This research essay develops an understanding of corporate governance and ethics in the banking and finance industry through four different parts. The first part highlights the background, impetus, rationale, momentum, and support or resistance of the Royal Commission in the Australian banking and finance industry. The second part puts discussions on the interim findings, corporate culture, revelations, and conflicts of interests in the banks and financial industries. The third part discusses the likely impacts of the Royal Commission and reforms, rewards or punishments, and recommendations for the improvement (Miller, 2017). Finally, the fourth part discusses the standards for the globalization of the banking and finance sector outside of the country in the cross-cultural environment, global awareness, and comparisons in the financial markets.
1.The corporate governance practices in the banking operations, financial services, and insurance companies are aimed at ensuring the accountability and transparency of the financial transactions, auditing reports, and accounting practices by avoiding the misconducts, financial scandals, alleged bribery or frauds. The corporate governance standards are related to delivering the stronger oversight of the management, better financial performance, maximize shareholders’ returns, fair customer service transactions, better control on decision-making, accurate financial statements and reports, and sustainable CSR report by ensuring fewer failures, better and controlled decisions, minimization of the risks, higher stability, and reliability and trust of the banking services to the customers.
The corporate governance in the Australian Financial and Banking sector has not been succeeded to the great extent because of lots of hearings of misconducts, unethical practices, financial fraud scandals in the reports and financial statements, and other illegal activities are emerging in the past few times.
The Australian Royal Commission was established by the Governor-General Sir Peter Cosgrove by issuing the Commonwealth Letters Patent for appointing the Chief Commissioner (Justice Kenneth Hayne) and other commission staffs. The purpose of this is to investigate the misconducts,like criminal proceedings, frauds, bribery, inaccurate transactions, and the lack of transparency and accountability in the internal auditing reports in the superannuation, banking, and financial and insurance service industries.It is aimed at ensuring the appropriateness of the reporting line for the head of the internal audit, clear accountability for the risk management and internal controls, better protection for the internal auditors, data protection and privacy, and standards governing the internal auditing(Royal Commission, 2018).
3.The main reason for calling of Royal Commission into the banking and financial sector of Australia is to prepare the interim report that contained the substantial findings against the banks, financial planners, and insurance corporations in Australia. Another reason for calling the Royal Commission is to investigate the misconducts or criminal proceedings/ illegal activities, like alleged bribery, financial frauds, and forged documents in the banks and financial sectors under the supervision of the chief commissioner. The Royal Commission was called for inquiring whether the banks, insurance companies, or FIs are following the ethics in the customer service transactions, accountability and transparency in the transaction, accurate and timely auditing report, and standards in the accounting practices are followed or not (Financial Review, 2018).
4.The setting of the Royal Commission was initially opposed because of the early resistance from the Australian Banking Association (ABA) and some of its staff members. ABA’s Chief Executive, Anna Bligh Said that the Royal Commission could push up the interest rates in Australia(Miller, 2017).The officials and bosses of NAB and ANZ said that calling for Royal Commission in Australia is a serious distraction as the Chief Executive of NAB, Andrew Thoburn says that the Royal Commission into the banking and financial industry is not necessary because it can affect the financial decisions and can create political conflicts among the banks and financial services and customers. ANZ’s Chief Executive, Shayne Elliott stated that the setting of the Royal Commission can ruin Australia’s standing and the financial positioning among the overseas investors. The federal government also ruled-out the calling for the Royal Commission into the Australian banking and financial service industry by stating that it may question on the capabilities of the Australian Security and Investment Commissions (ASIC) was already is a potential regulatory authority into the Australian banking and financial sectors.
1.From the key findings of the Interim report of the Royal Commission, it is identified that there are several examples in the Australian Financial and banking industry in which the professionals, service providers, bankers or insurers were found victim for the breach of the ethical standards, corporate governance, and corporate conducts. For example, NAB and Westpac fined $10,200 and $20,400 for the product disclosure statement, CBA fined $ 10,000 for over continuous disclosure obligations, and CBA charging fees for no service and confessed to charging fees to the dead people, Westpac’s home loan documents expose the risks, like slump in the share prices, mortgage frauds by the banks and financial lenders are such examples that emphasized the breach of the ethical standards and code of conducts. NAB staffs involved in the bribery ring emerge showing the falsified paperwork by the working staffs, forged documents, Medicare cards, and fake pay slips (ASIC, 2018).
2.The interim report shows that the conflict of interests are apparent in the car loans, home loans, and credit cardsin which one reasonable person or entity, e.g. the Royal Commission thinks that the professional judgment is likely to be compromised. The apparent conflict of interests appear between the lenders (bankers, FIs, and insurance companies) and borrowers (customers) on the matter of interest on the loan grants or maximize the returns of the consumers for their savings. Some potential conflicts of interests exist in the mortgage broking business between the banks and the customers over the commission payments made by the banks to the mortgage brokers. The high interest rates commission will create more chances of the conflicts of interests between the lenders and the borrowers (The Guardian, 2017).
The corporate culture and remuneration influence the behaviors of the parties those involved in the banking and financial sector. The strong corporate culture guides the governmental organizations, CBA, or regulators, like ASIC, ARPA, and Royal Commission to provide a corporate governance structure, ethical code of conducts, and regulatory guidelines along with the auditing standards for holding control and supervision on the banking and financial service operations. The regulatory corporate culture directs the authorized members and regulators to involve actively for reducing/minimizing the misconducts (bribery, financial frauds, misrepresentation of the reports, data errors, or wrong entry in the customer transactions or financial statements), criminal proceedings or illegal behaviors. The corporate culture of ethics showsthe right direction for playing the roles and responsibilities ethically in ensuring the accountability and fairness in all transactions, auditing reports, and statements for enhancing trust and good relationship with the shareholders/ investors and customers (Conifer, 2016).
On the other side, the poor corporate culture could lead to the unethical practices and increasing risks and misconducts into the banking and financial operations.
The remuneration also affects their behaviors to encourage them for supporting the prudential risk management and long-term financial security for the banks and investors as well as the secure financial transactions and accurate auditing reports by the banks and financial institutions. The regulatory framework directs them for focusing on the robust control on the decision-making, regular reviews of the outcomes, stakeholder engagement and transparency, and clarity in the financial outcomes.
The corporate culture affects the banks, FIs, insurers, and superannuation service providers. For example, the strong corporate culture supports the positive behaviors, ethical decisions, code of conducts, ethical practices, and fair and accountable reports and financial reports, and fix rewards for these. In opposite to this, the corrupted culture supports the fraudulent practices, misconducts, corruptions, and scandals because of the failure of the corporate governance and regulatory environment(HWL-EBS Worth, 2018). For example, the deregulation of the financial industry has exposed the shocking corruption with the increasing fraudulent practices. Another example, the Federal Court imposed the pecuniary penalty of 10 million AUD on ANZ and NAB in their corrupted attempt to manipulate the bank bill swap rate. The Commonwealth Bank of Australia involved in the scandal of ‘Fees for No Service’, ARPA board of members in the alleged Bribery, CBA accused of the breach of the money laundering laws, Westpac Subsidiary paying penalties of 493,000 AUD for the breach of the consumer protections, NAB wealth management to pay the compensation of $25 million, and ANZ pays $30 m to reimburse the customers are such examples of the corrupted activities or financial scandals in the Australian banking and financial corporate history.
The corrupted culture could be prevented through the improvement in the corporate culture, like the ethical code of conducts, strong corporate governance structures, and regulatory compliance mechanism for holding control and supervision on the insurance, banking, financial, and superannuation services. The corporate culture should encourage the active involvement of the conduct regulators and prudential regulators and more powers and self-regulation authority to the Royal Commission to conduct inquiries and punish the victims for their corrupted activities, fraudulent behaviors, misconducts or illegal activities by imposing the penalties or the court cases for the legal hearings (ASIC, 2018).
1.The impact of the Royal Commission will promote and support the ethical conducts, corporate governance, and decision-making by ensuring the stakeholders satisfaction, like financial security to the investors/shareholders and good returns on their investments/shares. The Royal Commission can also intervene in the legal proceedings of the banking and financial matters by giving the financial advice to the relevant professionals, like bankers, regulators, and financial service providers to ensure that the stakeholders’ interests, needs, and expectations are met. The Royal Commission could also encourage the regulators, like ASIC and ARPA to actively involved with their activities responsibilities to secure the interests and expectations of the stakeholders (University of Wollongong Australia, 2016). The Royal Commission can challenge the banks, FIs, and the relevant professions to operate the ventures by protecting the stakeholders’ needs, expectations, and interests, like preventing frauds, wrong transactions, and security to the investors’ funds as well as the loans at the lowest possible interest rates for securing their profits. Additionally, there should be fewer risk or threats with the reduced access to the misconducts in the banking and financial service operations and in the customer service transactions.
The rewards and punishments are two different terms in the financial and banking service sector. The rewards are given to the FIs, banks, insurers, and other relevant professionals (like the members of ASIC, ARPA) for the good corporate conduct, CSR performance, and ethics in the financial transactions, and shareholders’ satisfaction. e.g. secured transactions, good returns to the shareholders, customers’ interest and financial security, and positive customer feedbacks. In opposite, the punishment is given for the corporate failures of the banks and board of directors, CEO, and senior managers in controlling the business aspects, and involving in the misconducts, fraudulent practices, corrupted activities or financial scandals, and failure to secure the stakeholders’ interests and expectations.
ASIC (the Australian Security and Investment Commission) plays an important role of the conduct regulator in the financial markets or banks for promoting and ensuring the fair, transparent, and secure financial system for avoiding the misconducts or fraudulent practices in the auditing, accounting, and financial services (The ASIC, 2018). On the other hand, ARPA (the Australian Prudential Regulation Authority) plays an important role of the prudential regulator in the financial system for promoting and supporting the prudent management of the banking and financial operations, protecting the interests of the insurance policyholders, depositors/ investors, superannuation fund members, and other professionals by promoting financial security and stability.
A sophisticated system of the financial security is proposed that will support the likely regulations, like self-regulation of the Royal Commission by giving more powers to take self-decisions and actions against the banks, FIs, insurance companies who carry the misconduct or fraudulent practices by imposing the financial penalty. The Royal Commission can also sue for the legal proceedings or court hearings against the financial scandals or frauds, misconducts, or corruption, unethical practices, or failure of corporate governance structure by the CEO, board directors, leadership or senior management level (The Institute of Internal Auditors Australia, 2017).
theRoyal Commission is recommended to determine the National auditing standards for the standard accounting and auditing practices and conduct the inquiries against the malware practices, misconducts, breaches, financial frauds, child abuses, or alleged bribery. The public submission and conducts should be reported on time (no later beyond 5 pm at on 26 October) the public submission page for the hearing by the Royal Commission during round six. The customer satisfaction and shareholders’ maximum return should be at the priority of the banks and financial institutions for operating the business successfully. The banks and FIs should file their report of the financial statement, CSR report, auditing report, and risk assessment report before the due date set by the CBA. The Royal Commission should ensure that there is clear accountability of the transactions and better control on the financial decision-making, protection to the internal auditors (The Guardian, 2018). The Royal Commission should also engage in conflict of interests for resolving the disputes among the borrowers and lenders. Along with this, there should be an effective regulatory compliance and risk management procedure for monitoring the risks, conflicts or disputes in the banking and financial businesses.
4.The Royal Commission will affect the auditing practices, accounting standards, financial service outcomes, and shareholders’ returns of the banks, FIs, and insurance companies by encouraging them for following the regulatory provisions, corporate standards, ethics and accountability of the auditing reports and decision-making. The regulatory reforms, like self-regulation, will strengthen and empower the Royal Commission in Australia to hold control and regulation on the overall auditing and accountancy practices, like conducting the inquiries against the misconduct and unethical practices, checking the financial frauds, and settlement of the conflict of interests and disputes through the self-regulation mechanism, controls of the Commissioner on the decision-making and accountability of the financial statements and reports(Sweeney and Yaxley, 2017)..
The regulatory reforms will also empower the Commissioner to conduct an inquiry without the intervention of the CBA, ASIC, and ARPA through the self-monitoring and take self-decisions to ensure the financial security and transparent consumer service transactions. As the result of the reforms, the Royal Commission will give the financial advice to the CBA, ANZ, NAB, ASIC, and ARPA regarding the statutory procedure and legislative mechanism for the legal hearings of the conflict cases, misconducts, criminal proceedings or illegal activities. The reforms and impacts of the Royal Commission will be the true cause of the current state of the finance and banking sectors because the reforms will empower to take decisions and action by the Commission on the conflicts/disputes, falsified reports, misconducts or criminal activities, fraud scandals for fixing awards and punishment through the self-control (ASIC, 2017).
As we know that the banking, accounting, and finance sectors are global professions for which the corporate governance structures, ethical guidelines, and professional standards vary from one country to another country while operating in the global setting because of different regulatory environment, legislation reforms, taxation policies, fiscal and monetary policies, government intervention and spending pattern, distinct statutory procedures and legislation, corporate governance structures and regulatory compliance mechanisms for the banks and FIs in the overseas market conditions (ASIC, 2016).
In the global financial markets, the Australian banks and financial services operate in the global markets with its local subsidiaries in different countries; it becomes difficult for Royal Commission to take account of the misconducts for the overseas operations of the Australian banks because of deregulation of the Royal Commission on the foreign operations. There are different regulations, code of conducts, and legislation for the banks and FIs in the global financial markets because of In Australia, CAB, NAB, ANZ, ASIC and APRA are regulatory bodies for the regulations and issue the ethical guidelines, regulation procedures, and compliance mechanism for the audits under the governance of the Commonwealth Bank of Australia. The Governor-General of the CBA appoints the Royal Commission to conduct inquiry for misconducts into the banking, financial, superannuation, and insurance service industries.But, alike from the UK, the USA, ASIC fails to control the misconduct and criminal procedures of the theft, data hacking, and financial scandals in the banks because of ineffective corporate governance mechanisms and not strong control on the conducts into the banks and FIs in Australia (Conifer, 2016). T
he Royal Commission faces issues related to the ethics and CSR in the baking and financial operations because of the cultural diversity, changing customers’ expectations, and preferences, the intervention of the governmental organizations and regulators for the auditing standards and accountancy practices as well as the financial data representation in different countries.
The role of the Royal Commission should be empowered and strengthened by the Governor-General of the Commonwealth Bank of Australia by widening the areas of conducts and regulator in the bank and financial service operations. It should be given more powers to inquire the financial misconducts, alleged bribery, corruption in reports, inaccuracy in the financial statements, inappropriate behaviors in the transactions, criminal proceedings, or other misconducts. The punishment should be awarded in the form of the court cases for the criminal proceedings of the bankers or financial institutions with the shareholders, investors or customers. The Royal Commission should follow the international standards for the inquiry commission against the Australian multinational banks in the financial marketsfor providing the ethical guidelines to follow the international corporate governance standards, code of ethics, and legislation for avoiding the misconducts, like financial scandals, customer frauds, identity theft, wrong customer transactions or inaccurate financial statement and auditing reports. For example, it should provide a legal structure for the banks and FIs in the global financial markets for presenting the CSR report by following the CSR standards as well as the ethical code of conducts for the auditors, accountants, and financial consultants to behave ethically(The Commonwealth of Australia (2018). The ASIC should empower the Royal Commission to strengthen the principles of the conducts and however punish the offenders for the misconducts through the inquiries on the auditing reports on the regular basis. There should be a sophisticated system for the financial security, data protection and privacy, transparency and accountability of the financial service transactions for the overseas investment for increasing the corporate reputation and trust with the stakeholders in the international markets. The bankers and FIs should put the clients’ interests and maximum shareholders’ return by following the ethical conducts in the global financial markets.
Conclusion
Conclusively, it is analyzed that the Royal Commission provides the corporate governance structures and ethical guidelines for the ethical conduct of the banking and financial service operations in Australia. It sets the auditing principles and conducts the inquiries into the auditing reports and financial statements of the banks and financial institutions against the bribery, corruptions, frauds, and misconducts. Different parts analyzed the background and constitution of the Australian Royal Commission, its key roles and responsibilities, background, interim findings, reforms and likely impacts, reporting system, and standards for the cross-cultural or global business operations of the Australian banks and financial institutions.
References
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