Penalty regime to counter corporate finance - Myassignmenthelp.Com

Question: Discuss about the Penalty regime to counter corporate finance. Answer: Introduction The Royal Commission into misconduct in the banking, superannuation and financial services industry had been established on 14th December 2017 by the governor general of the Commonwealth of Australia, His Excellency General the Honorable Sir Peter Cosgrove AK MC (Retd). With increasing misbehavior of the financial services industry in Australia, the government had declared a Royal Commission wholesomely into the banking institutions and other financial service institutions. The Government had allegedly stated that the Royal Commission launched by it would take up a conventional and focused approach. The results of the Royal Commission are due on February 2019. Literature Review The Royal Commission A majority of the population in Australia are the potential consumers of banking, superannuation and other financial services. The superannuation system accounts for more than over $2 trillion retirement savings pool and are growing rapidly, which has resulted in most of the Australians deferring income for their retirement (Merrington 2015). The matters into which the commission will investigate and inquire are as following: The type of the misconduct, its impact and extent by any financial services entity has been intended to examine and scrutiny The practices, behavior or operational activity carried out by a particular financial services entity that does not meet up to the recognized standards of integrity and expectations have also been investigated The royal commission has also been executed by the government to look into the existing regulations and mechanisms that evaluate the effectiveness of these regulatory procedures that control the conduct of the financial services industry It further carries out a scrutiny of the financial institutions by scrutinizing their existing policies and laws, internal controls that have been implemented within the organization and the codes of conduct followed by the employees of the organization. The Commission also has enough independence to give due importance to the matters that it thinks to have greater potential to harm the society The Commission will not be required to investigate into or refer to any kind of recommendations in case of the macro-prudential policy, oversight or regulations An overview into the objectives of the commission primarily indicates that the Royal Commission was a much needed action that had been finally executed by the government in order to clear the irrational behavior by the banks and other financial institutions in Australia (Smith 2017). According to the sources, the major reasons behind the government of Australia launching a Royal Commission in the financial sector of the economy had been that the banks of Australia had been going through one scandal after another over the past financial years. This can be evidently cited from the incidents that have taken place in the banking economy since the financial crisis. After the financial crisis the banks in Australia had paid fines of amounts as huge as $1 billion for unethically acquiring money from their customers or clients by fooling them (Smith 2017). The Commonwealth Bank in Australia had been dealing in money laundering practices, which involved 55000 breaches. There also had been other incidents, which triggered the government to launch the Royal Commission in the banking sector. However, the major event that grabbed the attention of the entire world was that around 20 national Australian banks had been sacked for inflating the real estate market by rapidly sanctioning bad loans or loans that had no chances of being paid back by the customers, as they did not meet the credit worthiness. Thus, the Royal Commission was a rightly taken decision by the government (Coleman 2016). The primary motive of the banking industry that is accumulation of profit has also hampered the integrity standards that have not been maintained by the banks. Moreover, the banks in Australia did not have the necessary corporate governance structure. This means that the organizations had no particular clue in regards to the exact position where the responsible managers had been placed and the effectiveness of the operations carried out by the managers in the due course of business. Furthermore, the remuneration structure of the banks had essentially been flawed as they did not set out the objectives and the structure of the remuneration arrangements that accounted for the approval of the remuneration policy by the board. The remuneration framework of the banks gave no due importance to the factors like incentives for protecting or preserving the interests and meeting up to the expectations of the stakeholders of business, the long-term financial strength of the trustee and the risk management framework of the trustees (Carnegie and OConnell 2014). The other reason behind the government launching the Royal Commission has been that the banks have been continuously robbing off its clients. The list of the fraudulent banks has not excluded the big players of Australia like the ANZ bank, Commonwealth Bank of Australia and other banks. For instance, the banks in Australia had unethically schemed out as much as $178 million. This had been essentially achieved by the banks by imparting false financial advices to its customers. The particular scandal that had been carried out by the Commonwealth Bank of Australia had been that the biggest bank of Australia had resorted to the unethical standards for gaining revenues. The bank now is liable to pay $106 million plus interest (Virgo 2015). Name of the Bank Compensation that have been agreed to be paid Estimated future compensation Total (estimate) AMP $2,120,000 $2.4 million $4.6 million ANZ $16,202,860 $33.5 million $49.7 million CBA $575,587 $105.1 million plus interest $105.7 million plus interest NAB $3,523,500 $13.4 million plus interest $16.9 million plus interest Westpac $1,244,659 N/A $1.2 million Totals $23,666,606 $154.4 million $178 million plus interest The above table shows the segregated values of the fines that are to be paid by the different financial institutions like the AMP, ANZ, CBA, NAB and Westpac for carrying out the fraudulent activities with its customers. Furthermore, the lack of accountability on the part of the banks has been a major issue in the banking sector of Australia. The culture of the private banks has essentially been sales driven and this has resulted in the banks refusing anyone in a senior position to account. There have been numerous examples of scandalous events taking place in Banks like the ANZ and Macquarie banks. Such occurrences of events have asked for immediate reaction by the upper or senior level management. However, the lack of taking on the blame or accountability on the part of the executives that belong to the higher level of hierarchy aggravate the misconduct of the banks. Therefore, it has been necessary for the government to execute a Royal Commission into the financial services industry of Australia (Steen, McGrath and Wong 2016). The particular financial scandal that had particularly grabbed the attention of the entire world economy had been the financial fraud carried out by the Commonwealth Bank of Australias financial planning scandal. The scandal particularly included the bank misleading its customers by recommending speculative investments, which robbed them off, of their respective money. The bank had also committed frauds such as forging signatures, overcharge of the fees and the creation of investment accounts that are unauthorized in nature particularly for their clients without merely informing them (O'Brien 2015). Earlier there had been proposals or recommendations for the launch of an inquiry in the activities that have been carried out by the banks. However, the federal government had rejected the proposal. Nevertheless, the former bank planner belonging to the Commonwealth Bank of Australia who had also played the role of a whistleblower, had announces to the media that serious talks were going on in regards to the conducting of a Royal Commission. The Senate committee felt that it was the only option, that could change the financial services industry in Australia (O'Brien 2015). He argued that for the launching of a Royal Commission into the banks, so that the public would get to know the institutions in which they deposited their hard-earned money. The particular area where the banks needs to be reformed is that they have to carry out more transparent processes in regards to the actions that they incorporate for the purpose of compensating the customer money. This means that they should have provided reports about the steps already taken by them to compensate their wrongdoings. But this had not been achieved by any of the banks as they lacked the integrity to compensate their customers. Moreover, the ongoing review with the Commonwealth Bank of Australia had not been satisfactory, as the bank had not reported all the breaches to the ASIC. After the acceptance of committing the fraudulent activities, there had been no further reports by the financial service providers in regards to the governance regulations adopted or the internal controls implemented within the organization for minimizing the further occurrence of such actions (McIlroy 2017). In this regards, the ANZ bank had reported that the management of the organization had sacked more than a dozen financial planners in the past twelve months. The bank had also reported that more than $30 million have been planned to be refunded to around eight thousand financial planning customers. Hence, it is evident from the discussed information that there have been mere apologies and planning by the banks, but they have executed no legible action plans or operations (McIlroy 2017). To add up to this, the insurance arm of Commonwealth Bank of Australia also had been charged as guilty for the use or adoption of unethical practices to avoid the payment of legitimate claims. The insurance arm of Commonwealth bank, popularly known as CommInsure is one of the top life insurer companies of Australia. It holds a customer base of about four million policy-holders. The insurance company had been caught red handed for the adoption of unethical practices for denying legitimate insurance claims of its customers. They also delayed certain payments to clients who had genuine reasons and needed the money from the insurance. The whistleblower in such a case had been Dr Koh who worked as the chief medical officer in the organization. Dr Koh had reported to the media there were several files missing and the information on numerous files had been altered in order to avoid the payments of insurance. When the doctor and his team had asked the IT department of the insurance company t o look into the matter and find the actual matter of the fact, the request had been denied (O'Brien 2015). Dr. Koh then carried his concerns to the Board of Directors hoping to find a solution there. However, instead of getting the issue resolved, the doctor had been dismissed from his job role. There had also been several instances where the employees of the organization itself or of the parent entity, that is the Commonwealth Bank of Australia had not been paid their legitimate amount of insurance claims or had been paid at a later period of time. The adoption of the trick of outdating the medical definition in the contracts for the purpose of delaying or denying payments to the policyholders was a major misconduct and has affected the public in a huge way. Moreover, there had been reports that no employees were sacked in the due process (O'Brien, 2015). The government now has been strict with such fraudulent and unethical institutions and has pressurized the banking body to accept more than 54,000 breaches that the bank had committed at different occasions. The Commonwealth Bank of Australia now faces about one trillion worth of fines (McIlroy 2017). The banks had never wanted a Royal Commission, as that would mean further analysis of the still undiscovered frauds carried out by the unethical financial institutions. As a result, of which, the banks especially the big four banks of Australia had decided to drop the ATM fees. However, such a measure could not mitigate the proposed Royal Commission into the financial services sector of Australia. This is because the Royal Commission had been proposed by the government in order to address and highlight the instability and chaos that the financial sector of the country is heading on to (Boersma 2015). The fraudulent behavior by the top banks of the nation is not only harmful for the public but also for the worldwide image of the nation. The banking sector in Australia is gradually losing trust and respect from the entire world and the impending outcome is that the economy of the country will face a huge financial disaster affecting the world economy as a whole (Adams caes et al., 2017). However, it should be further noted here that the government in spite of mentioning the happening of a Royal Commission for the betterment of the public and the banking and finance sector as whole, has been under quite pressure. This is the actual reason why, despite so many rejections by the banking bodies the Royal Commission is being conducted (Adams caes et al., 2017). The key factor at play here are the elections. With two by-elections under the way, the government does not want to frustrate the public, further. Moreover, the opposition party has been calling for a Royal Commission for a period of more than eighteen months (Adams caes et al., 2017). Recommendation Thus, all these factors have contributed to the Royal Commission. This decision, irrespective of the fact whether it had been considered for winning votes or voluntarily by the government is the only and the most apt solution for the increasing misconduct by the financial services industry in Australia. A Royal Commission will not only help in understanding the actual frauds that had been carried out by the banks but also implement the potential solutions. Conclusion The conclusion that can be arrived at from the literature review is that a Royal Commission is very much needed in Australia especially in the financial services and banking sector. This is because a major portion of the common people have been hampered due to these banks and they deserve rightful compensation. References Adams, M., Borsellino, G., McCalman, J. and Young, A., 2017. Australias proposed Banking Executive Accountability Regime: regulatory panopticon or fail-safe?. Governance Directions, (9), pp.528-531. Boersma, M., 2015. How Does Sustainable Banking Add Up?. 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Market Failure, Regulation and Education of Financial Advisors. Australasian Accounting Business Finance Journal, 10(1), p.3. Virgo, G., 2015. Principles of the Law of Restitution. Oxford University Press, USA.