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The royal commission is a body created by the government that helps in advising on matters of great importance in the finance sector. This agency is given powers to operate by the letters of patent. The royal commission operates typically just as the commission of inquiry in solving issues that are usually controversial in the economic modelling world, how the minorities are treated and other events of great importance to the general public. Corruption is another field which can be dealt with by the Royal Commission. The members of the royal commission are notable figures in the society with an outstanding experience on matters concerning the public.
Background and Purpose of Royal Commission
The royal commission into the banking and finance sectors was commissioned in the year 2017 to check on the misconduct in superannuation, banking and financial services industry. The Royal Commission act of 1902 gives the government the mandate to create a commission of inquiry in case of such matters. A letter of patent was issued appointing the commissioner and the commission’s terms of reference. Justice Kenneth Hayne was appointed as the new chair to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Other members of the commission include Mark Costello, Eloise Dias, Rowena Orr, Albert Dinelli and Michael Hodge. They have the mandate to summon witnesses, interrogate them and even seize documents as evidence. After their investigations, the members draft a report and presents their findings and recommendation to the governments for actions. The government can enact some of the proposals submitted in the in the report. The final report is due on 1 February 2019.
The corporate governance in the banking industry is usually different from the management of other corporations. The banking industry has special credits and liquidity functions which makes it different from other business corporations. The bank regulatory authorities assert that the top management of banking corporations are solely responsible for the success and failure of the banking sector. Bank regulatory authority have additional managerial and supervision on the directors so that they can not only focus on the requirements of the shareholders but also on the interest of stakeholders (Abella, 2010 pg.68). This has brought the success of corporate governance in the banking institution of Australia.
The purpose of the royal commission is to provide to the government the reports on the misconduct in the financial institution. The commission investigates the allegation of corruption and self-interest of the directors of the banking institution in Australia. In recent years, politicians in cooperation with the directors have embezzled and misappropriated millions of dollars for their benefit. The commission is mandated to find out whether the misconduct is real or not. The commission presented an interim report on 28 September 2018, but the final report is to be submitted on 1 February 2019. The public opinion is taken seriously and will be useful when making the final recommendations of the report.
The main reason for calling the Royal Commission is to investigate the misconduct in the banking sector. The public had lost faith in the financial industry, and therefore a commission was necessary to find out why and how to resolve the issue. The commission conducts a public hearing to listen to the views of the citizens concerning the financial sectors (Robertson 2012, p12). The commission also conducts their investigations in a place where there are corruption allegations. They have the mandate to interrogate witnesses and even seize documents to be used as evidence. Despite the great achievement of the royal commission, it received a lot of resistance and opposition from some members. The Prime Minister, Mr Turnbull was among the people who was opposed to the commissioning of the Royal Commission on Banking and financial sectors.
The resistance of the Royal Commission was from the government itself and the major shareholders in the big banks in Australia. Two years ago, the government led by Prime Minister Turnbull could not establish the Royal Commission for their interest and reasons. The royal commission could expose all the corruption and embezzlement of money by politicians in the country (Mackintosh 2008, pg.12). The scandals involving the financial institutions right now could have been avoided two years ago if the commission was established earlier on. The treasurer, Scott Morrison, also resisted the establishment of the royal commission despite getting a lot of pressure from the public. However, in 2017, the government had received an immense pressure from the opposition and the public to appoint commissioners and had authority to investigate the misconduct in banking.
Corporate Culture and Findings of the commission
Findings of the Commission
On 30 September 2018, the Royal commission presented an interim report on their findings and recommendation concerning the mismanagement and the malpractices in the banking sector. The National Australia Bank (NAB) in 2015 had a series of scandals concerning financial planning. The commission found out that the bank paid millions of dollars to clients in compensation of their shares, this was considered inappropriate. National Australian Bank was accused of impropriety in foreign exchange trading. The bank is accused of paying the wrong clients which led to the loss of millions of dollars fraudulently. Westpac Banking Corporation was also accused of rigging Australia’s key interest rates. The commission found out that the corporations were using an automated process in deciding the people who have met mortgages lending criteria. The computerised method left out the needy people in giving out home loans. The company was also found to have fraudulently offered millions of dollars as loans to elderly pensioners.
The royal commission has identified several conflicts of interest that arises in the banking sector and the effects it has on the public. The mortgages provided by Australian banking institutions are written by brokers who act as a third party between the customer and the lender. The Commonwealth Bank admitted that there is a conflict of interests in the commission especially during giving out of loans. The larger the loan, the more the interests, the banking institutions earns millions of dollars every year from mortgage loans only. The brokers, on the other hand, maximises their income through mortgages. The longer the loan takes to pay off the more massive the trailing commission, and that can lead to conflict between the lender and the customer. Banking institution has made millions of dollars by maximising their incomes by giving out long-term loans to their customers (Beck and Paton, 2018 p.350).
Corporate Culture and Remuneration
The corporate culture of banking institutions is different from that of the other organisations because of the liquidity function of the financial institutions. The board of directors are at the forefront of maintaining and upholding the culture of the organisations. They are responsible for promoting good ethics and governance in their administration. The financial incentives encourage that great culture, and quality performance should be recognised and rewarded accordingly (Brody 2018, p.36). Remuneration framework should be designed to promote good culture in the banking sector. For example, an employee who has earned a benefit should be paid immediately to promote good culture. Also, the conditions under which an employee will have met to achieve full remuneration should also be considered. The impact of corporate culture and remuneration have the power to motivate employees with good cultural practices (Bulmer 2015, pg21).
Corrupt corporate culture in the banking institution is one of the significant challenges affecting financial institutions in Australia. Faked pay slips and forged documents used as bribes in the financial institutions is one of the forms of corrupt corporate culture. Some people offer faked documents to secure loans from the financial institutions. However, that is just but the small corrupt culture in the banking institutions. The board of directors and the top management of the financial institutions are the biggest promoters of poor culture in the society. For example, NAB chairman said that the instances of poor conduct and unprofessional treatment of customers are issues which we should take responsibility for it.
AMP limited was accused of stealing millions of dollars from customers. The AMP board of directors had to send off Craig Meller, who was the chief executive officer. The investors and the shareholders had no idea of what was going on until they realised that the company was not performing as expected. The only way of ensuring that there is no such corruption is to ensure that the directors are accountable for their actions. The CEO of the Australian Council of Superannuation Investors said that the board of directors need to take responsibility for their organisations. All the people found guilty should be jailed and prosecuted, and the money stolen should be returned. The only way of promoting good corporate culture is to have notable and professional people to take charge of the banking institution. The top management should be held accountable for their actions (Wishart and Wardrop 2018, p.23).
Impact of Royal Commission
The board of directors of any institution should focus on the interest of both the shareholders and the stakeholders. The royal commission has a significant impact on the financial institutions in regards to corporate social responsibility. The royal commission has promoted the accountability of directors in the banking sector. Their primary role was to investigate the misconduct in the banking institutions, which was very rampant with corruption allegations. Most of the banking institution in Australia have taken into consideration the recommendations of the Commission. For example, the National Australia Bank banned the staff who were previously licenced to provide financial advice. They misled the bank; as a result, the bank had lost millions of dollars. The National Australia Bank is now straightforward in offering quality services as a result of the recommendations of the Royal Commission.
The Macquarie bank donated $2 million to non-governmental organisations and charity as a punishment for breaching the foreign exchange trade policies. The bank currently works in utmost integrity and professionalism. This is one of the positive impacts made by the royal commission. Most of the organisations are presently delivering quality services due to the presence of bank regulatory committee and the royal commission. The top management of the banking institution are the ones responsible for the efficient service delivery. The board of directors should not put their interests in line with the shareholders' objectives, and they should be contented with their remuneration.
Rewards and punishment help in promoting good corporate governance in the leadership of financial corporations. The Australian Securities and Investment Commission (ASIC) is an independent body which regulates the laws to protect consumers and investors. It ensures that the right people are well rewarded and the customers receive the quality work they deserve. The Australian Prudential Regulation Authority (APRA) help in the formulation of policies that promotes professionalism in the banking sector. The ASIC and APRA bodies help in ensuring that the banking institution upholds the required working standards without any form of oppression. The CEO’s and the executive directors should be jailed and fined for any corrupt allegations and mismanagement of financial resources. A director who is found guilty of any offence related to corporate governance should be prosecuted. However, the directors who do exemplary work should be well remunerated and reward for quality work (Hamilton 2018, p.39)
Recommendations of the Royal Commission
The royal commission, after several months of investigation and listening to public views, it managed to draft some recommendations which will help to stop the misconduct in the banking institution. The commission recommended that the banking corporations should disclose the risks and charges for customers. The customers have a right to know the risks that are involved in the services offered in the banks to trade with an open mind. This will help prevent any corruption activities in the banks, especially bribes. Secondly, the commission also recommended a proper remuneration structure for directors. The commission suggests that appropriate remuneration of directors will help in stopping the corruption and fraudulent activities in the top management. Well, renumerated directors can perform beyond their expectations because their interest is well taken care of. Therefore the committee recommends that financial corporation should make sure that the top management is rewarded for good governance.
The reforms brought by the royal commission affects the board of directors, the stakeholders of the institution and the general society. The directors will take in the recommendations of the commission to be able to uphold good corporate governance. The stakeholders, on the other hand, will be able to receive quality management and affordable services from the banking industry without any constraints. The employees with good corporate culture are in apposition to serve their customers professionally, that is, without accepting bribes to offer services (Ramsay and Louwers 2015, p.25). The general community will be able to receive donations and charity work from the banking institutions. These institutions will have enforced the recommendations of the commission and will be in better position to serve the society. However, the commission which will have neglected the recommendations might face the full wrath of the law. Corrupt institutions that do not uphold good corporate culture will be prosecuted in a court of law.
The current state of finance and banking sectors will be positively affected if the recommendations of the commission are considered to the latter. The misconduct in the banking sector is the cause of failure and mismanagement of resources in the financial institutions. However, if the recommendations are taken into considerations, the problems in the finance sector can be solved. The regulatory bodies, especially ASIC and APRA, should keep the financial corporations in line with the framework of good governance. These agencies should be able to prosecute any corporations that promote misconduct and mismanagement of resources in the banking sector. The financial institutions are encouraged to have their self-regulatory policies to help in keeping the directors and other employees responsible. The royal commission in collaboration with Bank Regulatory services can be able to hold a banking institution accountable for poor governance (Sah and Bose 2016, p.76)
Comparison in Global Financial Markets
Banking and finance sectors are global professions whereby the corporate governance in different counties do not vary except on few issues. The problems facing the banking sector has no regard for culture and nationality, they all face similar issues that can be solved with the same methods. Policies used in other nations can solve the problems faced by the banking sector in a particular country (Quick and Boolaky 2016, p.36). For example, the Royal Commission on misconduct, superannuation and financial services in Australia have employed sent few members of the commission to the United States to study the banking policy in America. This will give more insights on how they handle problems in regards to banking services.
In New Zealand, ANZ bank was implicated with fraud and transaction disputes which led to the loose f millions of dollars. The bank faced serious management challenges as per the interview with one of their customers. This is just as the same case of the National Bank of Australia whereby a lot of fake documents are presented for loan approval. The challenges facing ANZ Bank in New Zealand is just the same as the challenges facing the National Bank of Australia. Therefore, the two countries in coordination can choose to work together and solve the issues surrounding the banking industry. Delegates from both countries can be appointed to do research on the misconduct in the banking sector and provide a recommendation on how to solve the issues. This can be a way of promoting globalisation in the fiancé sector (Nahar and Anne 2016, p.25).
In the United Kingdom, the banking sector, just like other countries have several scandals and misconducts that prompted the making of a commission of inquiry to solve the issues. The Royal Bank of Scotland was accused of corrupt practices with small business investors in 2016. The bank is alleged that it destroyed the lives of small business customers to make their profits. The bank nearly collapsed in 2008 due to their negligence and corruption practices but some politicians rescued them. The National Australia Bank (NAB) of Australia also had an accusation of corrupt employees that led to the loss of money through falsified paperwork. The royal banking commission discovered evidence showing the employee of NAB received forged documents with fake payslips to approve loans to clients. Therefore, the problems facing the banking sector globally can be solved by allowing global interactions.
In summary, the misconduct in the financial institution can be solved by governments working together with notable figures in the society. The government can use the parliament to pass legislation on how banks should be governed. The legislation is one of the ways of ensuring uniform administration of banks. The government should be involved in the monitoring of banking institutions. This will allow the directors to be accountable and take responsibility for providing good governance in the sector. Responsible directors can avoid mismanagement of resources and put the interest of shareholders and stakeholders before their interests. The bank directors should be well rewarded to avoid the temptation of stealing from their own company. However, the directors or employees found guilty of mismanagement and misconduct should be punished accordingly.
In conclusion, the Royal Commission on banking created by the government has given the findings and recommendation on the misconduct in the banking sectors. The Commission found that the directors with outstanding leadership abilities have less mismanagement of resources. The directors should be held accountable for their actions in the organisation. The misconduct in the banking sector has grown over time, but since the conception of the royal commission, the rate of wrongdoing in the banks have significantly reduced. The commission proposed that to control mismanagement of resources, the directors should be well renumerated. The banking sector should also have their self-regulatory policies that will help in managing employees in the banking industry. Bank regulatory committee, APRA and ASIC, and government intervention are the only bodies that can solve the misconduct in the banking sector. The agencies above should work in collaboration to achieve good governance in our financial institutions.
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