Banking and Financial Service Royal Commission is now underway:
The Royal Commission has just held its first hearing, and identified its initial program of work as looking at lending and financial planning – with other parts of the industry (eg, life and general insurance, superannuation) being looked at later this year.
While financial institutions have been asked to document their misconduct over the past ten years, the Commission has also indicated that its work will be guided by public submissions and an extensive research program.
It is encouraging more submissions to be made, noting that confidentiality and non-disparagement clauses in settlement agreements won’t prevent the Commission from its investigations. Nonetheless, the Commission acknowledged it won’t be able to look at every instance of misconduct and the public hearings will concentrate on broad themes.
The Royal Commission isn’t just looking at misconduct:
Just as importantly, the Commission is also looking at conduct, practices, behaviour or business activities that fall below community standards and expectations. In his opening statement, the Royal Commissioner Kenneth Hayne quoted the Murray Review to make the point that the industry needs to be efficient, resilient and fair – with fairness being pretty much about meeting community expectations.
The Commission will not be re-prosecuting all of the misconduct in the industry. Rather, it will be referring to case studies and examples to identify the kinds of misconduct that have occurred, investigating why it happened, what was done by the perpetrators and regulators, what should have been done, and making recommendations based on this.
The Commission will be looking at the governance and culture of the industry, as well as the effectiveness of redress mechanisms. The failure of governance mechanisms may have contributed to misconduct being investigated by the Commission. This underlines the importance of the documentation of policies, processes and practices, and ensuring an effective governance operating model is in place.
Organisations must strengthen their procedures and practices:
These are not just issues for the financial organisations where misconduct has occurred. It’s relevant for all organisations as they strive to meet reasonable community standards. As organisations strengthen their governance models and recommit to improving their culture, they will also have to embed and operationalise this commitment throughout their business.
While governing boards are ultimately responsible for governance, management has the job of implementing the changes to practices and business activities, and ensuring that this translates to improved conduct and behaviour. The complexity and interrelated structures of modern financial institutions makes this a difficult and time-consuming exercise, but one that is critical to delivering outcomes that can be monitored and assessed by governing bodies.
The importance of this was underlined by the comments of the Commissioner in reviewing the response of some financial institutions to his initial requests for information. Some institutions only provided examples of misconduct and did not specifying the nature, extent and effect of the misconduct. Clearly, there will be a lot more focus on the ‘how’ and ‘why’ in the coming months.
Written by David Haynes
Recent Comments