes out a comprehensive
inquiry into the matter. The Royal Commission has the power to summon the witness and collect
evidences and can also authorize the police to take search warrants (Gospel, Pendleton and
Vitols, 2014).
According to Gospel, Pendleton and Vitols (2014), the witness who fails to appear on
summon can face arrest and detention. However the Royal Commission powers are limited as it
does not possess the power to compensate any customer who got affected by the wrongdoing of
the banks and financial sector. It has the power to recommend the government about the issue
and recommendations can include changing laws and regulations that govern the banking sector.
However the Royal Commission does not have power to change the judgments that have been
heard before the courts including hearing of bankruptcy (Gospel, Pendleton and Vitols, 2014).

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The government of Australia has appointed judge to chair the Royal Commission. The Royal
Commission has been expected to submit their reports as soon as possible so that the government
of the country can take appropriate action. The report does not contain any kind of bias behavior
regarding any banking or financial company.
Analysis
The Australian banking and financial sector is believed to be the strongest and most
reliable in their functioning. During the time of recession, when most of the banks of the world
were dependent of the financial assistance of the government, Australian banks and financial
system were flourishing. Over recent years various concerns regarding the financial and banking
sector has emerged. The banks have been charged with weakness in good governance, delegating
inappropriate advice to the customers, insurance claim settlement issues etc (Here's what we
know about the banking royal commission, 2017). All these issue has seriously harmed the
customer trust and belief in the banking and financial sector of the company. In addition to this,
the issues related to misconduct by the banking and financial sector has also affected the
majority of customers.
The banks and financial sector of Australia has been charged with the allegations that
they have spent the amount of superannuation which are the retirement savings of the customers.
The government of the country has taken a serious and strict step regarding the financial and
banking issues. The government has created Royal Commission to inquire into the matter. The
step taken by the government is quite commendable as it has again regained the faith of the
customers that the government is concerned about the welfare of the people (Chi, 2016). The
royal commission is created to give unbiased report to the government so that they can take

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appropriate action regarding the issue. The commission is advised to do focus inquiry into the
matter so that it can remain free from all other concerns. There are certain areas which are
investigated by the Royal Commission that means they do not have to delve themselves into
variety of issues (Sweeney and Yaxley, 2017). This is quite good as they have a proper
guideline as to which matter comes under their investigation purview. That commission is
created to look into the issues of misconduct which has shaken the trust of the people of the
country. Misconduct is a serious matter in the banking and financial sector.
The Royal commission has been given the power to summon the witness and collect
evidences. In addition to this, they have also the power to authorize the police to take search
warrants against the concerned person. The powers drawn on the commission is quite effective
as it can motivate the members of the commission to investigate with utmost responsibility. The
Royal Commission also look into the issue of superannuation in which the banks and financial
sector has been alleged of spending the retirement savings of the people (Why Australia does not
need a royal commission into the banking industry, 2016). This is also effective as
superannuation policy of the country holds a major place in the banking and financial sector of
the country. The government has appointed a judge of high court has the chairperson of the
Royal Commission. This is an efficient step taken by the government as the judge is quite able to
understand the laws and regulations of the country in a better way and they can evaluate the
illegal conduct and other types of issues quite efficiently.
Recommendations
The government of Australia has taken a quite strong step towards regaining the goodwill
and reputation of the financial and banking sector. The Royal Commission has been created in

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order to resolve the issues related to misconduct. The Royal Commission has been bestowed
with various powers however it is quite important to expand their operations area so that they
investigate into issues more than misconduct (Conduct at Australia's biggest banks is a 'major
problem': ASIC, 2017). It is quite important for the Australian financial and banking sector to
involve transparency in their operations so that they can avoid such serious accidents that has
fatal effect on their future. It is quite important for the government of the country to properly
monitor the actions and activities of the commission (Wallbank, 2017). Apart from this the report
submitted by the commission should be tackled carefully concerning all the related aspects. In
addition to this it should have given the power to compensate the affected people from
government funding.
Conclusion
The Australian banking and financial sector is believed to be the strongest and most
reliable in their functioning. The report has critically analyzed the scenario of Australian
financial and banking sector, in addition to this it has also examined the working and operations
of the Royal commission which has been created by the government of the country. Royal
Commission has been given certain powers which have made it more accountable and
responsible towards the government and people of the country.

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References
Acharya, V.V and Beck, T. 2014. The Social Value of the Financial Sector: Too Big to Fail Or
Just Too Big. World Scientific.
Ashley, M. 2016. The financial services industry: Whistle blowing and calls for a royal
commission. Precedent (Sydney, N.S.W.), 136, pp. 35-39.
Australia to hold royal commission inquiry into banks. 2017. [Online]. Available on:
http://www.bbc.com/news/world-australia-42175463 [Accessed on: 21 January, 2017].
Barwell, R. 2017. Macroeconomic Policy after the Crash: Issues in Microprudential and
Macroprudential Policy. Springer.
Chi, L. 2016. Australian banks face off against rate-rigging lawsuits. [Online]. Available on:
http://www.bbc.com/news/business-37127579 [Accessed on: 21 January, 2017].
Conduct at Australia's biggest banks is a 'major problem': ASIC. 2017. [Online]. Available on:
https://www.sbs.com.au/news/conduct-at-australia-s-biggest-banks-is-a-major-problem-asic
[Accessed on: 21 January, 2017].
Gospel, H., Pendleton, A. and Vitols, S. 2014. Financialization, New Investment Funds, and
Labour: An International Comparison.OUP Oxford.
Gup, B.E. 2006. Capital Markets, Globalization, and Economic Development. Springer Science
& Business Media.
Here's what we know about the banking royal commission. 2017. Available on:
zwww.abc.net.au/news/2017-12-04/banking-royal-commission-heres-what-we-know/9210214

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Lui, A. 2016. Financial Stability and Prudential Regulation: A Comparative Approach to the UK,
US, Canada, Australia and Germany. Routledge.
Mayes, D.G. and Wood, G.E. 2013. Reforming the Governance of the Financial Sector.
Routledge.
Sweeney, L. and Yaxley, L. 2017. Malcolm Turnbull backflips on banking royal commission
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four-letter/9209926 [Accessed on: 21 January, 2017].
Verrender, I. 2017. Royal commission into banking: The inquiry that could kill the Government.
[Online]. Available on:
http://www.abc.net.au/news/2017-11-27/how-bad-are-our-banks/9194984 [Accessed on: 21
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Bligh. [Online]. Available on: https://mumbrella.com.au/trust-issues-facing-australias-banks-
cant-solved-comms-says-anna-bligh-463840 [Accessed on: 21 January, 2017].
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Wilson, S. 2014. The Origins of Modern Financial Crime: Historical Foundations and Current
Problems in Britain.