Introduction

CLINTON FREE: The road to the Royal Commission is a bit like a Shakespearean tragedy – claims about good versus evil, conflict, several dramatic twists and in the final act a new order, where all players saying they were for the production and had been forced to say otherwise by a fallen leader who is dramatically stabbed in the back.

This drama featured four major players: The Media, Politicians, the Banks, and, lastly, Consumers

The media

The first actor onstage was the media. A Four Corners program ‘Banking Bad’ aired in 2014 unveiling fraud, deception and an aggressive sales culture at the Commonwealth Bank. This narrative added to other reports, especially in the Sydney Morning Herald, setting out customer complaints about the banking sector over several years.

The reports included accusations that the Commonwealth Bank was money laundering for drug syndicates and turning a blind eye to terrorism financing. Westpac, Commonwealth Bank, ANZ and NAB were accused of rigging the bank bill swap rate. Macquarie Bank was also accused of misconduct in foreign exchange trading. Stretching over 10 years the ANZ had paid more than one hundred million dollars to settle customer complaints about home loans and bad financial advice. There were also individual cases of insider trading at Macquarie in 2011, Westpac in 2014, and NAB in 2015. The media exposure undoubtedly bought the politicians into the scene

Politicians and regulators

A 2014 Senate Inquiry into Australia’s corporate regulator, the Australian Securities and Investments Commission came to be dominated by the Four Corners revelations.

A major driver of that inquiry, John Wacka Williams, then a National Party Senator, became a lone conservative voice calling for a banking inquiry over the ensuing years. Prime Minister Abbott and Treasurer Hockey were openly antagonistic to the idea of a Royal Commission into banking.  Moreover, the Abbott Government abolished a provision for financial advisors to act in the best interests of their clients.  A change of Liberal leader to Malcolm Turnbull did little to bring a change in position on investigating the banks.

By the end of 2017, Australia’s four major banks had become the focus of 15 Government and quasi-Government inquiries including:

• Separate ASIC inquiries into mortgage broking fraud, wealth management, interest-only home loans, and Westpac lending practices
• a Productivity Commission inquiry into competition in the financial system,
• APRA inquiries into sound lending standards, and governance culture and accountability
• The House of Representatives Standing Committee on Economics was looking into the four major banks

By late 2017, the political tide was turning and a third Greens motion to instigate a Royal Commission was passed in the Senate with the support of Labor, the Greens and cross-benchers. Despite years of resistance by the Liberal Party a Royal Commission was looking imminent…

The banks

Enter (stage right) – the Big Four Banks! In a letter to the Treasurer the CEOs and chairs of ANZ, CBA, NAB and Westpac said while a banking inquiry was, ‘unwarranted” and an “unnecessary distraction” at a time of growing global macroeconomic uncertainty” … Nevertheless “it is now in the national interest for the political uncertainty to end.”

This was an unprecedented step – the banks asked for a Royal Commission to be called into their operations. Former High Court Judge Kenneth Hayne was appointed as Commissioner and the commission sprang into life. It had been a painful gestation.

Conclusion: the voice of finance and the voice of the customer

What emerges out of this struggle is how the banks viewed their operations and how customers viewed the role of banking. This is what I call the disconnect between the voice of finance and the voice of the customer. Customers were furious and frustrated and ripped off. When public hearings opened in March 2018, the real-life tragedies of ordinary bank customers and the ignorance of senior banking executives made headlines across the country.

Introduction

CLINTON FREE: We asked our Business School Students what they knew about what happened in the Banking and Finance Royal Commission –

STUDENTS: I think the big four banks CBA, ANZ, NAB and Westpac were probably the central parts of the Royal banking commission, but as well, I think, AMP on the side

Um, transparency, I find that with the banks, they weren’t really being honest and open

I wouldn’t say it’s a public bloodletting That sounds very violent. But I think it’s definitely something that it’s important that the public can see.

I’ve heard of it. I don’t have much knowledge on it. But yeah

CLINTON FREE: So the gamut from zero knowledge to at least some idea – But they aren’t running any of the banks – yet – so perhaps we should cut them a little slack.

However, it is a little harder to give slack to the people running our major financial organisations – with years of deep operational experience – who in the Royal Commission appeared to be disturbingly ignorant about what was going on inside their own organisations. Particularly about the bad bits.

The commission hearings

KEN HENRY, Chairman, NAB: “I probably can’t explain it to you”

MICHAEL WILKINS, CEO, AMP: “I don’t think I have an answer to that, Mr Hodge.”

MATT COMYN, CEO Commonwealth, Bank: “Well we dealt with this matter very poorly”

CLINTON FREE: As for the rest of us – well it’s fair to say the community response to the RC was overwhelming. The Commission received more than 10,000 submissions, its public hearings were live streamed, coverage of the events dominated the media cycle for more than a year, council assisting became social media stars, #BankingRC trended on Twitter – it was a smash hit! And, yes, it featured a fair amount of public bloodletting…

The Commission unfolded in two major acts across seven public rounds of hearings. The first act comprised public hearings from March to September 2018. It featured 75 case studies of misconduct that showcased massive systemic failure.

These revelations garnered huge public attention and pushed the share price of the Big 4 banks – the backbone of many superannuation accounts across the country – downwards.

The second Act was the last round of public hearings that put Australia’s financial leaders – CEOs and Chairs, in the hot seat.  What did they know and when did they know it?

And just what was their business?

ANDREW THORBURN, CEO, NAB: “Well in the last two years, we never had a purpose”

MICHAEL HODGE, Assistant Commissioner: “It seems – it sounds so complicated when you say it, but you’re a bank. Presumably your purpose is to be a bank. Isn’t it?”

MATT COMYN, CEO Commonwealth Bank: “I think we did not look hard enough… we did not assure ourselves the problem did not exist and that’s been a failure that’s been repeated in other matters.”

Case studies

CLINTON FREE: The major issues coming out the public rounds of the Royal Commission were fees and selling tactics, regulators and remuneration. The case studies provided examples of:

• Fees-for-no-service
• Aggressive sales tactics
• Numerous examples of customers entering contracts where they did not understand the details of what they were signing up to.

There were some deeply saddening stories.

Conflicts of interest

CATHERINE SUTTON-BRADY: So what happened was, this young boy took a call from someone trying to sell him insurance. And he didn’t understand what was going on. The caller was extremely insistent to the degree that this boy took out the insurance without having any idea what he just agreed to

ANDREW GRANT: There was, I guess, systemic predatory behaviour by the banks, or at least that was the theory that we could say that people who are less educated or people who are disadvantaged in other ways, whether it’s being in a remote area without access to other options, or whether it’s being disabled in other ways, all sort of on a low income, were being taken advantage of by the banks.

GAIL PEARSON: Funeral insurance being paid to remote indigenous communities. Individuals in indigenous communities were sold insurance policies that they really did not require. Sometimes they were attempts to sell them more than one policy.

CLINTON FREE: Insurance companies and retail and industry superannuation funds were also made to answer for bad practices.

SUSAN THORP: One of the things that the Royal Commission highlighted is that at times, depending on whether you’re in a for profit, or a not for profit, superannuation fund, the people that are looking after that fund, the trustees of the fund may have other interests around their decision making

CLINTON FREE: All Australians have to engage with financial products and have bank and superannuation accounts. I believe the banks should have an elevated fiduciary duty in relation to their customers.

Changes to banking: commissions, conflicted remuneration and sales-based incentives

CLINTON FREE: Banks have changed a lot in the past couple of decades.  Many of these changes have been highly visible to their customers courtesy of lavish advertising, significant online operations and via solicitous invitations through the mail. But what has not been visible – and what has also changed significantly – is how banks pay their staff.

GAIL PEARSON: Once upon a time, the bank manager was a friendly person and knew the people who came to him in those days for a loan. Since the opening up of the financial system, since the introduced introduction of competition in the financial system, since the reforms at the turn of the century, there has been a flow on effect from the insurance sector into the overall financial sector concerning payment of commissions. Once upon a time banks did not pay commissions to bank tellers. Now, as we know from the Sedgwick report, banks do pay commissions to bank tellers.

CLINTON FREE: Two strong themes emerged: Conflicted remuneration, where brokers and advisers were sometimes financially rewarded for selling products not in their customers best interests. And sales-based incentives and bonuses were strong themes driving misconduct in the sector.

JOHN SHIELDS: One of the reasons for that one was that the executives leading these banks were themselves eligible for remuneration payouts, incentive payments, particularly short-term incentives that were themselves linked to the same criteria, volume of sales revenue as opposed to economic efficiency or profitability.

Regulation

CLINTON FREE: It’s ironic that for a Royal Commission on banking – the entities impacted the most aren’t banks, but rather their two main regulators. ASIC – The Australian Securities and Investment Commission, were heavily invoked in the public hearings and interim report.   APRA – the Australian Prudential Regulatory Authority – was also presented as not striking fear – and compliance – into the operating heart of the financial sector.

GAIL PEARSON: During the Royal Commission, there was a lot of criticism of the way in which ASIC had approached its job and taken enforceable undertakings. These were portrayed as a mechanism that escaped public scrutiny. One of the things that often said is that ASIC should become more like the SEC, the US regulator. ASIC has now very publicly said that it has changed its approach to regulation. It’s adopted an ‘if there’s a breach, why not litigate?’ approach.

Conclusion

CLINTON FREE: I find it useful to frame the bifurcation in the Australian banks’ sense of obligation as being torn between heeding the voice of the customer verses serving the voice of the finance.

Over the past decade the voice of finance had come to be a major driver in the way banks were organised, how staff were incentivised and what the market came to expect in terms of profit. Commissioner Hayne elevated the customer voice: When assessing the actions of the financial institutions Hayne said he was using community expectations as the guiding standard.

What emerged throughout the seven rounds of hearings was not only had customers been systematically misled, lied to and duped – when people complained rarely was the problem fixed by the banks’ processes. Or by the wider regulatory system. The Royal Commission finally gave consumers an unfiltered hearing setting the stage for Commissioner Hayne to make some major recommendations for reform.

Introduction

CLINTON FREE: The Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Finance Industry was released early in February 2019 and made 76 recommendations. The Royal Commission found Australia’s banking sector was driven by greed and was not acting in the best interests of their customers.

Voice of customer

ANDREW GRANT: Commissioner Hayne placed specific emphasis on the Responsible Lending guidelines in the National Credit Act. That is, when extending a loan or a line of credit to customers banks must ensure its offer is not unsuitable for that customer. Meaning it is not enough for the bank to assess the customer could service the debt – the transaction must suit their financial objectives.

CLINTON FREE: Overall, post The Hayne Royal Commission the banking sector should be subject to much tougher regulation and should be more focused on the customers rather than on sales and profits

ANDREW GRANT: Focusing more on customers will mean the banks will have to undertake a much more rigorous vetting process before extending a loan or a line of credit. This will mean more work for the banks – and customers must expect to have their spending and consumption habits examined more closely.

Mortgage brokers

CLINTON FREE: In a drastic change to current mortgage broker arrangements, Commissioner Hayne recommended that the borrower, not the lender, pay the mortgage broker’s fee for acting in connection with a home loan.

ANDREW GRANT: Shifting the payment to the borrower would eliminate the conflict of interest faced by mortgage brokers who might be tempted to push clients to the bank paying the most commission rather than the best deal for the client. Hayne also recommended mortgage brokers charge a fixed fee for service and that trailing commissions be abolished.

CLINTON FREE: However, this was the one area where lobbyists were able to overturn a Royal Commission recommendation, with the government not accepting the suggestion to change the way mortgage brokers are paid. For financial advisors, perhaps the most important outcome was the clear restatement of the duty to act in the best interests of the customer.

ANDREW GRANT: Commissioner Hayne thought it is in the best interests of customers that financial advisors have a minimum level of training. He also recommended ongoing annual professional development to improve the quality of advice.

Financial advisors

CLINTON FREE: According to the final report, financial advisers would also need to be individually registered like doctors and lawyers.   A single disciplinary body would be responsible for imposing sanctions for misconduct, with the most severe punishment being deregistration.

Superannuation

SUSAN THORP: The most important recommendation that the Royal Commission made around superannuation relates to default settings. The Royal Commission made a recommendation that people should only ever be defaulted into a superannuation fund once and that we should then unless we decide otherwise, keep that one single superannuation account for the whole of our working lives. This is a very, very important and surprisingly quite radical change to the superannuation industry that has very far reaching implications

It would also be much fairer for those people, people who are moving in and out of the labour market, perhaps gig economy workers and women who are working part time, because these people would not also not be accumulating additional and unnecessary superannuation accounts at high cost.

Conflicted remuneration

CLINTON FREE: If nothing else, I think this inquiry is a siren call for all organisations to consider the way that they incentivise employees.  Commissioner Hayne expresses a strong view that conflicted remuneration and bank profit targets were inextricably connected with institutional and individual misconduct and shabby customer treatment.

JOHN SHIELDS: The problem is, when you have a singular focus like that you do get people cutting corners, you do get people violating what a reasonable person might describe as an ethical approach to customer interface and that’s exactly what a commissioner Hayne and the Royal Commission investigation have exposed is systematic, widespread absence of customer focus the customer is not seen to be the primary stakeholder in the transaction. So the customer in relation to say the practice of commissions being paid for insurance brokering was a double loser in that they were the ones who were being sold products they did not need.

Regulators

CLINTON FREE: So unimpressed was Hayne with the effectiveness of the regulators he recommended a regulator for the regulators be set up. Hayne is saying the finance sector cop should stop negotiating remedies with offenders – and to see them in court instead!

JULIETTE OVERLAND: This doesn’t mean that ASIC will have to litigate every instance of potential misconduct, but that it will consider first whether the outcomes to an investigation should be determined by a court rather than by coming to an agreement. Whether it is in the public interest that matters be litigated will be an important consideration in this enforcement culture.

Culture

CLINTON FREE: Finally – we need to talk about culture.

JULIETTE OVERLAND: The word ‘culture’ was used 282 times in the Hayne report on the Banking Royal Commission but the meaning of that word in a regulatory context is far from clear. In the Hayne report, “culture” is defined as “shared values and norms that shape behaviour”, and “what people do when no-one is watching”. However, these concepts don’t really have any legal effect and the phrase “corporate culture” can mean different things to different people.

GAIL PEARSON: Now, culture, to my mind, is a very deep word, but it’s become a weasel word. It’s become we’ll fix the culture and everything will be all right. But what does this mean? What does have to be fixed? its internal management that needs to be fixed. Its IT systems that need to be fixed. It’s the details of remuneration of small players and big actors that needs to be fixed and needs constant attention.

JULIETTE OVERLAND: In the final report, Commissioner Hayne drew close links between culture, governance and remuneration as drivers or enablers of misconduct, and a chapter of the report was devoted to that topic.

Conclusion

CLINTON FREE: I think we should not underestimate the way this Commission has shaped public opinion and acted as a burning platform for the large corporates in this country.

It has raised questions about:

• what we should expect from our large corporates,
• whether there should be elevated duties on financial institutions dealing with customers who may be uninformed and disengaged, but forced to have bank and super accounts
• if we have struck the right balance between the voice of the consumer against the voice of finance.

It’s an interesting time to be engaged and to see what actually changes.

Introduction

CLINTON FREE: Our previous three episodes have told the story of the landmark Royal Commission into misconduct in the Banking, Finance and Superannuation sector – what led to the RC, what happened and what was recommended. The big 4 banks, financial firms the regulators said they were on-board with the need for change and the Government committed to implementing all 76 of Hayne’s recommendations.  But since those heady days… there has been some creative and at times self-interested institutional dancing trying to entice the Government from ‘going too far’. So in this video we’ll take a look at the forces against change – and why these matter when we consider what can and should be done to fix finance.

Banks and customers

ANDREW GRANT: In the short-term fixing problems in banking will involve more intensive scrutiny of loan and credit applications – meaning more work for the banks. It will also mean customers having to accept greater investigation into their discretionary expenditure – you want this loan – then you’ll need to cut back those online food delivery services and visits to the casino! But transparency must go both ways – including banks not asking their customer service staff to also act as sales staff.

Rebuilding trust

CLINTON FREE: How the banks and other players go about rebuilding public trust is a fundamental challenge for the sector.

CATHERINE SUTTON-BRODY: Rebuilding consumer trust is going to be really really difficult but luckily for the banks, it’s not impossible. The reason it’s not impossible is that they had huge brand equity in the marketplace before the Royal Commission. And they have to go away from their current and message of being so profitable, because that’s definitely not what consumers want to hear. They don’t want to hear that the banks are making billion dollars of profit because they know exactly where that profit has come from. So the new message has to be, we’re fixing this and we are not going to behave in the way we behaved before.

Customer-focused reforms

CLINTON FREE: Another suggestion for how the banks can address their fractured relations with customers is to bring the voice of the customer into the board room. One of the most striking elements of the Royal Commission was the fact that Board Chairs appeared to be generally unaware of many of the acts of poor behaviours.   One option that is currently being considered across the sector is the idea of a retail customer committee as part of the Board.   The idea is a separate committee of the Board actively engages with customer issues, customer-facing staff and overall customer outcomes.

Customer-focused fin-tech

ANDREW GRANT: I think advances in fintech will improve consumer financial decision making. Text messaging services to remind people to make payments on their credit cards is one way that technology can help to benefit consumers. This plays a role of “nudging” people and helping them avoid late payment fees and excessive interest payments. We’re also seeing things like automated payment schemes that round up small purchases, placing the difference automatically into a diversified share portfolio. These steps are helping consumers to use their behavioural biases, such as inattention or inertia, for their own good.

Mortgage brokers

GAIL PEARSON: Well, the first thing that happened should happen is that all of Commissioner Haynes recommendations should be accepted. These recommendations include introducing a best interest duty for mortgage brokers similar to that for financial advisors. They also include the eventual elimination of commissions for mortgage brokers and for financial advisors. If that happened then the risk of conflict of of interest arising from payment of commissions to a range of actors, from bank tellers, to end to mortgage brokers to financial advisors to insurance sellers, will be if not eliminated, at least minimised.

ANDREW GRANT: Despite the battering they took in the royal commission we need to remember that mortgage brokers can help consumers navigate complicated financial transactions. Let’s face it most people only negotiate a mortgage once or twice in their life and not frequently enough to get good at it. So mortgage brokers can help, firstly by providing reassurance on all the financial jargon involved, and then by working with the consumer to find out what their needs are (an offset or redraw facility, for example) and by shopping around from an informed position.

Financial advice

STUDENTS: I think it was also like financial advice was given that wasn’t in the best interest of the person who was receiving it and a lot of Yeah, like fee-for-no-service, though. You were paying for services that you didn’t receive

Even misrepresent the actual products that they were selling to the customers because obviously, the customers don’t have such a high bargaining power that they kind of come in.

CATHERINE SUTTON-BRADY: One of the outcomes of the Royal Commission has been the impact on the financial advice sector. As a result of that the banks have lost a lot of business, through these financial advisors, especially in wealth management. And so in order to move forward, the banks have to start working very closely with their financial advisors, educating them more about their products, making sure that those financial advisors are providing the best service to the consumers at the end of the day, because that’s the only way the wealth management side of the business will continue to to grow and not be adversely affected by the Royal Commission.

Superannuation

STUDENT: Oh, I guess another thing was the fact that they were pushing insurance contracts on to superannuation accounts that weren’t actually disclosed to the customers at the time.

CLINTON FREE: From a customer viewpoint, hopefully a lasting outcome of the Royal Commission will be the primacy of the best interest of the customer in the sector. In the areas of financial advice and superannuation, this has clear and direct implications for ensuring that customers are properly informed and consulted

SUSAN THORP: So one of the things that we’re seeing happening is that member flows and moving towards what people perceive to be the better and more trustworthy superannuation funds. So the group of funds described as industry funds, which are in the not for profit sector have attracted an unusually high flow of members contributions compared with before the Royal Commission. It does signal to the industry that people are listening and that they’re taking notice of what’s been going on.

Incentive payments

STUDENT: Like, I think there’s a problem with the way bonuses restructured and in terms of the things that went wrong.

CLINTON FREE: Commissioner Hayne strongly felt incentive payments both to bank staff and third parties fostered a sales culture that was dysfunctional and not in the best interests of the banks’ customers.

JOHN SHIELDS: I don’t think that should mean, however, that banks walk away from incentive payments. Incentive payments, can be calibrated positively, if the performance criteria are singular, if you have some financial metrics, tempered by non-financial metrics, like customer focus, like workplace culture, like workplace behaviour, and secondly, rather than simply have individual incentive plans, and I’m not saying that that does not have some relevance, you could also have group or business unit incentive plans that are configured according to group performance, where the group’s performance is measured in a balanced way.

GAIL PEARSON: I believe that commissions should be completely eradicated. I think that people should be paid properly, full stop. One of the obstacles to meaningful change is human nature. Commissioner Hayne strongly identified greed as a driving force in this problem with the link between remuneration and misconduct, bad behaviour. Individuals want to be paid more, why are they not paid an appropriate amount? They’re not paid at appropriate amount, because their pay is often structured between set pay and variable pay.

Regulation

JULIETTE OVERLAND: When we think about what lies on the ‘road ahead’ from the Banking Royal Commission, it appears to be paved with regulatory issues relating to the concept of ‘culture’.

STUDENTS: I think in the past of sorry, in the past, regulatory bodies have been very conscious of their relationship with banks. So they’ve taken a bit of a backseat just to not, like tread on any toes.

I think there needs to be a corruption watchdog which has investigated powers randomly throughout without having to have a royal commission

JULIETTE OVERLAND: Some changes have been made, or will be made, to the law, to make it easier for ASIC to successfully litigate matters of misconduct. For example, the definition of ‘dishonesty’ in the Corporations Act was amended this year for this reason. However, when litigation is commenced, the law that must be applied in the proceedings is that law that was in place when the alleged misconduct occurred. So, changes to the law that are being made now won’t be relevant in future litigation which ASIC might bring for misconduct discovered as part of the Banking Royal Commission, and it won’t assist in enabling a culture of enforcement for the regulator.

STUDENTS: It’s important for students to learn how to tackle ambiguous problems and questions because in their day to day life that’s the reality that we face when we work in the industry.

Culture is a very really big thing. So it’s a bit hard to define exactly what is going to happen, but I think banks just need to figure that out.

I think to some extent we should build an awareness of this conduct because in some way when we are not knowing what exactly misconduct is, we’ll just do it

Culture and regulation

JULIETTE OVERLAND: The concept of ‘corporate culture’ also exists as a regulatory tool in the Criminal Code for proving misconduct by organisations. If an organisation can be shown to have a ‘corporate culture’ that encouraged non-compliance with the law, or did not have a ‘corporate culture’ that would require compliance with the law, it can be used to show that the organisation has criminal liability for misconduct.

However, these ‘corporate culture’ provisions are largely untested and are currently excluded from the Corporations Act. This means they are not available for ASIC to use for cases of misconduct in the financial services industry, which is largely regulated by the Corporations Act.

Future skills for the industry

STUDENTS: I believe. I strongly believe that I guess values should be implemented and should be placed into the university courses as part as a as a central curriculum so that the students who want to work in the banks later in life, retain those values, they can respect the customers trust

For example, I was thinking that the university could kind of show their solidarity and support to the outcomes of the Royal Commission. Engaging students in kind of case studies of what exactly happened within the within the time frame and what was actually being discussed

Just to show that the university has this particular position on the outcome and that they are supportive of, I guess, a more ethical approach to banking in general.

JOHN SHIELDS: We’ve been doing this for 10 years now, we’ve been equipping students with both the technical capabilities that we now we know are needed in the business of the here and now. But we also are seeking to develop them in a way that we describe as a future ready way to equip our graduates. To be able to demonstrate those deeper capabilities that were relatively confident and going to be needed in the 2020s and 2030s. To be an effective performer and professional in the world. That’s being radically transformed technologically, that’s volatile and uncertain and increasingly complex. Business graduates need to be skilled, technically, and capable. By being equipped with those deeper competencies critical thinking, agility, problem solving, strategic thinking, active listening

Conclusion

CLINTON FREE: The Hayne Commission will continue to influence public perception of the banking and finance sector for years to come. Ok so while the report stops well short of a massive sector restructure, its recommendations, if implemented, should see the end of secret commissions and product pushing and also reorient the sector to act in the best interests of the customer.  It should also mark a more proactive, adversarial approach from our regulators. In the 1980s, the notorious – but fictional banker, Gordon Gecko proclaimed that greed is good meaning that the voice of finance is the key driver of capitalism. Perhaps the most important thing that the Hayne Royal Commission has done is to show that the voice of finance, if unfettered, can lead to misconduct.   And finally for future finance sector employees the royal commission underlines the importance of placing the best interests of the customer right at the heart of all of your professional decisions.

• First impressions matter: forming trust in financial advisers
• High-frequency trading and dark pools: a toxic effect on market evolution
• Balancing tech efficiency with innovation
• Bailing out the banks
• The impact of new technologies on insider trading
• In defence of ASIC: there’s more to regulation than prosecution (Professor Clinton Free)
• The government’s bank reforms wouldn’t have saved us a royal commission (Professor Clinton Free)
• Royal Commission shows banks have behaved appallingly, but we’ve helped them do it (Dr Andrew Grant)
• For the sake of our retirement savings, it’s time to reform the investment management boys’ club (Professor Rae Cooper)
• Banking Royal Commission: the real problem is how we value executives and workers (Dr Kym Sheehan, Sydney Law School)

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• A recent history of Australia’s banking scandals (Guardian Australia)
• Labor vows royal commission into entire financial services sector (Australian Financial Review)
• ASIC and Bank of Queensland reach Storm Financial settlement (Australian Securities & Investments Commission)
• It’s time to move from bank-bashing rhetoric to bank-changing policies (Australian Greens)
• ANZ to reimburse 8,500 financial planning clients $30 million (ABC News)
• The whistleblower, politician and journo who hauled the banks before a royal commission (ABC News)
• Banking royal commission: all you need to know – so far (Guardian Australia)
• This letter from the big banks helped shape the royal commission (ABC News)
• The full list of inquiries faced by Australian banks and what it means for shareholders (Business Insider Australia)
• ASIC takes banks, Storm to court (ABC News)
• Opes Prime directors face 20 years jail (ABC News)
• Yes, Kenneth: the Coalition response to the banking inquiry is pure politics (Guardian Australia)
• Wacka bows out with a parting gift to farmers battling banks (Farm Online)
• ‘To hell with the people’: The history and consequences of the banking royal commission (4BC)
• Don’t forget what Turnbull and Abbott really thought about the banks (The New Daily)
• Anger as Coalition waters down financial advice laws (Sydney Morning Herald)
• Tony Abbott Lets Banks Rip Off Mums & Dads (Hot Copper)
• Banking inquiry: Nationals senator to cross floor and vote against Government to support Greens bill (ABC News)
• Kelly O’Dwyer won’t concede Government was wrong on delaying banking royal commission (ABC Insiders)
• Whistleblower Jeff Morris says ‘culture of bonuses’ behind corrupt practices at banks (ABC 7.30 Report)
• CBA and NAB admit impropriety in foreign exchange trading (Australian Financial Review)
• How the Commonwealth Bank laid the groundwork for a royal commission (ABC News)
• ANZ to reimburse 8,500 financial planning clients $30 million (ABC News)
• Banks face Senate grilling over dodgy financial advice (ABC News)
• Sales-driven culture within Commonwealth Bank’s financial planning division examined (ABC News)
• Banking Bad (ABC Four Corners)
• Bank staff paid bonuses to hard-sell financial products to customers, push for banks to come clean (ABC News)
• Royal commission into banking: The inquiry that could kill the Government (ABC News)
• Banking royal commission: How did we get here? (ABC News)
• Banking Bad: Adele Ferguson signs book deal about royal commission (Sydney Morning Herald)
• AMP responds to allegations made in Four Corners report (Mortgage Business)

These teaching notes have been prepared to aid instructors at the University of Sydney Business School in units on the future of work and business, ethics, accounting, marketing, and organisational behaviour. The questions below are designed to stimulate discussion on the recommendations of the Banking Royal Commission. They can be used from any level from undergraduates through to corporate executives. Potential teaching objectives

• Identify recommendations from the Banking Royal Commission
• Compare and contrast the effect of recommendations on organisational structures
• Evaluate the effect of recommendations on the future of the industry
• Clarify the appropriate role of regulation and balance financial objectives and community expectations

1. Consumers

When extending a line of credit to customers, banks must ensure its offer is not unsuitable for that customer.
Dr. Andrew Grant, Video 3

The Royal Commission noted the imbalance of power between customers and financial firms. Identify the ways that the Commission brought the ‘voice of the customer’ into view. What are some ways to balance shareholder value with the financial objectives of consumers?

2. Remuneration

I don’t think that should mean that banks walk away from incentive payments. Incentive payments can be calibrated positively.
Professor John Shields, Video 4

I believe that commissions should be completely eradicated. I think that people should be paid properly, full stop.
Professor Gail Pearson, Video 4

Imagine you have been asked to design a pay structure for bank employees that creates positive customer outcomes. How would you sufficiently incentivise bank employees? What Royal Commission recommendations are relevant?

3. Financial advice

For financial advisors, perhaps the most important outcome was the clear restatement of the duty to act in the best interests of the customer.
Professor Clinton Free, Video 3

Assess the recommendations that call for better training and registration of financial advisors. What will this mean for ethical decision-making? What effect will a new regulatory system have on financial advice?

4. Culture

Culture is a very deep word, but it’s become a weasel word.
Professor Gail Pearson, Video 3

The concept of ‘corporate culture’ also exists as a regulatory tool in the criminal code for proving misconduct by organisations… however [these] provisions are largely untested.
Assoc. Professor Juliette Overland, Video 4

The Commission devoted a chapter of the Report to recommendations in relation to culture. It referred to work from the Financial Stability Board (FSB) on the links between risk culture and financial soundness, and organisational culture and misconduct.

What advice would you make to the leaders of a bank or financial firm regarding Commissioner Hayne’s recommendations about workplace culture?  Would the advice be different to junior staff of that bank or financial firm? How will regulators supervise or assess if a bank is committed to changing its culture?

5. Future of work

The most important recommendation that the Royal Commission made around superannuation relates to default settings.
Professor Susan Thorp, Video 2

How do the recommendations about default settings for superannuation help employees to navigate the evolving working environment?

6. Future of the industry

I think advances in fintech will improve consumer financial decision making.
Dr. Andrew Grant, Video 4

Rebuilding consumer trust is going to be really difficult but luckily for the banks, it’s not impossible.
Assoc. Professor Catherine Sutton-Brady, Video 4

An employee of a financial firm advises you to download the firm’s “Unbiased Financial Advice App”. The app is designed to ‘nudge’ you to invest in several different investment products and provide you with investment advice based on your personal data. The employee stands to receive a commission for each download of the app.

Identify the issues this would raise for the Commissioner, and which recommendations are relevant. How would a financial firm ensure that a Fintech product conforms to its regulatory obligations after the Commission and allows for beneficial customer outcomes?