- Internal Code :
- Subject Code : BLAW 1002
- University : Curtin College
- Subject Name : Business law
Commonwealth Bank of Australia: Rogue One
A1.
Various laws are pertinent to the case of Commonwealth Bank of Australia: Rogue One. Corporations Act 2001, The Australian Securities and Investment Commission Act 2001 and The Trade Practice Act 1974 (Cth) are some of the pertinent law areas that govern the issues of the Commonwealth Bank of Australia: Rogue One (Puckett, 2015). The Corporations Act 2001 (Cth) is governed under the Commonwealth of Australia with sets out basic regulations and laws that need to be followed by all the business entities in the territory of Australia in the federal as well as in the inter-state level. This Act focuses on companies and various entities like companies' management investment schemes, partnerships, etc. (Zimbelman, 2016).
This Act formulates the basic regulations for all the companies regarding their formation and operations inclusive of the duties of its shareholders. The role of the ASIC Act 2001 and Corporations Act 2001 are interrelated as this Act also regulates the governance of financial Service law and companies in the territory of Australia. This Act governs the administration of investment, securities, retirement savings, etc. This Act is a part of the operations Act and required specific disclosures by the entities. Apart from this, The Trade Practices Act 1974 (Cth) governs the consumer protection laws and competition law in Australia to regulate various operations that can largely create a negative impact upon the citizens due to high competition in the country. This Act aims to promote an honest market which is inclusive of the Welfare of the citizens under fair trading.
All the three Acts are very relevant to the case of Commonwealth Bank of Australia: Rogue One, as the entity, is a financial institution in Australia that was engaged in fraud scheme from the year 2003 to 2012. Corporation Act regulates the conduct of all the entities in Australia to restrict any fraudulent activities on their part. Apart from this, the ASIC Act regulates the fair trade which was contravened by the Commonwealth Bank of Australia as the entity was engaged in the manipulation of documents and files of the customers to gain higher commission (Lee, 2016). The Trade Practice Act of 1974 also comes into play as the Act is responsible for the governance of the company's operations and the responsibilities of the directors and shareholders of the company. In the light of the present case of the Commonwealth
Bank of Australia: Rogue One, there were many accusations imposed upon the bank regarding the lack of corporate governance and ethics in the operations of the bank. All the fraudulent and misrepresented activities on the part of the Commonwealth Bank of Australia have led to the loss of savings of millions of Australians which was even criticized by the Australian Securities and investment commission. So, therefore, it can be said that on all the grounds of lack of corporate governance, unfair trade practice, fraud conducted on the part of the shareholders makes all the acts relevant for the present case.
A2.
By this statement, Jack Welch means compensation plays a great role in influencing the behaviour of the employees in the organization. Motivation is string save in nature and cannot be manipulated by the names of rewards provided to them in the organization (Lacey, 2015). The CEO of the company pays the employees according to the value they provide to the organization. The CEO wants to refer to the fact that compensation is a huge accumulation of capital in the organization and therefore the leaders and management of the company expects the return out of it. There are five major roles of compensation in the organization as it defines the financial partnership of the organization with the employees. Apart from this compensation also provide the source of award for exceptional performance than by its employees and builds a sense of stewardship. Compensation budget may vary from company to company but it creates a link in the mind of the employees regarding the vision of the organization.
This vision helps the employees to work to meet those expectations and accordingly, they will be rewarded. Therefore, the major intention behind quoting the statement is that compensation plays a major role in determining the behaviour of the employees in the organization. The financial planners of the Commonwealth Bank of Australia provide an annual remuneration to the employee's basis upon the short-term incentives like bonuses. To encourage the clients to purchase and invest in the bank, the financial planners are ready to provide incentives (Australian Prudential Regulation Authority, 2018). For the employees of CBA, the financial planners had set sales target set needs to be made by the employees and this creates a boiler room culture where aggressive sales are driven in the organization for achieving the excessively shorter remuneration incentives scheme. Therefore, it can be said that the remuneration plans of CBA largely create and impact of pond culture and behaviour of the employees in the organization.
The corporate culture impacts organizational performance. The corporate culture sets the assumptions of the collective behaviour of the employees in the organization and therefore contributes to the social environment of the company due to their collective beliefs. The fraudulent activities and financial planning head lead to a dismissive culture in the Commonwealth Bank of Australia (Lee, 2016). Organizational culture contributes to the good or poor operations of the entity and the same has happened with the Commonwealth Bank of Australia had failed to provide any appropriate compensation to its employees and had misrepresented the clients to invest in the CBA, on the grounds of providing false incentives. Various changes are required in the remuneration process.
It is important to structure the design of incentive balancing the interest of the employees as well as the organization. Incentives in the organization must be classified into strong and weak and sentence and must be recorded according to the performance of the employees (Zimbelman, 2016). The management of the organization must know as to what motivates the employees and accordingly, A matrix must be formulated to provide desired and appropriate individualized incentive basis the performance of the employee in the organization. All the quotas of incentives and compensation must be accurate and fair to provide equal opportunities to the employees to achieve them. Apart from this, the compensation must be optimized by adopting an effective methodology of the right metrics based upon the performance and final balance sheet provided by the employees.
A3.
Various challenges can be faced by any organization to promote ethical behaviour, corporate governance, and compliance in the organization. So far as the CBA is concerned, the primary ethical dilemma is that the financial planners had acted in an unethical manner to make the clients invest and save in the bank ok which were of high risk. Apart from this lack of disclosure and falsification of documents is also one major ground that can become a challenge for any organization to promote ethical behaviour in the organization as a whole (Zimbelman, 2016). Another challenge to promote ethical behaviour revolves around issuing and rewarding incentives to the employees by the financial planners in the organization. The adequate and rational incentives were lacking in the case of the Commonwealth Bank of Australia.
The Commonwealth Bank of Australia fosters the culture of the sale in its financial planners in such a way that the employees are mostly threatened for dismissing them from the organization if the targets are not met on time. This is a major ground of challenge identified under various organizations for promoting corporate governance, compliance, and ethical considerations in the organization (Australian Prudential Regulation Authority, 2015). The organization must work balancing the interest of the organization as well as the employees by providing those rewards and incentives according to the performance. Another challenge that can be identified is the behaviour of the organizations like the Commonwealth Bank of Australia that works to cover up all the misconduct and fraudulent activities committed by its management and shareholders.
In the case of the Commonwealth Bank of Australia, the bank was aware of the fact that the financial planners are involved in the suspension of employees based on not meeting the target. Jeff Morris was also known as a worker in the whistleblower in Australia, he had reported that the Commonwealth Bank of Australia is not complying with The Corporations Act 2001. Apart from this neither the organization is disclosing any relevant information to the ASIC. Therefore, it can be said that non-disclosure of relevant information, covering up the fraudulent activities of the management and stakeholders of the company, cheating the customers by MS representing facts are some of the major challenges that restrict the promotion of ethical consideration, compliance, and corporate governance in the organization. Ethics plays an important role to restrict the organization from involving under any corruption or fraud (Zimbelman, 2016).
To promote an ethical culture in the organization the organization must follow all the rules and regulations along with the code of conduct set by various governing legislation and Acts in the organization. Noncompliance with the rules and regulations of corporate governance mentioned under the Corporations Act 2001 creates various challenges and issues on the path of the organization to build up an ethical environment and behaviour in the employees. Socially responsible behaviour or ethical behaviour in the organization is directly proportional to various financial planning or individual behaviour planning in the organization. The management of the organization must provide Reliance upon applying with the code of conduct according to the principles laid down under Corporations Act 2001.
A4.
The major players regarding the regulation of all the financial services in the territory of Australia are mainly split between the Australian Securities and investment commission (ASIC) and between the Australian prudential regulatory authority (APRA). The entire financial system of Australia is regulated by the treasury as well as the APRA. The responsibility is fulfilled with the help of The Reserve Bank of Australia as well as the ASIC. The APRA works to regulate all the banking operations inclusive of credit unions and other general insurance and superannuation process in Australia. This act is inclusive of the provisions laid down under the Banking Act in 1959 (Zimbelman, 2016). Apart from this, the ASIC regulates the legislative provisions concerning the financial sector, investments, and marketing-related activities to protect the consumer from any unfair practices or deception by the organization in Australia. It also aims to promote the participation of investors in the financial system by complying with the code of Banking practice, credit union code of practice, etc.
The Reserve Bank of Australia is equally responsible for regulating the overall financial stability and maintaining the monetary policies in the country. RBA works according to the standard and framework set by ASIC. APRA sets download prudential standards for the general insurance industry in Australia by strengthening the reinsurance arrangements in the country. With the help of the Federal government, the act promotes the superannuation working group for public consultation regarding investment operations in the country. APRA works to make the organizations comply with all the licensing requirements to manage the risk associated with the measurement operations of the financial institutions in the country.
The Government of Australia had outlined some of the changes in the already existing regulators of the financial industry. The government has introduced a financial advisor standard and Ethics Authority (FASEA) in Australia which will govern all the ethical standards in the territory of Australia. In the year 2020 on 1st January, the act came into force. Various standards have been set by the code which must be complied by the organizations in Australia (Australian Institute of Company Directors, 2016). The major aim of the FASEA code is to extend the legal obligations of the organization which will now include every action which usually the organizations prefer to avoid the legal obligations of the organization. Standard 1 promotes the higher encouragement to regulatory organizations to adopt a high standard of professionalism in terms of imposing ethical duties regarding their financial services.
The code makes the financial institutions in the country demonstrate a higher level of honesty, trustworthiness, competence, fairness, and diligence regarding demonstrating their financial services in the country. Apart from this while serving financial advice in the country, there are often chances that a conflict of interest may arise (Association of Certified Fraud Examiners, 2018). The standards laid down under the code imposes that the financial institution has to operate in the best interest of the client which must be free from any conflict of duty or interest. If it is mentioned under the law then such interest must be set aside. Also, the primary obligation of the financial institution is to comply with the ethical behaviour with the code regarding both the personal as well as professional obligations. This is standard 2 which ensures protection of customers' integrity under section 961 B of the Act.
A5.
In the case of the Commonwealth Bank of Australia, senate inquiry was called upon for ASIC and was investigated by the royal commission. Major misconduct was found out from the end of the Commonwealth financial planning limited CFPL (Zimbelman, 2016). The actions performed by the members of CFPL were completely unethical and dishonest. There were no professional standards which can be seen in the entire operations of the advisors of CFPL. It can be seen that the financial planners had destroyed guarded the interest of its client and this is the reason why ASIC also had to face criticism for its late response regarding taking any action against the CFPL case.
The major accusation upon the ASIC was a lack of scepticism against the case of Commonwealth Bank of Australia. The Senate committee inquiry had laid down the fact that there was a considerable amount of delay on the part of ASIC to take any action against the case and therefore it was criticized for its accountability of managing the complaints and the protection of whistleblower. Apart from this ASIC was also criticized regarding the payment of compensation that needs to be provided to the clients of CFPL. It was contended by the whistleblower that ASIC high trusted the internal operations adopted by the Commonwealth Bank of Australia and had not compensated the clients of CFPL appropriately (Farrell, 2015).
Three major constraints that can limit the ability of ASIC to adequately discharge its functions are the following. The major challenge is the growth in the regulatory parameter. It is expected in the next decade that superannuation is likely to grow till $3 trillion. There will be a huge shift in the perimeter of investors in the financial industry and therefore the high growth can affect the market-facing team of ASIC to discharge its function of overseeing the functions of mergers in the country. Apart from this ASIC is equally responsible for the disclosure of super funds and due to the growth in the flow of financial advisors; it will become very difficult for the regulatory body to meet the need of changing demography and financial advisors. Another major constraint is the increase in the complexity of the financial system in the country. Product complexity is inclusive of a wider range of products in the investment market than ever can make the entire process very complex (ABC News Breakfast, 2018). Apart from the complexity of the product, the complexity can also be phased under the blanket of technology which will make the regulatory body struggle to keep accounts of the investment in the market.
Another major challenge is the Leveraging of the resources of ASIC to maintain the proactive regulations of the regulatory body. it is important to understand that the environment of regulating the financial industry is going to change dramatically therefore the challenge has to be faced by the regulatory body concerning its limited resources. Consolidate and a certain amount of resources are to be spent on reactive regulations which will be used for investigating the misconduct and breaches of various kinds. Therefore, the remaining resources of the ASIC can then be allotted to the areas of greater risk like the regulation involving the engagement of various stakeholders and surveillance. It is important that the regulatory body maintain adequate resources to balance the risk-based surveillance and engagement with the financial industry to continue its proactive regulations.
References
ABC News Breakfast, (2018). Banking royal commission revelations 'worse than I thought', says former ACCC boss. ABC News. Retrieved from http://www.abc.net.au/news/2018-04-20/banking-roya-l-commission-allanfells-accc-reaction/9679182
Association of Certified Fraud Examiners (ACFE). (2018). Report to the Nations. Retrieved from https://www.acfe.com/report-to-the-nations/2018/
Australian Institute of Company Directors (AICD). (2016). The role of the board in corporate culture. Retrieved from https://aicd.companydirectors.com.au/membership/company-directormagazine/2016-back-editions/august/the-role-of-the-board-in-corporateculture
Australian Prudential Regulation Authority (APRA). (2015). Prudential Practice Guide SPG 223 - Fraud Risk Management. Australia: Australian Prudential Regulation Authority (APRA) Retrieved from https://www.apra.gov.au/sites/default/files/prudential-practice-guide-spg-223- fraud-risk-management-june-2015.pdf.
Australian Prudential Regulation Authority (APRA). (2018). Prudential Inquiry Into The Commonwealth Bank Of Australia. Retrieved from Australia: https://www.apra.gov.au/sites/default/files/CBA-Prudential-Inquiry_FinalReport_30042018.pdf
Farrell, P. (2015). The culture of construction organisations: The epitome of institutionalised corruption. Construction Economics and Building, 15(3), 59-71. doi:10.5130/AJCEB.v15i3.4619
Lacey, D. (2015). Revisiting employee fraud: gender, investigation outcomes and offender motivation. Journal of Financial Crime, 22(4), 447-467. DOI:10.1108/JFC-04-2014-0018
Lee, E. (2016). CEO Accountability for Corporate Fraud: Evidence from the Split Share Structure Reform in China. Journal of Business Ethics, 138(4), 787-806. DOI:10.1007/s10551-014-2467-2
Puckett, A. (2015). Suspect CEOs, unethical culture, and corporate misbehaviour. Journal of Financial Economics, 117(1), 98-121. DOI:10.1016/j.jfineco.2014.12.001
Zimbelman, F. (2016). Fraud Examination (5th ed.): Cengage Learning.
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