Malcolm Turnbull called the Banking Royal Commission a 'regrettable but necessary action', whilst key Ministers tried to cast doubt on the need for it, claiming that any poor compliance behaviour plaguing the financial services industry was already known to the Government and regulators. Both the Turnbull and Abbott Governments stonewalled Labor's calls for a Royal Commission into the banking and financial service industry for the best part of two years between 2015-17. This was despite the industry showing signs of poor compliance, as well as a growing mistrust of the industry from society as a whole.
Can the same lackluster approach be said for the regulators as well? In October 2014, the then Chairman of ASIC, Greg Medcraft, made a public declaration which would later become infamous and create tensions between the regulators and government. His opinion of ASIC at the time, was that it had weak powers and was not fulfilling its role as a legal regulator. This was in part, the result of a $120 million funding cut which was leading to Australia becoming a 'bit of a paradise' for white-collar crime.
The tensions which resulted from this statement led to ASIC being regularly compared to other ''weaker'' regulators who were regarded by many as lacking the necessary bite. Medcraft's argument was that ASIC's first and foremost role was to act as a law enforcement agency, not an economic regulator. If the corporate world broke the law, it was his job to enable ASIC to penalise the person or entity responsible.
We are now in the thick of the long overdue Banking Royal Commission, and CBA and Australia's wealth giant, AMP, are the current casualties. They have both suffered a drop in their share prices, several senior executives and board members have resigned and investor confidence is taking a severe beating. At the same time, the wealth giant admitted to lying during the more tense part of the hearings and poor corporate culture was at the heart of the questioning. Despite AMP's media attention, an AMP executive noted during questioning that good corporate compliance starts “with culture, it goes to governance, it goes to capability control systems … culture is the invisible hand that ensures people are making the right decisions.''
The Banking Royal Commission is making an example of AMP and its board, and it is not afraid to leverage blame against those who should be guiding the way for good culture and compliance.
Rowena Orr QC, acting for the Royal Commission, said of Clayton Utz's report given to ASIC on behalf of AMP: “having regard to the changes made to the report, there is a reasonable basis for concluding that AMP, by one or more of its senior employees or officers, knew that the representation that the report and the findings made within it were entirely independent was materially incorrect'' and that this reflected an absence of a compliance culture within the organisation. Historically, directors and senior executives have been able to shy away from liability under the guise of ‘the poor compliance identified was not carried out with board approval’. It will be refreshing for the wider community to see that this is no longer acceptable.
It is becoming clear that the bar has been raised when it comes to meeting societal expectations of good corporate culture, with financial service providers sustaining a dip in investor and market confidence in favour of increased profit margins. An unhealthy mix of political reluctance, regulatory weakness and a lack of focus on corporate culture have severely damaged the financial services industry. It is now up to the financial service providers themselves to repair some of that damage starting from the board and senior executives leading the way to good corporate culture and compliance.