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Ethics and the Financial Services Royal Commission Interim Report

Ethics and the Financial Services Royal Commission Interim Report

By Michael Dolan
On 28 September 2018 The Hon Kenneth Hayne AC QC delivered to the Governor General of Australia his Interim Report into Misconduct in the Banking, Superannuation and Financial Services Industry (1).  The Royal Commission was established by the Australian Government in December 2017 and since then has conducted wide-ranging investigations and public hearings into the matters covered by its terms of reference.  A widespread lack of basic business ethics involving misconduct and dishonesty and possible criminal behaviour within the financial services industry has been uncovered and reported on by the Royal Commission.

The Royal Commission’s Interim Report  

The Executive Summary of the Interim Report begins with these words:  

“The Commission’s work, so far, has shown conduct by financial services entities that has brought public attention and condemnation. Some conduct was already known to regulators and the public generally; some was not.   

Why did it happen? What can be done to avoid it happening again? These are now the key questions.   
In this Interim Report these questions – ‘why’ and ‘what now’ – are asked with particular reference to banks, loan intermediaries and financial advice, with a view to provoking informed debate about both questions.

Why did it happen?

Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained? But it is necessary then to go behind the particular events and ask how and why they came about.”   

What needs to be done?  

The Interim Report asks what needs to be done to rectify the existing lack of ethical culture in the financial services industry:  

“Should the existing law be administered or enforced differently? Is different enforcement what is needed to have entities apply basic standards of fairness and honesty: by obeying the law; not misleading or deceiving; acting fairly; providing services that are fit for purpose; delivering services with reasonable care and skill; and, when acting for another, acting in the best interests of that other? The basic ideas are very simple. Should the law be simplified to reflect those ideas better?”  

Earlier this year I wrote in an ethics4lawyers news blog:  

“What has become glaringly obvious already is that instilling a culture of ethical behaviour in financial institutions with appropriate Board and Senior Management support and endorsement and the implementation of intensive staff training and incentives for such good behaviour may well turn out to be a key finding and recommendation of the Royal Commission   There is an urgent need for financial institutions to look inwards to their ethical obligations towards their customers and shareholders and to commit to honest and transparent behaviour in the future in order to regain the trust which has now been shown to have unravelled so badly to the detriment of our society. Being ethical is not only about obeying the law, it is about doing the right thing when no-one is looking.”  


My prediction has been proven correct by the contents of the Royal Commission’s Interim Report.   To its credit, the Australian Banking Association has published recently an updated Code of Ethics for its members to follow in their commercial dealings with their customers. (2)  Intensive internal communication and staff training and commitment from the highest levels of the banking industry will be required in order for this positive initiative to be effective and regain the trust of customers which has been lost.   

Conclusion  

It is important that the financial services industry studies the Royal Commission’s Interim Report carefully and responds to its questions positively so that ethical behaviour may once again form the cornerstone of the industry’s business relationships with its customers and the public at large.  

References  

  1. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
  2. Australian Banking Association Banking Code of Practice