tag:theconversation.com,2011:/id/topics/commonwealth-bank-33643/articlesCommonwealth Bank – The Conversation2024-02-27T10:02:25Ztag:theconversation.com,2011:article/2238212024-02-27T10:02:25Z2024-02-27T10:02:25ZWorried about price gouging? For banks, there’s a simple solution<p>Does it feel like you’re being charged more for all sorts of things these days, from <a href="https://theconversation.com/supermarkets-airlines-and-power-companies-are-charging-exploitative-prices-despite-reaping-record-profits-222755#:%7E:text=According%20to%20the%20inquiry%2C%20the,dairy%20products%20and%20breakfast%20cereals.&text=Farmers%20recently%20accused%20supermarkets%20of%20making%20too%20much%20profit%20from%20their%20crops.">groceries</a> to <a href="https://theconversation.com/see-when-australias-biggest-banks-stopped-paying-proper-interest-on-your-savings-and-what-you-can-do-about-it-200265">banking</a>? Turns out, you’re right.</p>
<p>While we might be more likely to remember prices that go up than prices that go down, the very best evidence – assembled by Australia’s <a href="https://treasury.gov.au/sites/default/files/2023-11/competition-review-mergers-background-note.pdf">Treasury</a>, the federal government’s lead economic adviser – says your suspicions are right. We really are being charged more than we used to be two decades ago.</p>
<p>Coupled with the latest profit reports from Australia’s biggest supermarkets and banks, including Tuesday’s half-year results from Coles, it suggests we are contributing more to company profits than we used to.</p>
<h2>Climbing price markups</h2>
<p>The Treasury estimates show in the 13 years between 2003-04 and 2016-17, the average price markup – the difference between the cost of a product and its selling price – across all Australian industries climbed 6%. </p>
<p>That’s extra profit, taken from your wallet, going to the people selling you things. </p>
<p>Those Treasury estimates are contained in a background paper prepared for the competition <a href="https://treasury.gov.au/review/competition-review-2023">inquiry</a> being undertaken by a panel including Productivity Commission chair Danielle Wood, former Competition and Consumer Commission chief Rod Sims, and business leader David Gonski.</p>
<p>At the same time, the average share of each industry held by its biggest four firms edged up from 41% to 43%. </p>
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<a href="https://theconversation.com/see-when-australias-biggest-banks-stopped-paying-proper-interest-on-your-savings-and-what-you-can-do-about-it-200265">See when Australia's biggest banks stopped paying proper interest on your savings – and what you can do about it</a>
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<p>Profit margins are also higher here than in more competitive markets overseas. </p>
<p>This is true in banking, where the big four have taken over St George, BankWest, and the Bank of Melbourne – and are about to take over <a href="https://www.accc.gov.au/media-release/australian-competition-tribunal-authorises-anz%E2%80%99s-proposed-acquisition-of-suncorp-bank">Suncorp</a>. </p>
<p>It’s also true in supermarkets, where the big two, Woolworths and Coles, have taken over or seen off Franklins, Bi-Lo and Safeway.</p>
<h2>Bigger profit margins than overseas</h2>
<p>Coles supermarkets reported earnings <a href="https://www.investopedia.com/terms/e/ebitda.asp#:%7E:text=EBITDA%2C%20or%20earnings%20before%20interest,generated%20by%20the%20company's%20operations.">before adjustments</a> of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02777616-3A637432">A$1.73 billion</a> on sales of $19.778 billion in the half year to December – a profit margin of 8.7%.</p>
<p>Last week, Woolworths supermarkets reported earnings of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02774826-2A1506104">$2.45 billion</a> on sales of $25.648 billion – a margin of 9.6%.</p>
<p>By way of comparison, the dominant UK supermarket group, Sainsbury’s, has a profit margin of <a href="https://stockanalysis.com/quote/lon/SBRY/statistics/">6.13%</a>.</p>
<p>In banking, the Commonwealth Bank has just reported a return on equity (profit as a proportion of shareholders’ funds) of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02772167-2A1504649">13.8%</a>. National Australia Bank reported <a href="https://www.nab.com.au/content/dam/nab/documents/reports/corporate/2023-full-year-results.pdf">12.9%</a>. </p>
<p>While on a par with the big banks overseas, those recent returns are a good deal higher than CommBank’s <a href="https://www.commbank.com.au/content/dam/commbank-assets/about-us/2021-08/2021-annual-report_spreads.pdf">11.5%</a> and NAB’s <a href="https://www.nab.com.au/content/dam/nab/documents/reports/corporate/2021-full-year-results-management-discussion-and-analysis.pdf">10.7%</a> reported two years ago.</p>
<h2>Little hope for groceries</h2>
<p>For supermarkets, there’s not a lot the government can do, apart from launching an <a href="https://www.accc.gov.au/inquiries-and-consultations/supermarkets-inquiry-2024-25">inquiry</a>, and perhaps giving Australian authorities the power to <a href="https://www.afr.com/policy/economy/break-up-firms-that-abuse-market-power-says-former-competition-tsar-20230709-p5dmtq">break up</a> firms that abuse their market power.</p>
<p>But Prime Minister Anthony Albanese has said he isn’t keen on giving Australian authorities the sort of powers available to authorities in the United States and the United Kingdom, saying (incongruously) Australia is “<a href="https://www.pm.gov.au/media/radio-interview-abc-radio-brisbane-mornings">not the old Soviet Union</a>”.</p>
<p>And doing anything short of that would be unlikely to have much effect. Australia’s two supermarket giants have invested a fortune in high-tech <a href="https://theconversation.com/coles-and-woolworths-are-moving-to-robot-warehouses-and-on-demand-labour-as-home-deliveries-soar-166556">warehouses and distribution systems</a>, which new rivals would be hard-pressed to match.</p>
<h2>Hope for more competitive banking</h2>
<p>But for banks it’s altogether different. Richard Denniss of the Australia Institute has come up with the idea, and it’s a beauty. </p>
<p>It’s for the government to provide a low-cost banking service – expanding on services it already offers.</p>
<p>The costs would be so low, other banks might decide to add features and resell them in the same way as resellers sell <a href="https://www.whistleout.com.au/MobilePhones/Guides/Telstra-network-coverage-vs-ALDI-Woolworths-Belong-Boost">mobile phone</a> and <a href="https://www.nbnco.com.au/residential/service-providers">NBN</a> services.</p>
<p>The primary function of any bank is to provide a numbered account into which Australians can deposit and withdraw funds.</p>
<p>The Australian Tax Office does this already, at an incredibly low cost. </p>
<p>The tax office gives every working Australian a <a href="https://www.ato.gov.au/individuals-and-families/tax-file-number">tax file number</a>. Employers deposit money into these accounts, and – should the tax office owe a refund – taxpayers withdraw them. </p>
<p>Some taxpayers ensure their tax is <a href="https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/in-detail/income/refund-of-over-withheld-withholding-how-to-apply">overpaid</a>, so they withdraw later.</p>
<p>Denniss describes it as a bank account with the world’s clumsiest interface.</p>
<h2>The government could offer bank loans</h2>
<p>It wouldn’t be much of a stretch from improving that interface to offering government loans. </p>
<p>In fact, government loans are already provided in some circumstances: such as to retirees with home equity through the <a href="https://www.dss.gov.au/our-responsibilities/seniors/benefits-payments/home-equity-access-scheme">home equity access scheme</a>, and to Centrelink recipients through <a href="https://www.servicesaustralia.gov.au/centrelink-online-account-help-apply-for-advance-payment">advance payments</a>.</p>
<p>It woudn’t be much more of stretch to provide loans more broadly, at an incredibly low administrative cost. The government already lends against the <a href="https://www.servicesaustralia.gov.au/who-can-get-loan-under-home-equity-access-scheme">value of homes</a>.</p>
<p>Back in the days when the federal government owned the <a href="https://www.commbank.com.au/about-us/our-company/history.html">Commonwealth Bank</a>, it had to cover the high costs of running bricks and mortar branches.</p>
<p>Freed from those costs, the government could now offer a low-cost, technology-enabled basic banking service that would tempt us away from the big four banks – unless they offered better value.</p>
<p>Of course it would cost money, although a lot of it has already been spent setting up the system of tax file numbers and accounts. And of course the banks would hate the idea. That would be the point. </p>
<p>But doing what we can to stop Australians being overcharged is important, not only for wage earners but also for businesses.</p>
<p>The <a href="https://treasury.gov.au/review/competition-review-2023">competition inquiry</a> the government has launched is a good start. It shouldn’t be frightened about where it might lead.</p><img src="https://counter.theconversation.com/content/223821/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin is Economics Editor of The Conversation. </span></em></p>We really are being charged more than we used to be. If the government is concerned about price gouging, it could try this bold idea: offering its own low-cost bank loans.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2085752023-07-04T02:11:08Z2023-07-04T02:11:08ZBanks put family violence perpetrators on notice. Stop using accounts to commit abuse or risk being ‘debanked’<figure><img src="https://images.theconversation.com/files/535239/original/file-20230703-194046-95aav6.jpg?ixlib=rb-1.1.0&rect=389%2C117%2C5540%2C3666&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Perpetrators of family violence will often use money to hurt and control their victims.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/search/financial-abuse?image_type=photo">Shutterstock</a></span></figcaption></figure><p>Ella never knew when her credit card was going to be declined.</p>
<p>It happened when she was shopping for groceries with her kids, or refuelling the car. That’s when she would discover her partner had cancelled the card or lowered the limit so she couldn’t buy essentials. Again. </p>
<p>Ella* (not her real name) is one of <a href="https://www.abs.gov.au/statistics/people/crime-and-justice/personal-safety-australia/latest-release#cohabiting-partner-violence-emotional-abuse-and-economic-abuse">about 1.6 million Australian women and 745,000 men</a> who have experienced economic or financial abuse. </p>
<p>Perpetrators of such abuse use money to control their victims, with devastating impact including stopping or limiting access to money, creating insurmountable debt and damaging a credit history.</p>
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Read more:
<a href="https://theconversation.com/higher-unemployment-and-less-income-how-domestic-violence-costs-women-financially-204688">Higher unemployment and less income: how domestic violence costs women financially</a>
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<p>The <a href="https://www.commbank.com.au/content/dam/caas/newsroom/docs/Cost%20of%20financial%20abuse%20in%20Australia.pdf">direct costs</a> to victim-survivors of financial abuse have been estimated at A$5.7 billion a year, with impact on the economy estimated at A$5.2 billion a year.</p>
<h2>The highly disruptive tactics used by abusers</h2>
<p>Perpetrators use a range of <a href="https://www.commbank.com.au/content/dam/commbank-assets/support/2020-11/unsw-report-1-financial-abuse-ipv.pdf">tactics</a>, some of which are inadvertently enabled by bank products and services. For example:</p>
<p>• credit cards are opened in the name of victim-survivors without their knowledge, potentially damaging credit scores </p>
<p>• all cash is withdrawn from joint accounts or redraw facilities without the consent of the other account holder</p>
<p>• legally binding property settlement orders to refinance home loans are ignored, forcing one party to seek help with repayments while trying to disentangle from their ex-partner</p>
<p>• payment descriptions are used to send threatening, abusive messages.</p>
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<a href="https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&rect=0%2C144%2C5691%2C3719&q=45&auto=format&w=1000&fit=clip"><img alt="Woman looks at the ATM in despair as she realises her bank account is empty." src="https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&rect=0%2C144%2C5691%2C3719&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Money may be emptied from joint accounts or access may be blocked.</span>
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<p>Banks typically respond to these issues case-by-case, tailoring solutions for each customer. However, it may be possible to eliminate or reduce the need for these interventions with improved product design to prevent and disrupt abusers.</p>
<h2>Taking action against perpetrators</h2>
<p>My first <a href="https://cwes.org.au/wp-content/uploads/2022/11/CWES_DesigntoDisrupt_1_Banking.pdf">Designed to Disrupt</a> discussion paper for the <a href="https://cwes.org.au/">Centre for Women’s Economic Safety</a> proposes a new “financial safety by design” framework that tailors the <a href="https://www.esafety.gov.au/industry/safety-by-design">eSafety Commissioner’s work with the technology sector</a> and provides greater protection for victim-survivors.</p>
<p>It outlines steps banks can take to prevent their products being used as a weapon in domestic and family violence.</p>
<p>Recommended measures include setting up every joint account with separate passwords, logins, and portals for each person so it’s simpler and safer to separate if the relationship ends or is abusive.</p>
<p>Two of Australia’s big four banks, the National Australia Bank and the Commonwealth Bank have already agreed to adopt the primary recommendation – to include financial abuse in product terms and conditions as a reason for suspension or closure of accounts.</p>
<p>It’s likely other banks will follow suit, with <a href="https://www.westpac.com.au/about-westpac/media/media-releases/2022/22-november/">Westpac</a> signalling last November it would consider ensuring its terms and conditions reflect its no tolerance approach to financial abuse.</p>
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Read more:
<a href="https://theconversation.com/women-who-suffer-domestic-violence-fare-much-worse-financially-after-separating-from-their-partner-new-data-190047">Women who suffer domestic violence fare much worse financially after separating from their partner: new data</a>
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<p><a href="https://media-cdn.ourwatch.org.au/wp-content/uploads/sites/2/2021/11/18101814/Change-the-story-Our-Watch-AA.pdf">Evidence</a> shows that challenging the acceptance of violence against women is essential to respond to specific gendered drivers of violence.</p>
<p>In banking, this means spelling out the bank’s rules and its expectations of customer behaviour in its terms and conditions. These rules are the foundation of the contractual relationship with the customer and are relied on where there is a dispute.</p>
<h2>Banks taking the lead</h2>
<p><a href="https://news.nab.com.au/news/nab-takes-on-financial-abuse/">National Australia Bank</a> and Commonwealth Bank will change their terms and conditions to make it clear that financial abuse is unacceptable – just like financial crime or threatening call centre staff.</p>
<p>They will be the first Australian banks to signal to millions of bank customers they have a choice: abuse other customers and potentially lose access to their bank account, or behave with respect.</p>
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<span class="caption">Persistent abusers may be denied banking services.</span>
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<p>This will make it harder for people to misuse financial products as a means of coercive control. </p>
<p>Implementation will be complex and the banks will need to proceed with caution. Financial abuse is hard to detect and there may be risks to the abused partner if perpetrators blame them for the bank’s action.</p>
<h2>Consequences for abusers who fail to stop</h2>
<p>An abuser may continue their behaviour at another bank. In this instance, there is the option of “de-banking” the customer which is not only a major inconvenience but also denies them access to an essential service.</p>
<p>That’s why it’s important the whole industry moves on this. It is instructive to examine the collective approach the banks have already taken to disrupt technology-facilitated abuse through payment descriptions.</p>
<p>Notably, my research found two banks reported more than 90% of customers discontinued abuse following a warning letter. </p>
<p>Implementation of the new terms and conditions should be guided by the experience of victim-survivors. It could also be informed by the Council of Financial Regulators’ <a href="https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2022/potential-policy-responses-to-de-banking-in-australia/pdf/potential-policy-responses-to-de-banking-in-australia.pdf">de-banking policy recommendations</a> on transparency and fairness measures.</p>
<p>These measures include providing documented reasons to the customer with 30 days’ notice before closing services and giving them access to internal dispute resolution.</p>
<h2>Getting the public on board</h2>
<p>There also needs to be a public conversation about what this means. Airlines make it clear jokes about terrorism are not okay, and patrons are ejected from sporting events for violence.</p>
<p>If every bank in Australia makes it clear there is a minimum expectation of respectful behaviour to be a customer, it would be a game changer. </p>
<p>The widespread adoption of financial abuse terms and conditions and broad public communication will send a strong message to everyone with a bank account that financial abuse is unacceptable and has consequences.</p><img src="https://counter.theconversation.com/content/208575/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Catherine Fitzpatrick consults to Westpac and owns shares in Westpac and Commonwealth Bank of Australia. She received funding from the Centre for Women's Economic Safety to write the Designed to Disrupt report and continues to be affiliated. She is a former bank executive and established and led specialist customer vulnerability teams at CBA and Westpac. </span></em></p>Two of Australia’s major banks have announced they will take action against financial abusers, including closing their accounts.Catherine Fitzpatrick, Adjunct Associate Professor, School of Social Sciences, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1553602021-02-24T19:05:52Z2021-02-24T19:05:52ZSchool banking programs target ‘vulnerable consumers’. But research shows kids are smarter than you think<figure><img src="https://images.theconversation.com/files/386023/original/file-20210224-21-1ya6nbv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/sale-consumerism-people-concept-happy-little-616164698">Shutterstock</a></span></figcaption></figure><p>The ACT Legislative Assembly recently <a href="https://www.abc.net.au/news/2021-02-11/school-banking-programs-to-end-in-canberra-from-july/13141232">passed a motion</a> to ban banking programs, like Commonwealth Bank’s Dollarmites, from schools later this year.</p>
<p>The move comes a few <a href="https://www.abc.net.au/news/2020-11-29/victoria-bans-banks-running-school-programs-like-dollarmites/12932290">months after Victoria announced</a> it would also ban such programs in state schools.</p>
<p>The Australian Securities and Investments Commission’s (ASIC) two-year review of school banking programs was released in December 2019. It <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-324mr-asic-releases-review-of-school-banking-programs/">found</a>, among other matters:</p>
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<p>young children are vulnerable consumers and are exposed to sophisticated advertising and marketing tactics by school banking program providers.</p>
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<p>But <a href="https://eprints.qut.edu.au/199421/">our research</a> suggests many young children are aware of marketing tactics, and not as vulnerable as we think. </p>
<h2>The banking programs</h2>
<p>Much of the criticism of school banking programs has been directed at the Commonwealth Bank’s <a href="https://www.commbank.com.au/banking/kids/dollarmites.html">Dollarmites</a> (running in Australian schools <a href="https://www.commbank.com.au/banking/school-banking.html">since 1931</a>). But the ASIC report found at least ten such programs were active across schools nationally.</p>
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Read more:
<a href="https://theconversation.com/we-dont-need-banks-teaching-kids-about-money-schools-have-it-covered-151093">We don't need banks teaching kids about money. Schools have it covered</a>
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<p>While around 63% of Australian primary schools had joined a school banking program, <a href="https://download.asic.gov.au/media/5893493/rep676-published-15-december-2020.pdf">most primary school students (92%)</a> did not participate or have accounts.</p>
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<p>A survey of <a href="https://download.asic.gov.au/media/5893493/rep676-published-15-december-2020.pdf">1,349 Australian residents</a> found most (84%) parents with children participating in school banking programs were satisfied with the program and 63% supported financial institutions offering bank accounts to students through school programs. </p>
<p>But the survey also identified 51% of parents had concerns about financial institutions marketing to young primary school students. </p>
<p>The inference children are vulnerable consumers appears to drive the narrative toward removing such programs from schools.</p>
<h2>What’s a vulnerable consumer?</h2>
<p>Vulnerability stems from consumers who <a href="https://www.emerald.com/insight/content/doi/10.1108/jsm-05-2017-0156/full/html?casa_token=ZpSw27rVWhYAAAAA:cnqWrVEK5L6hupDTRTFIyWuTDromTWRSCh3jwDs2_XKYXB0PDa4OD5xgzKGVOjWHXJndu2BgUlJqVPuylndecEzy0rG5zy9J-WynWz6bWKx6CqAw-cNk">enter service exchanges with some type of disadvantage</a>. These might be personal or social characteristics, which may lead to discriminatory — or even predatory — actions by providers. </p>
<p>Many consumers find themselves vulnerable because they lack expertise regarding the services they are purchasing (such as financial services or insurance).</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/social-media-platforms-need-to-do-more-to-stop-junk-food-marketers-targeting-children-140772">Social media platforms need to do more to stop junk food marketers targeting children</a>
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<p>Children have long been viewed as particularly vulnerable in society, especially when it came to the sophisticated marketing of products like junk food, cigarettes or alcohol. There have been strong arguments to ban marketing communications targeting children in many countries (such as in <a href="http://calgaryherald.com/health/family-child/dr-peter-nieman-the-pros-and-cons-of-advertising-to-young-children">Europe</a>, <a href="https://www.apa.org/pi/families/resources/advertising-children.pdf">the United States</a> and <a href="https://theconversation.com/social-media-platforms-need-to-do-more-to-stop-junk-food-marketers-targeting-children-140772">Australia</a>).</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1339728343487406084"}"></div></p>
<p>Yet, a 2017 <a href="https://eprints.qut.edu.au/199426/">review of studies and tests</a> on the vulnerability of young children as consumers concluded: </p>
<blockquote>
<p>Although the bases and measures of children’s vulnerability have existed for over 40 years, little of this research has been able to link children’s vulnerability to their consumption. A review of these tests reveals causes for inconsistencies and their implications for further research and public policy remedies for children’s vulnerability.</p>
</blockquote>
<h2>We put it to the test</h2>
<p>Children under eight years old are viewed as especially vulnerable to marketing communications because they do not have sufficient knowledge about “<a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/mar.21266">persuasive advertising messages</a>”. </p>
<p>We showed a video of a toy advertisement to <a href="https://eprints.qut.edu.au/199421/">233 children, aged four to seven</a>. We were conscious the young children may not have the verbal ability to articulate responses to questions. So we used images of children’s movies, television programs and advertisements so the children could identify what they believed was the nature of the toy advertisement. Children could select whether they thought it was a movie, a TV show or an advertisement.</p>
<p>We then used other images for children to identify whether they believed the source of the advertisement was a toy manufacturer, a teacher or a parent. </p>
<p>Children could also indicate the intentions of the adverts, such as “because they want you to know about the toy” or “because they want you to buy the toy”. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/386034/original/file-20210224-21-1cmfju7.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/386034/original/file-20210224-21-1cmfju7.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=599&fit=crop&dpr=1 600w, https://images.theconversation.com/files/386034/original/file-20210224-21-1cmfju7.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=599&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/386034/original/file-20210224-21-1cmfju7.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=599&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/386034/original/file-20210224-21-1cmfju7.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=752&fit=crop&dpr=1 754w, https://images.theconversation.com/files/386034/original/file-20210224-21-1cmfju7.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=752&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/386034/original/file-20210224-21-1cmfju7.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=752&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Children could indicate what they believed were the intentions of the advertisement we showed them.</span>
<span class="attribution"><span class="source">Images were adapted from Carter et al (2011) and Macklin (1987)</span></span>
</figcaption>
</figure>
<p>More than 75% of children knew four to six aspects of the persuasive advert. </p>
<p>For example, 76% knew the “toymaker made the advertisement” and 82% knew the “toymaker wanted to encourage children to use the product”. Although only 37% knew the “toymaker wanted them to buy the product”, children in that age group have less opportunities to use or see cash. </p>
<p>While many people may think children know nothing about advertising, our study showed most children could identify the nature and intentions of persuasive advertising. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/no-presents-please-how-gift-cards-initiate-children-into-the-world-of-credit-100009">No presents, please: how gift cards initiate children into the world of 'credit'</a>
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<hr>
<p>We extended our study to see if children could make responsible financial decisions. We found children who earned pocket money were more likely to save money and reject the offer to buy an advertised toy.</p>
<h2>Over-regulation could have negative effects</h2>
<p>While the ASIC report is valid and balanced, the response to remove banking programs from schools may unintentionally negate the social and economic benefits of such programs.</p>
<p>Even if the Dollarmites program doesn’t educate children on consumer behaviour directly, marketing plays an <a href="https://academic.oup.com/jcr/article-abstract/26/3/183/1815356?redirectedFrom=fulltext">important role in socialising consumers</a>. It can help them understand their consumer rights, how to use unit pricing or how to save money.</p>
<p>Over-regulation may generate reactance. <a href="https://link.springer.com/article/10.1007/s11301-020-00180-y">Consumer reactance</a> occurs when a consumer feels lack of control over their choice and when behavioural freedom is threatened. </p>
<p>For example, children may only learn about products from their parents or friends based on their preference or knowledge. This means they may never get the opportunity to choose or practise their own coping strategies for marketing persuasion.</p>
<p>While most parents might be cautious about school banking programs, our results indicate children can demonstrate responsible consumption behaviours, save their pocket money and can identify persuasive advertising messages.</p><img src="https://counter.theconversation.com/content/155360/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimor is the Chair of the Consumer Research Advisory Committee for the Australian Retailers Association and to the Expert Advisory Group for the NSW Department of Planning, Industry & Environment.</span></em></p><p class="fine-print"><em><span>Shasha Wang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>School banking programs like Dollarmites are being banned in some state schools due to the idea children are vulnerable to marketing tactics. But our research shows this isn’t always the case.Shasha Wang, Lecturer, Queensland University of TechnologyGary Mortimer, Professor of Marketing and Consumer Behaviour, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1469152020-09-29T02:15:30Z2020-09-29T02:15:30ZRecord corporate fines don’t deter: here’s a ‘frank’ fix to make penalties bite<p>All things considered, Westpac’s record A$1.3 billion fine for breaching anti-money-laundering laws could have been worse. </p>
<p>Each of the alleged 23 million breaches of the <a href="https://www.legislation.gov.au/Details/C2019C00011">Anti-Money Laundering and Counter-Terrorism Act</a> between 2010 and 2018 carried a penalty of up to A$63,000. So the fine might have been more than A$1 trillion. </p>
<p>The A$1.3 billion equates to three months’ earnings for Westpac. It is A$400 million more than the A$900 million the bank set aside in its half-year results (in April). But that didn’t bother the market. </p>
<p><a href="https://www.asx.com.au/asx/share-price-research/company/WBC/statistics/shares">Westpac’s share price</a> ended the week 7% higher. </p>
<p>As Nathan Zaia, an analyst with investment research company Morningstar, <a href="https://www.smh.com.au/business/banking-and-finance/westpac-announces-record-breaking-1-3b-fine-20200924-p55yno.html">explained</a>: “It’s huge. It’s the largest fine in history. It’s an eye-watering number. But it’s already pretty much been expected by the market.”</p>
<p>With Westpac’s annual profit exceeding A$6 billion, and its market capitalisation more than A$60 billion, Zaia said a few hundred million dollars more didn’t “really have much of an impact with the valuation we put on the bank”.</p>
<p>If the biggest fine in Australian corporate history doesn’t make a difference to a company’s share price, it’s hard to see how that fine serves as a deterrent. It is the job of the board and senior management to serve the interests of shareholders. What doesn’t matter to investors won’t matter much to the board either.</p>
<p>There could be a way, though, to use the tax system to give corporate fines more bite, by making shareholders feel more of the pain.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
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</p>
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<h2>What franking credits do</h2>
<p>Franking credits – also known as <a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">dividend imputation payments</a> – are tax credits provided to shareholders with their dividend payments. </p>
<p>The credits are intended to ensure income from investment is not taxed twice – first by the company paying tax on its profit, then by the shareholder paying income tax on their share of that profit (their dividend).</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">Words that matter. What’s a franking credit? What’s dividend imputation? And what's 'retiree tax'?</a>
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</p>
<hr>
<p>Franking credits on dividends allow shareholders to cut their tax bills by the tax already paid on the dividend income they receive.</p>
<p>In some cases, thanks to a provision in Australia’s law, where the shareholder pays no overall tax, they can receive a tax refund from the government, a <a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">dividend imputation cheque</a>, of the kind Labor promised to wind back in the 2019 election campaign. </p>
<h2>Franking debits as penalty</h2>
<p>There already exists a mechanism to use the imputation system to penalise bad behaviour by companies.</p>
<p>Where a company has not followed the rules relating to franking credits, the tax office can debit the company’s franking account, leaving less to distribute to shareholders as tax credits. </p>
<p>A similar mechanism could be used to impose fines. Instead of the company writing a cheque, the government would debit the value of the fine from the bank’s franking account.</p>
<p>This would directly affect the bank’s capacity to “impute” tax it has paid on profits. </p>
<p>Though the same amount of money imposed as a fine might have little impact on a company’s operations or profits, the loss of franking credits is something shareholders are likely to notice. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/westpac-ticking-every-anti-money-laundering-box-wouldnt-make-much-difference-to-criminals-127988">Westpac ticking every anti-money-laundering box wouldn't make much difference to criminals</a>
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<p>And if shareholders care, the directors might get the message louder and clearer.</p><img src="https://counter.theconversation.com/content/146915/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael William Blissenden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Rather than imposing a straight fine, taking away franking credits would ensure shareholders feel more pain when companies misbehave.Michael William Blissenden, Professor of Law, University of New EnglandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1466672020-09-24T02:49:13Z2020-09-24T02:49:13ZIt’s not only Westpac. What’s behind the biggest fine in Australian corporate history<figure><img src="https://images.theconversation.com/files/359712/original/file-20200924-18-1t47qvj.jpg?ixlib=rb-1.1.0&rect=60%2C160%2C3589%2C1545&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Marlon Trottmann/Shutterstock</span></span></figcaption></figure><p>Westpac is to pay A$1.3 billion, by far Australia’s biggest-ever corporate fine for breaches of the <a href="https://www.austrac.gov.au/news-and-media/media-release/austrac-and-westpac-agree-penalty">Anti-Money Laundering and Counter-Terrorism Financing Act</a>. </p>
<p>The 93-page <a href="https://cdn.theconversation.com/static_files/files/1248/Westpac_my3kd4wbw7y7.pdf?1600907402">statement of agreed facts and admissions</a> prepared by Westpac and the Australian Transaction Reports and Analysis Centre (AUSTRAC) says Westpac contravened the Act more than 23 million times exposing Australia’s financial system to criminal exploitation.</p>
<p>It failed to pass on information to authorities about the origin of international funds transfers, and failed to pass on information to other banks in the transfer chain who needed to manage their own money laundering and terrorism financing risks.</p>
<p>“Westpac failed to identify activity potentially indicative of child exploitation risks by failing to implement appropriate transaction monitoring detection scenarios,” the agreed statement says.</p>
<p>“Three of the customers the subject of these proceedings had prior convictions relating to child exploitation offences.”</p>
<p>“One of these customers has been arrested in relation to further child exploitation offences since the commencement of these proceedings.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/359707/original/file-20200924-14-1n0ospg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/359707/original/file-20200924-14-1n0ospg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/359707/original/file-20200924-14-1n0ospg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=210&fit=crop&dpr=1 600w, https://images.theconversation.com/files/359707/original/file-20200924-14-1n0ospg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=210&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/359707/original/file-20200924-14-1n0ospg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=210&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/359707/original/file-20200924-14-1n0ospg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=264&fit=crop&dpr=1 754w, https://images.theconversation.com/files/359707/original/file-20200924-14-1n0ospg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=264&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/359707/original/file-20200924-14-1n0ospg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=264&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/1248/Westpac_my3kd4wbw7y7.pdf?1600907402">Westpac and AUSTRAC, Agreed Statement of Facts and Admissions</a></span>
</figcaption>
</figure>
<p>In reaching the agreement, Westpac also admitted to <a href="https://www.austrac.gov.au/news-and-media/media-release/austrac-and-westpac-agree-penalty">76,000 additional contraventions</a> relating to information that came to light after AUSTRAC launched proceedings last year, some which also relate to "failures to reasonably monitor customers for transactions related to possible child exploitation”.</p>
<p>The action triggered the departures of Westpac chief executive Brian Hartzer and chairman Lindsay Maxsted <a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">late last year</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
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</p>
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<p>The A$1.3 billion fine dwarfs the Commonwealth Bank’s <a href="https://www.austrac.gov.au/austrac-and-cba-agree-700m-penalty">A$700 million</a> settlement with AUSTRAC for serious breaches of anti-money laundering and counter-terrorism financing laws in 2018.</p>
<p>The Westpac debacle is far from an isolated instance of international banks demonstrating indifference to their potential involvement in organised crime.</p>
<p>Documents released by the <a href="https://www.icij.org/investigations/fincen-files/">International Consortium of Investigative Journalists</a> on Monday show that major banks around the world conducted US$2 trillion of suspicious transactions in the eight years between 1999-2017.</p>
<h2>Australian banks on the international stage</h2>
<p>Of a limited sample of transactions assessed, Australian banks received US$3.8 million of suspicious funds and sent out $167.9 million.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=240&fit=crop&dpr=1 600w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=240&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=240&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=302&fit=crop&dpr=1 754w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=302&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/359493/original/file-20200923-18-1hb0krb.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=302&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.icij.org/investigations/fincen-files/explore-the-fincen-files-data/">International Consortium of Investigative Journalists interactive</a></span>
</figcaption>
</figure>
<p>The Macquarie Bank was responsible for <a href="https://www.icij.org/investigations/fincen-files/explore-the-fincen-files-data/">US$122.1 million</a> of the US$167.9 million, the Commonwealth Bank for <a href="https://www.icij.org/investigations/fincen-files/explore-the-fincen-files-data/">US$42.1 million</a>.</p>
<p>The reports relating to Australian banks were filed by the US banks which dealt with them.</p>
<p>The Australian banks themselves might have also filed their own reports.</p>
<p>There’s little to suggest much was done about the reports by US banks at the time, either by the banks themselves or by the regulators they filed them to.</p>
<p>Indeed, the long timespan suggests the banks not only didn’t close suspicious accounts (which might have alerted account holders to suspicions) but also continued to open new ones.</p>
<h2>The crime that makes other crimes possible</h2>
<p><a href="https://www.buzzfeednews.com/article/jasonleopold/fincen-files-financial-scandal-criminal-networks">BuzzFeed</a>, which obtained the documents, said money laundering was a crime that made other crimes possible, and had itself become an integral part of the financial system.</p>
<blockquote>
<p>The networks through which dirty money traverse the world have become vital arteries of the global economy. They enable a shadow financial system so wide-ranging and so unchecked that it has become inextricable from what is regarded as the legitimate economy. Banks with household names have helped to make it so.</p>
</blockquote>
<p>Certainly after the 2019 report of the <a href="https://financialservices.royalcommission.gov.au/Pages/default.html">banking royal commission</a> it is reasonable to expect Australian banks to do more.</p>
<p>Commissioner Hayne held banks to higher standard than merely abiding by the law. He referred to “the kind of behaviour the community not only expects of financial services entities but is also entitled to expect of them”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/westpacs-scandal-highlights-a-system-failing-to-deter-corporate-wrongdoing-127619">Westpac's scandal highlights a system failing to deter corporate wrongdoing</a>
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</em>
</p>
<hr>
<p>This week’s shocking evidence suggests there’s work to do. </p>
<p>From the wreckage of the global financial crisis the <a href="https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-stability-board-fsb/">G20 Financial Stability Board</a> erected a new regulatory order requiring banks to have adequate capital. </p>
<p>To this was added a <a href="https://www.fsb-tcfd.org/">Task Force on Climate Related Financial Disclosures</a>. </p>
<p>It’s time for a third set of reforms, to ensure the financial system doesn’t serve as a <a href="https://cdn.theconversation.com/static_files/files/1248/Westpac_my3kd4wbw7y7.pdf?1600907402">conduit for serious crimes</a>.</p><img src="https://counter.theconversation.com/content/146667/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Clarke does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Westpac has admitted to more than 23 million breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act.Thomas Clarke, Professor, UTS Business, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1449372020-08-25T01:28:10Z2020-08-25T01:28:10ZAMP doesn’t just have a women problem. It has an everyone problem<figure><img src="https://images.theconversation.com/files/354305/original/file-20200824-22-11tl0g8.jpg?ixlib=rb-1.1.0&rect=0%2C200%2C5568%2C3500&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>The sexual harassment scandal enveloping AMP is another graceless turn in what looks like the death spiral of one of Australia’s oldest and formerly most trusted companies. </p>
<p>Joining a long line of executives to walk the plank at the venerable financial services giant, AMP chairman <a href="https://www.abc.net.au/news/2020-08-24/amp-chair-david-murray-director-john-fraser-resign-boe-pahari/12588366">David Murray and board member John Fraser have quit</a> over the promotion of Boe Pahari (disciplined in 2018 for sexually harassing a female colleague) to head AMP’s capital business division. </p>
<p>Since the Australian Financial Review broke the story of the claims made against Pahari, sparking a <a href="https://www.afr.com/companies/financial-services/amp-women-stage-revolt-over-pahari-promotion-20200702-p558gq">revolt among AMP’s female employees</a>, the board had been under increasing external pressure to admit and correct its mistake.</p>
<p>Now it has – half-heartedly. </p>
<p>The exit of Murray and Fraser (and Pahari’s demotion to his previous job level) was, AMP said in its statement to the <a href="https://www.asx.com.au/asx/share-price-research/company/AMP">Australian Stock Exchange</a>, a response “to feedback expressed by some major shareholders”.</p>
<p>Murray’s <a href="https://www.afr.com/companies/financial-services/boe-pahari-david-murray-john-fraser-resign-from-amp-20200824-p55ol5">own statement</a> was even less apologetic: </p>
<blockquote>
<p>The board has made it clear that it has always treated the complaint against Mr Pahari seriously. My view remains that it was dealt with appropriately in 2017 and Mr Pahari was penalised accordingly.</p>
<p>However, it is clear to me that, although there is considerable support for our strategy, some shareholders did not consider Mr Pahari’s promotion to AMP Capital CEO to be appropriate.</p>
</blockquote>
<p>In other words: what’s all the fuss about? </p>
<p>Murray’s failure to appreciate why he and the board made a mistake is, arguably, symptomatic of AMP’s management for at least two decades. Its focus on money over trust is central to the failures and scandals that have trashed its reputation and share price. </p>
<h2>Vertically challenged</h2>
<p>Founded in 1849 as the Australian Mutual and Provident Society, AMP was a not-for-profit life insurer for almost 150 years before it <a href="https://www.rba.gov.au/publications/bulletin/1999/jan/1.html">demutualised</a> in 1998. Since then it has pursued profits with gusto, if not prudence. </p>
<p>Part of the push to privatise was to have funds to expand, with “vertical integration” all the rage in the financial services sector.</p>
<p>Vertical integration involves a bank or other financial services company providing products all along the financial supply chain. Once a bank might have offered you just banking services, for example. Now it will provide contents and life insurance, financial and retirement planning, and ways to invest in the stock market. </p>
<p>“From the perspective of banks,” noted the 2019 <a href="https://financialservices.royalcommission.gov.au/Pages/reports.html#final">final report</a> of the Hayne Royal Commission that uncovered systemic cheating of customers in the financial services industry, “vertical integration always promised the benefit of cross-selling opportunities.” But the internal efficiency of the “one-stop shop” did not necessarily produce efficiency for customers:</p>
<blockquote>
<p>The ‘one stop shop’ model creates a bias towards promoting the owner’s products above others, even where they may not be ideal for the consumer.</p>
</blockquote>
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Read more:
<a href="https://theconversation.com/banking-royal-commission-the-real-problem-is-how-we-value-executives-and-workers-111094">Banking Royal Commission: the real problem is how we value executives and workers</a>
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<p>When what isn’t best for the customer becomes the business model, it’s a slippery slope to taking other liberties. AMP slipped to charging fees for no service and <a href="https://www.abc.net.au/news/2018-09-17/amp-charges-dead-customers-for-life-insurance/10255978">billing dead customers</a> for life insurance. </p>
<p>Following these and other revelations from the royal commission, AMP chair Catherine Brenner, chief executive <a href="https://www.abc.net.au/news/2018-04-20/amp-ceo-craig-meller-steps-down-banking-royal-commission/9679138">Craig Meller</a> and most of the board resigned. But interim chief executive Mike Wilkins made it clear AMP remained “committed to a vertically integrated business model”. </p>
<p>That commitment was buttressed by the appointment of Murray, a long-term <a href="https://www.afr.com/companies/financial-services/david-murrays-long-road-from-a-commonwealth-bank-branch-to-amp-chairman-20180506-h0zoxo">defender of vertical integration</a> in financial services, as AMP’s new chair <a href="https://corporate.amp.com.au/newsroom/2018/june/david-murray-to-commence-as-amp-chairman-">in June 2018</a>. </p>
<h2>Bad habits</h2>
<p>It’s not only vertical integration, though, to which AMP’s management appears rusted on. Money (not trust) is still number one. </p>
<p>It is plain the board’s primary concern in keeping, then promoting, Pahari was that he “<a href="https://www.afr.com/companies/financial-services/pahari-made-a-lot-of-money-for-amp-capital-20200706-p559i5">made a lot of money for the company</a>”. </p>
<p>In this case, despite Murray’s insistence that the board treated the complaint against Pahari seriously, the evidence suggests AMP downplayed Pahari’s behaviour as “low level” and “<a href="https://www.smh.com.au/business/companies/sexually-harassed-amp-executive-says-the-company-is-still-covering-up-20200816-p55m7n.html">about comments made</a>”. The former executive who made the complaint, Julia Szlakowski, has detailed a much more substantial pattern of inappropriate behaviour.</p>
<p>To cap it all off, the company is reportedly seeking to track down employees who might have leaked information to the media. Chief executive Franco de Ferrari and other executives have warned about the consequences of leaking, including “possible termination”.</p>
<p>“I think this is a battle for the heart and soul of AMP, in my view,” the Australian Financial Review <a href="https://www.afr.com/companies/financial-services/culture-of-fear-amp-threatens-to-sack-leakers-20200821-p55o4i">reported one employee saying</a>. “It’s moving from a culture of harassment to a culture of fear.”</p>
<h2>Breaking up</h2>
<p>On June 30, de Ferrari appeared before the House of Representatives economics committee. He <a href="https://www.afr.com/companies/financial-services/amp-ioof-admit-preferential-pricing-for-in-house-products-20200630-p557kk">enthused about the changes the company had made</a>, declaring:</p>
<blockquote>
<p>Virtually no aspect has been untouched, starting from the top, with complete board renewal and streamlining and strengthening of the management team.</p>
</blockquote>
<p>Within days the appointment of Paharai had kicked of a staff revolt. By <a href="https://www.afr.com/companies/financial-services/investigation-inside-alex-wade-s-final-month-at-amp-20200808-p55jul">August 6</a>, the chief executive of AMP’s Australia division, Alex Wade, was forced to resign after multiple women, reportedly emboldened by the response to Pahari’s promotion, complained about behaviour including allegedly sending explicit photos. </p>
<p>On August 13, <a href="https://www.moneymanagement.com.au/news/financial-planning/culture-top-10-priority-amp">de Ferrari declared</a> during a teleconference with journalists to discuss AMP’s first-half results: </p>
<blockquote>
<p>We know we have more to do in improving diversity and inclusion. The transformation of culture is now my top priority.</p>
</blockquote>
<p>Granted, AMP may well be “the most challenging corporate transformation in corporate Australia”, and he might have said “right from the beginning this does not happen overnight”. </p>
<p>But from someone two years into the job it was a startling remark.</p>
<p>Leaks, needless to say, should be the least of AMP’s concerns. It’s the lack of a moral compass that threatens to run this ship aground and ultimately break it up.</p><img src="https://counter.theconversation.com/content/144937/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Schmulow has received funding from numerous entities that have included universities, charitable trusts, government and NGOs such as the CGAP/World Bank and the Banking Association of South Africa. He is affiliated with Australian Citizens Against Corruption, and advises DB and Associates. </span></em></p>AMP’s handling of sexual harassment charges shows its culture is still rotten.Andrew Schmulow, Senior Lecturer, Faculty of Law, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1378892020-05-06T19:50:21Z2020-05-06T19:50:21ZBank dividends are bare. Here’s why some shareholders hate it more than they should<p>In bad news for retirees and others who depend on dividend cheques (and dividend imputation rebate cheques from the Tax Office) bank dividends have largely evaporated. But it’s not as bad as many commentators suggest, and actually good for some investors.</p>
<p><a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/2020_Interim_Media_Release.pdf">Westpac</a> won’t be paying a dividend this half year. Nor will the <a href="https://yourir.info/resources/4d216b570d08af30/announcements/anz.asx/3A540286/ANZ_News_Release_ANZ_NZ_2020_half-year_result.pdf">ANZ</a>, nor the <a href="https://wcsecure.weblink.com.au/pdf/BOQ/02224752.pdf">Bank of Queensland</a>.</p>
<p>The <a href="https://www.nab.com.au/about-us/shareholder-centre/dividend-information">National Australia Bank</a> will pay one, but only a third the usual size. The Commonwealth Bank’s different reporting dates mean it won’t have to make a decision <a href="https://www.commbank.com.au/about-us/investors/dividend-information.html">until August</a>.</p>
<p>The Financial Review believes the moves have taken <a href="https://www.afr.com/companies/financial-services/westpac-shareholders-have-long-wait-ahead-on-dividends-20200504-p54plj">A$9.8 billion</a> in expected dividends and <a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">franking credits</a> from bank shareholders to date. </p>
<p>The flip-side missed by many commentators and shareholders is that bank shares are worth more (maybe around $9.8 billion more) than if they had paid those dividends.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/326728/original/file-20200409-188923-1pxiqkj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/326728/original/file-20200409-188923-1pxiqkj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/326728/original/file-20200409-188923-1pxiqkj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=840&fit=crop&dpr=1 600w, https://images.theconversation.com/files/326728/original/file-20200409-188923-1pxiqkj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=840&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/326728/original/file-20200409-188923-1pxiqkj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=840&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/326728/original/file-20200409-188923-1pxiqkj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1056&fit=crop&dpr=1 754w, https://images.theconversation.com/files/326728/original/file-20200409-188923-1pxiqkj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1056&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/326728/original/file-20200409-188923-1pxiqkj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1056&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.apra.gov.au/sites/default/files/2020-04/Capital%20management.pdf">APRA letter to financial institutions, April 7, 2020</a></span>
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<p>As it happens, the decisions follow pressure from the Prudential Regulation Authority which last month sent banks an <a href="https://www.apra.gov.au/capital-management">unprecedented letter</a> asking them to “seriously consider deferring decisions on the appropriate level of dividends”.</p>
<p>It isn’t what bank shareholders have come to expect. </p>
<p>The Commonwealth Bank’s <a href="https://www.commbank.com.au/about-us/investors/dividend-information.html">dividend policy</a> says it will aim to pay cash dividends at “strong and sustainable levels”, maximising dividend imputation cheques from the government by paying <a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">fully franked</a> dividends.</p>
<p>The dividend reductions come after sharp collapses in share prices brought about by hits to current and expected future earnings and increased economic uncertainty.</p>
<p>But, as hard as it is to look beyond dividends, imputation cheques and the price of shares, what’s most important for the owners of shares are the earnings prospects for the banks long term. And here, as hard as it might be for some shareholders to accept, the suspension of dividends is a sensible strategy for the banks.</p>
<h2>Cruel to be kind makes sense for banks</h2>
<p>In making decisions about dividends in the wake of bad news, each bank had two options. </p>
<p>One was to keep paying dividends at previous levels. </p>
<p>That would have pushed the share price down further, as evidenced by the typical drop in a company’s share price after dividends have been paid. </p>
<p>With the funds paid out as dividends, and no longer part of the bank’s shareholders funds, each share becomes correspondingly worth less. </p>
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Read more:
<a href="https://theconversation.com/the-last-thing-companies-should-be-doing-right-now-is-paying-dividends-135928">The last thing companies should be doing right now is paying dividends</a>
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<p>It also puts the bank in a weaker position to weather unexpected loan losses if the COVID-19 storm turns out to be even worse than expected. </p>
<p>The other option was to scrap (or reduce) its dividend and avoid the ex-dividend date drop in its share price. It bolsters its capital strength and gives shareholders higher expected capital gains (or lower capital losses).</p>
<p>Broadly, the loss of dividends should be offset to some degree by a higher share price and higher capital gains. </p>
<p>But try telling shareholders that the dividends they have lost can be replaced by selling shares.</p>
<h2>Tax makes retirees hate it</h2>
<p>That they care is in part psychological. Shareholders view a bird (dividend) in the hand as better than one (a capital gain) in the bush. </p>
<p>Selling shares is seen as “dipping into one’s capital”, even though it has the same effect on the shareholder’s capital (the value of shares held) as taking a dividend.</p>
<p>Another reason shareholders care more than you might think is tax. </p>
<p>Typically (based on historical evidence) a franked dividend of $1 leads to a share price fall of around $1. </p>
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Read more:
<a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">Deeming rates explained. What is deeming, how does it cut pensions, and why do we have it?</a>
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<p>But for an investor on a zero tax rate (as many retirees are) that $1 dividend is actually worth around $1.43. </p>
<p>This is because the Tax Office rebates that investor <a href="https://www.marketindex.com.au/franking-credits">43 cents</a> of tax previously paid by the bank, a so-called dividend imputation payment. </p>
<p>Selling $1.43 of shares to compensate for the lost dividend cash flow leaves them worse off.</p>
<p>Super funds on a low 15% tax rate are also likely to prefer payment of franked dividends since they can use the imputation credits to reduce tax on other investment income.</p>
<h2>Tax makes other shareholders like it</h2>
<p>High tax rate investors and foreign shareholders think quite differently. </p>
<p>For high tax rate investors, Australia’s practice of taxing only <a href="https://www.realestate.com.au/advice/what-is-capital-gains-tax/">half</a> of each capital gain can make the higher capital gains associated with higher share prices more attractive than receiving dividends on which they have to pay extra tax.</p>
<p>Foreign shareholders also generally prefer capital gains to franked dividends, since they can’t use Australia’s imputation credits.</p>
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Read more:
<a href="https://theconversation.com/heres-a-radical-reform-that-could-pay-every-retiree-the-full-pension-131289">Here's a radical reform that could pay every retiree the full pension</a>
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<p>Under any tax system where dividends and capital gains are taxed differently, deferring dividends hurts some investors and benefits others. Australia’s imputation tax system magnifies that effect, with low tax rate investors being losers.</p>
<p>As it happens, these features of the tax system took centre stage in last year’s election, in which Labor proposals to change both the rules regarding dividend imputation and capital gains were <a href="https://theconversation.com/going-up-monday-showed-what-the-market-thinks-of-morrison-117396">rejected</a> by voters.</p>
<h2>Longer term, investors might thank banks</h2>
<p>The root cause of the hit to dividends is uncertainty about the future. </p>
<p>If economic conditions turn out worse than expected, banks will find themselves hesitant to make loans unless they have sufficient capital to absorb unexpected losses.</p>
<p>To the extent that they use that capital to help restore the health of the economy, all investors (including those reliant on future dividends) will be better off.</p><img src="https://counter.theconversation.com/content/137889/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Westpac and the ANZ have suspended dividends payments. The National Australia Bank has slashed them. The peculiarities of our tax system explain why retirees hate this more than they should.Kevin Davis, Professor of Finance, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1122132019-02-22T05:49:11Z2019-02-22T05:49:11ZDon’t bank on Dollarmites to teach financial literacy: here are our alternatives<figure><img src="https://images.theconversation.com/files/260341/original/file-20190222-195870-17bnfyg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Research shows combining maths education and financial literacy concepts is a better way to teach children good financial habits and boost numeracy.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>The recent <a href="https://financialservices.royalcommission.gov.au/Pages/default.aspx">royal commission into banking</a> has revealed rampant wrongdoing by the big banks. As a result, there is <a href="https://www.abc.net.au/news/2019-02-20/dollarmites-program-out-of-schools-aeu-push-banking/10806554">renewed public interest</a> in school banking schemes. The Commonwealth Bank’s <a href="https://www.commbank.com.au/banking/school-banking.html#terms">Dollarmites</a> program has once again come into the spotlight. </p>
<p>Dollarmites was awarded a 2018 <a href="https://www.choice.com.au/shonky-awards/hall-of-shame/shonkys-2018/commonwealth-bank-dollarmites">Choice Magazine</a> Shonky award. The program has over 300,000 active participants, and although it’s not the only school banking program, it’s the largest by far.</p>
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Read more:
<a href="https://theconversation.com/should-banks-play-a-role-in-teaching-kids-about-how-to-manage-money-effectively-67775">Should banks play a role in teaching kids about how to manage money effectively?</a>
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<p><a href="https://www.commbank.com.au/banking/school-banking.html#terms">According to the Commonwealth Bank</a>, the motive behind the Dollarmites program is to teach good savings habits and develop financial literacy. But I could find little independent research evidence it actually does.</p>
<p>On the surface, the Commonwealth Bank’s intentions are good. But <a href="https://www.abc.net.au/life/how-to-switch-banks/10007610">research</a> has found 40% of people develop loyalty to their banks and continue banking with them into adulthood.</p>
<p>We need to consider other options. Here are some research-backed alternatives.</p>
<h2>Alternatives to school banking</h2>
<p>Financial literacy can be taught both at home and at school, in practical and meaningful ways. If we consider the core business of schools to be learning, then our classrooms are not an appropriate place for the distractions of corporate marketing. There is definitely no time to be wasted on the logistics of organising school banking. </p>
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Read more:
<a href="https://theconversation.com/financial-literacy-is-a-public-policy-problem-84695">Financial literacy is a public policy problem</a>
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<p>In fact, schools have several options when it comes to teaching financial literacy. There are a number of free resources already aligned to the curriculum. </p>
<p>In <a href="https://www.moneysmart.gov.au/media/560516/moneymathematicsengagement_final_report_14_september_2016-assoc-prof-catherine-attard.pdf">my research</a>, using ASIC’s <a href="https://www.moneysmart.gov.au/teaching/how-teachers-can-use-moneysmart">MoneySmart</a> resources, financial literacy was combined with maths. Students did activities that allowed them to deal with real money while applying maths skills. </p>
<p>For example, some students borrowed money from the school principal to set up small businesses. They then ran their business at a school market day, and used their profits to buy Christmas gifts for underprivileged children. </p>
<p>Simple activities such as setting up classroom economies or allowing children to help plan events (such as class excursions) are also excellent at engaging children in financial literacy in a fun, realistic and interactive way.</p>
<p>Findings from my study showed learning about money and maths improved engagement, understanding of mathematical concepts and knowledge of financial concepts such as budgeting, profit and loss, lending and interest. </p>
<p>There are also resources such as <a href="https://www.banqer.com.au/">Banqer</a>, a free subscription-based app that allows students to manage fictitious money to budget and cover expenses (such as “renting” a desk). In my professional opinion, apps such as this are high quality. They may have corporate sponsorships, but are offered brand-free, which is preferable. </p>
<h2>Parents can teach financial literacy too</h2>
<p><a href="https://www.igrad.com/articles/childhood-money-habits-learned-from-parents">Parents</a> are one of the biggest influences on the financial habits of children. Parents have a responsibility to model good financial behaviours.</p>
<p>Involving children in shopping, having discussions about family budgeting and encouraging children to save some of their pocket money using a bank account of their choice all <a href="https://www.moneysmart.gov.au/media/560516/moneymathematicsengagement_final_report_14_september_2016-assoc-prof-catherine-attard.pdf">contribute</a> to the development of financial literacy. These are really simple, everyday things parents can do to help their children learn financial literacy.</p>
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Read more:
<a href="https://theconversation.com/teaching-kids-about-maths-using-money-can-set-them-up-for-financial-security-85327">Teaching kids about maths using money can set them up for financial security</a>
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<img src="https://counter.theconversation.com/content/112213/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Catherine Attard has previously provided advice to the MoneySmart program. In 2015 she was awarded funding from Financial Literacy Australia. </span></em></p>There are better ways to teach financial literacy than through school banking schemes.Catherine Attard, Associate Professor, Mathematics Education, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/880722018-08-23T01:55:27Z2018-08-23T01:55:27ZCompanies keep slashing jobs, but new technologies won’t replace good management<p>As technology improves, it’s tempting for company executives to <a href="http://www.abc.net.au/news/2018-08-22/telco-wrap-nbn-new-ceo-tpg-vodafone-talks-optus-cuts-jobs/10151410?section=business">slash jobs</a> that are “standard” and “routine”, <a href="https://www.pc.gov.au/research/completed/digital-disruption/digital-disruption-research-paper.pdf">making them easy to automate</a>. But research shows focusing on improving management practices will do more to improve companies’ bottom lines.</p>
<p>In a <a href="https://www.nber.org/papers/w23300">study</a> of 32,000 manufacturing firms, American researchers showed firms using certain management practices had 20% better productivity than firms that neglected to use them. </p>
<p>At the same time, integrating technology into business practices was found to only improve firm productivity by 10%. </p>
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Read more:
<a href="https://theconversation.com/why-coaching-not-gadgets-is-key-to-getting-the-most-out-of-employees-87769">Why coaching, not gadgets, is key to getting the most out of employees</a>
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<p>The firms <a href="https://www.nber.org/papers/w23300">studied</a> varied widely in how much they used structured management practices - targets, performance monitoring and incentives. Targets and monitoring make it clear what <a href="http://www.jstor.org/stable/pdf/977173.pdf">employees need to do and whether they are doing it</a>. The right incentives give them a reason to make the necessary effort.</p>
<p>This suggests organisations such as <a href="http://www.abc.net.au/news/2018-08-22/telco-wrap-nbn-new-ceo-tpg-vodafone-talks-optus-cuts-jobs/10151410?section=business">Optus</a>, <a href="http://www.abc.net.au/news/2017-06-14/telstra-confirms-1400-jobs-axed-in-australia/8617074">Telstra</a>, the <a href="https://www.businessinsider.com.au/the-big-banks-have-cut-4200-jobs-in-12-months-2016-5">big four banks</a>, <a href="https://cpsu-csiro.org.au/2017/09/15/job-cuts-set-to-rock-csiro-minerals-and-data-research/">CSIRO</a> and the <a href="http://about.abc.net.au/our-abc-our-future/">ABC</a>, who have all cut jobs citing the possibility of new technology, may be pursuing the least effective option. </p>
<h2>What’s good management in practice?</h2>
<p>To avoid over-relying on technology while keeping up with change, managers must have the <a href="https://iedunote.com/management-science-art">creativity and persuasiveness of an artist as well as the objectivity of a scientist</a>. </p>
<p>While standard, routine problems can be automated, others require managers to invent a range of options, choose among these alternatives, and then persuade other people to follow that choice. </p>
<p>In “<a href="http://classics.mit.edu/Aristotle/rhetoric.1.i.html">The Art of Rhetoric</a>” Aristotle described the skills necessary:</p>
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<li><em>ethos</em>: an understanding of human character and goodness. To change a situation, managers need credibility and authenticity</li>
<li> <em>logos</em>: the capacity to reason logically. Managers must put forward a rigorous case for converting a firm’s problems into ideas, then options, then actions</li>
<li> <em>pathos</em>: the ability to understand emotions. To persuade people, especially in large numbers, managers must understand their audience.</li>
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<p>Managers shedding staff in the interests of organisational survival face a severe test of all three persuasion skills. In terms of <em>ethos</em> (credibility and authenticity), managers need to admit they cannot offer loyalty to employees and so should not expect it. </p>
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Read more:
<a href="https://theconversation.com/mass-layoffs-increase-teen-suicide-rates-30710">Mass layoffs increase teen suicide rates</a>
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<p>Rather than <a href="http://www.abc.net.au/news/2018-08-22/telco-wrap-nbn-new-ceo-tpg-vodafone-talks-optus-cuts-jobs/10151410?section=business">shedding jobs in favour of technology</a>, and at a minimum, organisations should offer training to prepare people for the time they will no longer be needed. And, respecting <em>pathos</em> (emotional understanding), treat departing employees with care and respect.</p>
<p>A drop in share price is a sign shareholders lack confidence in the <em>logos</em> (reasoned logic) of an organisation’s strategy. But there are other, more subtle signals an organisation has over-played its digital capabilities. </p>
<p>An example is the reputational damage to organisations that use cybervetting - seeking information about job applicants from social media and search engines. <a href="http://onlinelibrary.wiley.com/doi/10.1002/9781118955567.wbieoc054/full">Studies of cybervetting</a> show some employers use technology to better their business at potentially the expense of good management. </p>
<p>Employers see cybervetting as a digital extension of background checking that increases organisational efficiency. Some even see it as the beginning of an employment relationship. But applicants disagree with this logic, perceiving the practice as unfair. </p>
<p>Cybervetting reduces applicants’ trust and identification with the organisation because they perceive it as lacking <em>ethos</em> (credibility and autheniticity). Its reputation is damaged in their eyes so they are less likely to accept a job offer.</p>
<h2>Framing a solution</h2>
<p>Applying technology to organisational processes is part of working smarter, not harder. Careful management is the other part. But as organisations’ technological capacities grow, managers need to ask themselves what is possible and desirable when using technology. </p>
<p><em>Logos</em> (reasoned logic) and <em>ethos</em> (credibility and authenticity) will be useful as they do this. Then, using <em>pathos</em> (emotional understanding), they must try to understand how others are likely to frame their answers to similar questions. </p>
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Read more:
<a href="https://theconversation.com/why-the-end-of-auto-manufacturing-wont-be-as-apocalyptic-as-previous-mass-layoffs-85521">Why the end of auto manufacturing won't be as apocalyptic as previous mass layoffs</a>
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<p>Applicants, unlike employers, don’t see cybervetting as a more efficient replacement for personal interaction during the early stages of an employment relationship. To use <a href="https://books.google.com.au/books?id=nz1RT-xskeoC&printsec=frontcover&dq=karl+e+weick&hl=en&sa=X&ved=0ahUKEwjHy7OH4Y3YAhUOObwKHRdSAaQQ6AEIKTAA#v=onepage&q=karl%20e%20weick&f=false">Karl Weick’s term</a>, job applicants and employers <a href="https://pdfs.semanticscholar.org/c5ef/1af1d6b68ed0d97b7aa19de748550a379fa7.pdf">make sense</a> of the same situation differently. </p>
<p><a href="http://classics.mit.edu/Aristotle/rhetoric.1.i.html">Aristotle’s ancient typology of management skills</a> promises to remain useful as digital solutions - and dilemmas - increase.</p><img src="https://counter.theconversation.com/content/88072/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mary Barrett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Management trumps technology in making companies productive, but that doesn’t mean firms can be complacent when it comes to keeping up with change.Mary Barrett, Professor of Management, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/979182018-06-08T05:12:04Z2018-06-08T05:12:04ZCommonwealth Bank’s $700 million fine will end up punishing its customers<p>The Commonwealth Bank of Australia (CBA) this week <a href="http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty">agreed to pay a record penalty</a> to settle its violations of anti-money laundering and counter-terrorism financing laws. The A$700 million fine plus legal costs will become final upon the approval of the Federal Court.</p>
<p>The deal was met with <a href="https://www.smh.com.au/business/commonwealth-bank-leads-asx-despite-700m-penalty-20180604-h10x2e.html">market approval</a>, and has allowed <a href="http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty">regulators to claim victory</a>. Given the public’s current hostility to banks in the wake of revelations from the Banking Royal Commission, <a href="http://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-$700-million-fine-money-laundering-breach/9831064">politicians also joined the bandwagon</a> and applauded CBA’s loss.</p>
<p>What if the penalty is a sign of mob justice, rather than just deserts? And given the scale of the payout, will the fine also end up further punishing customers and shareholders?</p>
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Read more:
<a href="https://theconversation.com/after-damning-the-commonwealth-banks-management-regulators-want-the-bank-to-fix-itself-95862">After damning the Commonwealth Bank's management, regulators want the bank to fix itself</a>
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<p>Answering these questions requires a close look at the case. <a href="http://www.austrac.gov.au/sites/default/files/statement-agreed-facts-admissions-3june2018.pdf">CBA was alleged to have violated</a> the <a href="https://www.legislation.gov.au/Details/C2018C00194">Anti-Money Laundering and Counter-Terrorism Financing Act 2006</a>, in several specific ways. </p>
<p>First, it introduced Intelligent Deposit Machines (IDMs) without conducting an independent risk assessment and/or instituting mitigation procedures to tackle money-laundering. Unlike older ATMs, IDMs process cash deposits and make the funds available for transfer immediately. Clearly, criminals could use these features to launder cash gained through crime. CBA wrongly believed that its existing ATM monitoring processes covered these risks. </p>
<p>Second, it was warned about these risks and could have minimised money laundering by imposing daily limits on accounts. CBA refused. </p>
<p>Third, CBA failed to provide transaction reports within 10 business days for cash deposits greater than A$10,000. This violation referred to 53,506 transactions totalling about A$625 million. The failure was due to a coding error – the software was not updated to pick up a new code created for IDM deposits. </p>
<p>Fourth, CBA failed to report transactions with a pattern of money-laundering – apparently misunderstanding its legal obligations. </p>
<p>Fifth, CBA failed to report suspicions about identity fraud – for example, in relation to eight money-laundering syndicates. Therefore, AUSTRAC and law enforcement were unaware of “several million dollars of proceeds of crime mostly connected with drug importation and distribution” that passed into accounts held by CBA.</p>
<p>Sixth, CBA was deficient in monitoring accounts despite warnings from law enforcement – 778,370 accounts were not monitored. CBA was slow to act even after suspicious accounts were terminated, facilitating money-laundering. </p>
<p>Clearly these are significant violations. However, the <a href="http://www.austrac.gov.au/sites/default/files/statement-agreed-facts-admissions-3june2018.pdf">statement of facts</a> agreed by AUSTRAC and CBA state that the bank did not deliberately or intentionally violate its legal obligations under the relevant laws. </p>
<p>Considering that CBA’s violations were inadvertent, due to technical glitches, and attributable to a mistaken belief about existing systems satisfying legal obligations, the A$700 million fine might be excessive. </p>
<h2>International comparisons</h2>
<p>By international standards, the fine seems to be very high. This week the UK Financial Conduct Authority <a href="https://www.fca.org.uk/news/press-releases/fca-fines-and-imposes-restriction-canara-bank-anti-money-laundering-systems-failings">fined the British division of India’s Canara Bank £896,100 (A$1.58 million)</a> for “consistent failure” in its money-laundering controls, and for failings “affecting almost all aspects of its business”. </p>
<p>The <a href="https://www.reuters.com/article/us-britain-canara-moneylaundering/indias-canara-bank-fined-in-uk-for-anti-money-laundering-breaches-idUSKCN1J21EI">FCA said the bank’s failings</a> “potentially undermine the integrity of the UK financial system by significantly increasing the risk that Canara could be used for the purposes of domestic and international money laundering, terrorist financing and those seeking to evade taxation or the implementation of sanction requirements”.</p>
<p>In the United States, the <a href="https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-charges-against-us-bancorp-violations-bank">Justice Department fined US Bancorp US$528 million (A$694 million)</a> for criminal violations of money-laundering laws and for concealing its behaviour from regulators.</p>
<p>CBA’s fine is far higher than Canara’s punishment for similar violations, and roughly on a par with the sanction meted out to US Bancorp - albeit the latter was for more serious criminal wrongdoing. It is also comparable to the <a href="https://www.justice.gov/opa/pr/hsbc-holdings-plc-and-hsbc-bank-usa-na-admit-anti-money-laundering-and-sanctions-violations">US$665 million (A$874 million) penalty imposed on HSBC</a> (plus US$1.26 billion in sacrificed profits). Unlike CBA, HSBC was punished for “willfully failing” to maintain proper money-laundering controls.</p>
<p>Yet the proceeds from HSBC’s violations stretching back to the 1990s were staggering: at least US$881 million in laundered drug money; a failure to monitor more than US$670 billion in wire transfers and over US$9.4 billion in purchases of physical US dollars from HSBC Mexico; some US$660 million in sanctions-prohibited transactions; and evidence of deliberate sanctions violations by processing transactions to parties in Iran, Cuba, Burma, Sudan, and Libya.</p>
<h2>A fair punishment?</h2>
<p>The size of CBA’s penalty seems to be more in line with banks that have deliberately flouted money-laundering laws, rather than the smaller punishments handed to banks that did so unintentionally. It is tempting to conclude that this is influenced by the current prevailing mood to “send a message” to financial institutions.</p>
<p>What’s more, we cannot necessarily assume that the fine will act as a deterrent. The penalty is not paid by the CBA staff who acted wrongly; it is paid by the bank, ultimately by the shareholders. </p>
<p>Similarly, the cost of managing enhanced scrutiny and investing in additional compliance machinery will be passed on to customers in the form of higher charges and fees. Likewise, if banks become excessively cautious because of apprehensions about overenforcement, that will impact services and reduce profitability – again harming innocent people.</p>
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Read more:
<a href="https://theconversation.com/cbas-board-needs-to-take-ultimate-responsibility-for-the-banks-failings-91485">CBA's board needs to take ultimate responsibility for the bank's failings</a>
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<p>The punishment must always fit the crime. Excessive punishment is counterproductive and creates additional victims. </p>
<p>If the purpose was really to tackle wrongdoing, the CBA staff who were responsible for the violations should have been identified and penalised. </p>
<p>The A$700 million fine is good for political posturing but will hurt customers and shareholders the most. Bank-bashing has a cost, and it is paid by ordinary people, not politicians.</p><img src="https://counter.theconversation.com/content/97918/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sandeep Gopalan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Commonwealth Bank has agreed to pay a $700 million fine over its inadvertent failure to tackle money-laundering. But the penalty is in line with punishments for far more serious violations by other banks.Sandeep Gopalan, Pro Vice-Chancellor (Academic Innovation) & Professor of Law, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/958622018-05-02T03:03:43Z2018-05-02T03:03:43ZAfter damning the Commonwealth Bank’s management, regulators want the bank to fix itself<p>A <a href="http://www.apra.gov.au/AboutAPRA/Documents/CBA-Prudential-Inquiry_Final-Report_30042018.pdf">report</a> on the Commonwealth Bank’s governance, culture and accountability has stripped away <a href="https://www.commbank.com.au/about-us/shareholders/corporate-profile/corporate-governance.html">the bank’s delusion</a> that it is well run and a model of good governance. </p>
<p>The report by the Australian Prudential Regulation Authority (APRA) is a damning indictment of every aspect of CBA management, from the board of directors to executive management and even the lower levels of the bank. However, APRA has done little more than rap CBA on the knuckles. </p>
<p>Responsibility for fixing up CBA has been turned over to the bank itself. More could have been done, including placing conditions on CBA’s banking licence and removing board members and executives. </p>
<p>APRA <a href="http://www.apra.gov.au/MediaReleases/Pages/18_17.aspx">has applied</a> a A$1 billion add-on to CBA’s minimum capital requirement. These are the financial assets that the Commonwealth Bank is required to hold to ensure a stable banking system. </p>
<p>APRA has also accepted an <a href="http://www.apra.gov.au/CrossIndustry/Documents/20180430-CBA-EU-Executed.pdf">enforceable undertaking from the CBA</a>. This is essentially an agreement under which CBA accepts the report’s findings (but does not expressly agree with them) and promises to prepare a plan to respond to its recommendations. </p>
<p>There are indications in the APRA report that there will be further investigations of the conduct of bank employees. </p>
<h2>What penalties?</h2>
<p>The A$1 billion add-on to CBA’s capital requirements is not a penalty, despite <a href="http://www.afr.com/business/banking-and-finance/financial-services/commonwealth-bank-hit-with-1b-capital-charge-afsecter-scathing-apra-report-20180430-h0zg14">commentary to that effect</a>. APRA can and does require top-ups of this kind from time to time under the <a href="https://www.legislation.gov.au/Details/C2018C00067">Banking Act</a> to ensure security and confidence in the banking sector. </p>
<p>Given the Commonwealth Bank’s size and leading role in the sector, the additional capital requirement is prudent but hardly controversial. The funds will be returned to CBA when it completes the actions proposed by the enforceable undertaking. </p>
<p>At best, the capital requirement is a temporary but not significant inconvenience for CBA. It represents a <a href="https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/annual_report_2017_14_aug_2017.pdf">mere 0.103% of its total assets as of the last financial year</a> </p>
<p>That leaves the CBA enforceable undertaking as the principal outcome from the APRA report. </p>
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Read more:
<a href="https://theconversation.com/why-the-new-banking-laws-wont-be-the-slam-dunk-the-government-is-expecting-85530">Why the new banking laws won’t be the slam dunk the government is expecting</a>
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<p>The <a href="http://www.apra.gov.au/CrossIndustry/Documents/20180430-CBA-EU-Executed.pdf">enforceable undertaking</a> is mostly a procedural document. For instance, CBA must submit its remedial action plan by June 30 2018. </p>
<p>It must have a clear and measurable set of responses and a timetable for each response, and must nominate a person responsible from the CBA executive team. CBA must also appoint an independent reviewer, approved by APRA, to report to APRA on compliance with the enforceable undertaking and the completion of items in the plan. CBA must report separately on executive pay issues. </p>
<p>In essence APRA has handed over the responsibility for cleaning up the management mess found at the CBA to the bank itself, despite finding that it is culturally unfit to properly manage itself. </p>
<p>Why should anyone take comfort from that arrangement? </p>
<p>APRA’s report also makes clear that the problems at the Commonwealth Bank do not stem from one specific issue. The problems affect the whole organisation of more than 45,000 employees with A$967 billion in assets. </p>
<p>An independent reviewer will vet what is being done and report on its success or otherwise to APRA. But that report will be made to APRA, not to the general public. We may never know what measures the bank implements as APRA has no obligation to disclose anything. </p>
<h2>What else could have been done?</h2>
<p>An <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2846853">enforceable undertaking</a> can save the regulator the time, cost and uncertainty of taking legal action, as well as enable it to craft specific remedial actions to fit the circumstances. </p>
<p>But there is very little tailoring in the Commonwealth Bank’s enforceable undertaking. APRA has opted to wait and see what remedial action the bank comes up with. The regulatory touch is so light that even describing it as featherweight would be an exaggeration. </p>
<p>APRA could have done much more than it did. Banks require a licence and APRA is <a href="https://www.legislation.gov.au/Details/C2018C00067">empowered by Banking Act</a> to place conditions on these licences that restrict or limit how banks can operate.</p>
<p>APRA could have used this power to place immediate restrictions on CBA’s business practices, including on the size and calculation of executive compensation. One of the major findings of APRA’s report is that CBA executive compensation schemes did not provide sufficient incentives for senior executives to account for risk in their decision-making. Certainly, the criticisms of CBA management in the APRA report are sufficient to warrant this kind of action. </p>
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Read more:
<a href="https://theconversation.com/apra-and-asic-have-the-legal-power-to-sack-bank-heads-but-they-need-willpower-95772">APRA and ASIC have the legal power to sack bank heads, but they need willpower</a>
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<p>APRA has the <a href="https://theconversation.com/apra-and-asic-have-the-legal-power-to-sack-bank-heads-but-they-need-willpower-95772">power to remove a bank director or senior manager</a> if the person does not meet one or more of the <a href="http://www.apra.gov.au/CrossIndustry/Documents/Prudential%20Standard%20CPS%20520%20Fit%20and%20proper.pdf">criteria for fitness and propriety</a>. That APRA did not do this may be because there have already been resignations and new directors at the Commonwealth Bank.</p>
<p>APRA should have queried whether these changes were sufficient. Perhaps this is part of the wait-and-see approach implied in the enforceable undertaking.</p>
<p>The APRA report highlights systemic problems in Australia’s leading company and premier bank, including a culture of complacency, defensiveness, insularity and overconfidence. But for all of that, and despite the financial and emotional costs borne by the Australia community, APRA’s response appears to be no more than “wait and see”.</p><img src="https://counter.theconversation.com/content/95862/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Helen Bird does not own shares in CBA. </span></em></p>The Commonwealth Bank has been given responsibility to fix its own management mess. Regulators could have done a lot more.Helen Bird, Course Director, Master of Corporate Governance & Research Fellow, Swinburne Law School, Swinburne University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/934892018-03-20T19:04:58Z2018-03-20T19:04:58ZConsumers need critical thinking to fend off banks’ bad behaviour<p>The <a href="http://www.abc.net.au/news/2018-03-14/nab-executive-admits-bank-breaches-responsible-lending-laws/9547220">irresponsible</a> (if not predatory) lending and the selling of “<a href="https://www.theaustralian.com.au/business/banking-royal-commission/cba-sold-junk-credit-insurance/news-story/cc2e375f95693a644985687f995c9998">junk</a>” financial products highlighted by the Financial Services Royal Commission should raise concerns for regulators, educators and parents interested in financial literacy.</p>
<p>Research shows a <a href="https://research.acer.edu.au/ozpisa/27/">strong correlation</a> between financial literacy and literacy and numeracy skills. Literacy and numeracy are critical for, among other things, making sense of product disclosure statements and understanding the impact of loan terms and interest rates on the total amount to be repaid. </p>
<p>But teaching financial literacy requires going beyond these skills, by cultivating a healthy scepticism of financial institutions and the capabilities and confidence to make informed financial decisions.</p>
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<a href="https://theconversation.com/financial-literacy-is-a-public-policy-problem-84695">Financial literacy is a public policy problem</a>
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<p>There is a strong relationship between a low socioeconomic background and low financial literacy in both <a href="https://research.acer.edu.au/ozpisa/27/">adolescents</a> and <a href="https://www.anz.com/resources/3/1/31cbc1fd-9491-4a22-91dc-4c803e4c34ab/adult-financial-literacy-survey-full-results.pdf">adults</a>.</p>
<p>It’s not just disadvantaged and vulnerable groups that struggle with financial decision-making. People who are highly educated in finance <a href="https://link.springer.com/article/10.1057/fsm.2008.24">also make poor decisions</a> – for instance, by focusing too much on growing their assets and ignoring risks.</p>
<p>But <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/cb.1621">studies show</a> that when regulation is effective and the financial system can be trusted, even consumers with limited financial knowledge and information-processing capabilities have the potential to deal with complex financial decisions. </p>
<p>For example, when considering mortgage protection insurance, applicants stand to benefit from knowing the actual risk of events like serious illness or injury that can affect their ability to meet monthly loan repayments.</p>
<h2>Building financial capability</h2>
<p>One way to develop better financial literacy is through simulating real-world risks, rewards and decisions in safe and supportive environments. For instance, families can play games like Monopoly and The Game of Life. </p>
<p>Secondary school students also have access to more sophisticated online simulations, such as the <a href="http://financialbasics.org.au/essi-money/about-register.aspx">ESSI Money Game</a> and the <a href="https://www.asx.com.au/education/sharemarket-game.htm">ASX Sharemarket Game</a>. </p>
<p>Hypothetical scenarios like these provide opportunities for role play, where students can practise drawing on evidence and using it to think and reason about situations. </p>
<p>A <a href="https://www.vcta.asn.au/documents/item/3244">recent survey</a> of teachers of Year 7-10 commerce students revealed that more could also be done to teach students how to compare and choose between banks and financial products and services, what to do in the case of a financial scam, and how to escalate an unresolved complaint.</p>
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Read more:
<a href="https://theconversation.com/should-banks-play-a-role-in-teaching-kids-about-how-to-manage-money-effectively-67775">Should banks play a role in teaching kids about how to manage money effectively?</a>
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<p>But we also need to take a look at the <a href="https://theconversation.com/should-banks-play-a-role-in-teaching-kids-about-how-to-manage-money-effectively-67775">role banks play in financial education</a>. Programs like the Commonwealth Bank’s <a href="https://www.commbank.com.au/personal/kids/school-banking/dollarmites.html">Dollarmites Club</a> and Westpac’s <a href="https://mathspace.co/westpac/plus/">Solve to Save</a> teach children about money on the banks’ terms.</p>
<p>A key call to action in these programs is often to open a bank account and activate a savings plan. In the Solve to Save program, parents pay a $10 weekly subscription, which is “<a href="https://mathspace.co/westpac/plus/">automatically refunded</a>” to their child’s nominated Westpac account every week they complete three mathematics exercises.</p>
<p>Late last year, in response to <a href="https://www.choice.com.au/money/banking/savings-options/articles/cba-facing-public-scrutiny-cleans-up-dollarmite-commissions-061017">criticism by the consumer advocacy group Choice</a>, the Commonwealth Bank stopped kickback payments to schools related to its longstanding Dollarmites scheme.</p>
<p>While the banks may be proud of their investment in these education programs, they serve to position the banks as experts in money matters while cultivating trust and brand loyalty.</p>
<h2>What does it really mean to be smart with money?</h2>
<p>Misguided trust has exposed vulnerable individuals to the moral hazard of the banks – and underscores the importance of improved financial regulation and education moving forward.</p>
<p>Given that borrowing decisions are complex, multidimensional and often emotional, it’s important to consider any lender’s motives, or “What’s in it for them?” Banks are profit-driven. This means an important question to ask oneself is: “Where can I get information and support that is independent, comprehensive and easy to understand?”</p>
<p>In the current climate, teaching <a href="https://theconversation.com/cutting-through-political-spin-requires-a-new-approach-to-financial-literacy-59240">capabilities</a> for a healthy scepticism and personal agency is the way forward. </p>
<p>We also need to change the public perception of what it means to be financially literate. The conventional focus on individual responsibility and wealth accumulation is <a href="https://theconversation.com/there-are-serious-problems-with-the-concept-of-financial-literacy-84836">flawed</a>. </p>
<p>Arguably, this focus has contributed to the need for a Financial Services Royal Commission. Whether you are a bank, a mortgage broker or a consumer, the impact of your decisions on others must be carefully considered.</p>
<p>While education can contribute to preparing all Australians for informed financial participation, the task is challenging.</p><img src="https://counter.theconversation.com/content/93489/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carly Sawatzki is affiliated with the Mathematics Education Research Group of Australasia. </span></em></p><p class="fine-print"><em><span>Levon Ellen Blue does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Financial literacy is more than numeracy, it requires a healthy scepticism of financial institutions and confidence in making financial decisions.Carly Sawatzki, Assistant Professor, University of CanberraLevon Ellen Blue, Lecturer, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/881562018-02-18T19:15:17Z2018-02-18T19:15:17ZFactCheck: do bank profits ‘belong to everyday Australians’?<figure><img src="https://images.theconversation.com/files/196422/original/file-20171127-14028-1qzwq26.png?ixlib=rb-1.1.0&rect=3%2C0%2C1130%2C649&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bank branch employees featured in the Australian Bankers' Association national advertising campaign.</span> </figcaption></figure><blockquote>
<p>A lot of people don’t know that nearly 80% of all Australian bank profits go straight back to shareholders and the majority of those shareholders are everyday Australians who own bank shares through their super funds.</p>
<p><strong>– Excerpt from the Australian Bankers’ Association ‘<a href="https://www.banksbelongtoyou.com.au/">Australian Banks Belong To You’ campaign</a>, November 2017 – February 2018</strong></p>
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<figcaption><span class="caption">Advertisement from the Australian Bankers’ Association, November 19, 2017.</span></figcaption>
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<p>Following <a href="https://theconversation.com/grattan-on-friday-nationals-force-reluctant-turnbull-to-dress-in-shortens-banking-clothes-88422">mounting pressure</a> from Labor and some National Party MPs, the Turnbull government in December <a href="https://financialservices.royalcommission.gov.au/Pages/default.aspx">established</a> a Royal Commission into misconduct in the banking, superannuation and financial services industry. Public hearings are now underway.</p>
<p>At the same time, the Australian Bankers’ Association (ABA) has been running a national advertising campaign in which bank branch staff talk about who benefits from bank profits.</p>
<p>The advertisements – broadcast on national television, published in newspapers, shared on social media and displayed on ATMs – state that “nearly 80% of all bank profits go straight back to shareholders and the majority of those shareholders are everyday Australians who own bank shares through their super funds”.</p>
<p>The ABA says bank profits “don’t belong to the banks, they belong to everyday Australians like you”.</p>
<p>Is that right?</p>
<h2>Checking the source</h2>
<p>The Conversation contacted the Australian Bankers’ Association requesting sources and comment, but did not receive a response. </p>
<p>On the “Australian Banks Belong To You” <a href="https://www.banksbelongtoyou.com.au/">campaign website</a>, the association cites these references:</p>
<blockquote>
<p>The “nearly 80%” figure refers to the dividend payout ratio of the 8 key Australian retail banks averaged over 2016 and 2017. The data are sourced from bank annual reports. The dividend payout ratio is calculated as the sum of the dividends paid divided by the sum of cash earnings.</p>
<p>According to the ATO more than 14.8 million Australians have at least one superannuation fund account (around 40% have more than one). It’s safe to say that many super funds invest in Australian bank shares as part of their portfolio.</p>
<p>This means that millions of Australians own bank shares.</p>
</blockquote>
<h2>Verdict</h2>
<p>The Australian Bankers’ Association claimed that “nearly 80% of <em>all</em> Australian bank profits go straight back to shareholders”. While we can’t say whether that’s correct for <em>all</em> Australian banks, the statement is broadly correct for Australia’s eight largest retail ABA member banks over the last five years.</p>
<p>The association’s claim that “the <em>majority</em> of those shareholders are everyday Australians who own bank shares through their super funds” is reasonable.</p>
<p>But if you read those statements together as meaning 80% of profits go to <em>Australian</em> shareholders, that would be incorrect. That’s because a proportion of dividend payouts go to non-resident shareholders.</p>
<p>For example, if a dividend was paid on 31 December 2017 by Australia’s ‘Big Four’ banks, non-resident investors would have received between 21.21% and 26.5% of any dividends declared – meaning Australian investors would have received closer to 60% of profits.</p>
<hr>
<h2>Do ‘nearly 80% of bank profits go straight back to shareholders’?</h2>
<p>The Australian Bankers’ Association (ABA) is an advocacy group representing the interests of the Australian banking industry. The ABA has <a href="https://www.bankers.asn.au/about-us/members/">24 member banks</a>, but the claim about what percentage of profits are paid to shareholders doesn’t cover all of its 24 members.</p>
<p>On the “Australian Banks Belong To You” <a href="https://www.banksbelongtoyou.com.au/">campaign website</a>, the ABA said it based its “nearly 80%” claim on “the dividend payout ratio of the eight key Australian retail banks averaged over 2016 and 2017”, with the numbers sourced from bank annual reports.</p>
<p>Dividends are cash payments that listed companies make to their shareholders. The cash payments are often made regularly. The “dividend payout ratio” is the sum of the dividends paid to shareholders in a year, divided by the sum of the cash earnings the company made.</p>
<p>In other words, the dividend payout ratio is the portion of corporate profits that are paid directly back to shareholders. Companies retain the rest of profits, usually to finance future growth.</p>
<p>While the ABA didn’t name the banks it based its claim on, the eight largest retail banks in the ABA are the Commonwealth Bank, National Australia Bank, ANZ, Westpac, Bank of Queensland, Bendigo Bank, Suncorp and Macquarie Bank.</p>
<p>If we look at dividend payout ratios for those eight banks since 2013, we can see that the overall average payout has consistently hovered around 80% for the past five years. </p>
<p>The same is true of the average payout of the ‘Big Four’ Australian banks – Commonwealth Bank, Westpac, ANZ and National Australia Bank.</p>
<iframe src="https://datawrapper.dwcdn.net/s19mS/3/" scrolling="no" frameborder="0" allowtransparency="true" width="100%" height="400"></iframe>
<p>In 2012, an outlying dividend payout caused the average dividend payout to appear abnormally high. In the preceding five-year period from 2007 to 2011 payout ratios were lower, as you can see in the chart below. </p>
<iframe src="https://datawrapper.dwcdn.net/ZLkDS/1/" scrolling="no" frameborder="0" allowtransparency="true" width="100%" height="400"></iframe>
<h2>Do profits ‘belong to everyday Australians’?</h2>
<p>The ABA claimed that of those bank profit distributions, the “majority” go to Australians, including “millions of everyday Australians who own bank shares through their super funds”.</p>
<p>The ABA did not define what it meant by “everyday Australians”. In justifying its claim, the ABA correctly cited Australian Tax Office data that shows that as of June 30, 2016, <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Super-statistics/Super-accounts-data/Super-accounts-data-overview/">more than 14.8 million</a> Australians had at least one superannuation fund account. </p>
<p>On its website, the ABA stated it’s “safe to say that many super funds invest in Australian bank shares as part of their portfolio”. </p>
<p>Superannuation funds do typically hold a balanced portfolio that represents the major members of the Australian Stock Exchange (ASX). A typical superannuation portfolio might invest in bonds, and in a portfolio of the largest 200 stocks on the ASX, which would include the major banks. This can be subject to individuals’ investment preferences.</p>
<p>For example, say the fund invests in the largest 200 companies on the ASX, and invests in proportion to the companies’ size (that is – the largest companies get the largest investment). Then, the big four banks would be <a href="https://au.spindices.com/indices/equity/sp-asx-200">four of the five</a> largest investments.</p>
<p>Obviously, not all superannuation accounts invest in bank stocks, and portfolios can be structured in different ways. For example, some superannuation funds allow their members to invest only in bonds, and people with self managed superannuation funds choose their own investments. </p>
<p>Some wealthy shareholders, and overseas shareholders, also benefit from holding Australian bank shares. As with all companies, shareholders benefit in proportion to their shareholding. Listed banks have no say over whether wealthy Australians, or overseas buyers, purchase their shares.</p>
<p>But it is fair to say that “millions of everyday Australians who own bank shares through their super funds” benefit from dividend payouts. <strong>– Mark Humpherey-Jenner</strong></p>
<h2>Blind review</h2>
<p>The Australian Banking Association claimed that nearly 80% of all Australian bank profits go back to shareholders, and that the majority of those shareholders are everyday Australians who own bank shares through their super funds. </p>
<p>Those claims are valid when read independently, as set out above. But they should not be read together as indicating that nearly 80% of profits go to Australian shareholders.</p>
<p>The proportion of dividends that go back to Australians, either directly or through their investment portfolios, would be less than 80% of bank profits. </p>
<p>Reviewing the investor profiles of <a href="http://shareholder.anz.com/share-registry-profile">ANZ</a>, <a href="https://www.commbank.com.au/about-us/shareholders/shareholder-information/investor-breakdown-by-type-domicile.html">CBA</a>, <a href="https://www.nab.com.au/about-us/shareholder-centre/Share-register-profile">NAB</a> and <a href="https://www.westpac.com.au/about-westpac/investor-centre/westpac-share-information/share-registry-profile/">Westpac</a> shows that on December 31, 2017, Australian investment ranged from 73.5% to 78.79% across the big four banks, and institutional investment, which includes superannuation funds and other financial institutions, represented slightly under half of investors.</p>
<p>The high representation of domestic institutional holdings demonstrates the significance of bank shares in most investment portfolios, including superannuation funds.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/206110/original/file-20180213-44654-1p7azde.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/206110/original/file-20180213-44654-1p7azde.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/206110/original/file-20180213-44654-1p7azde.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=184&fit=crop&dpr=1 600w, https://images.theconversation.com/files/206110/original/file-20180213-44654-1p7azde.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=184&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/206110/original/file-20180213-44654-1p7azde.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=184&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/206110/original/file-20180213-44654-1p7azde.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=231&fit=crop&dpr=1 754w, https://images.theconversation.com/files/206110/original/file-20180213-44654-1p7azde.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=231&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/206110/original/file-20180213-44654-1p7azde.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=231&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Foreign ownership of Australian banks. NAB presents the data in a different way to the other banks.</span>
<span class="attribution"><span class="source">Author provided based on reports from ANZ, CBA, NAB, Westpac</span></span>
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<p>So if a dividend had been paid on 31 December 2017 for Australia’s ‘Big Four’ banks, non-resident investors would have received between 21.21% and 26.5% of that dividend declared, meaning Australian investors would have received closer to 60% of profits. <strong>– Helen Hodgson</strong></p>
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<a href="https://images.theconversation.com/files/162128/original/image-20170323-13486-72k52f.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/162128/original/image-20170323-13486-72k52f.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/162128/original/image-20170323-13486-72k52f.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/162128/original/image-20170323-13486-72k52f.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/162128/original/image-20170323-13486-72k52f.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/162128/original/image-20170323-13486-72k52f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/162128/original/image-20170323-13486-72k52f.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/162128/original/image-20170323-13486-72k52f.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The Conversation FactCheck is accredited by the International Fact-Checking Network.</span>
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<p><em>The Conversation’s FactCheck unit is the first fact-checking team in Australia and one of the first worldwide to be accredited by the International Fact-Checking Network, an alliance of fact-checkers hosted at the Poynter Institute in the US. <a href="https://theconversation.com/the-conversations-factcheck-granted-accreditation-by-international-fact-checking-network-at-poynter-74363">Read more here</a>.</em></p>
<p><em>Have you seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at <a href="mailto:checkit@theconversation.edu.au">checkit@theconversation.edu.au</a>. Please include the statement you would like us to check, the date it was made, and a link if possible.</em></p><img src="https://counter.theconversation.com/content/88156/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Humphery-Jenner has investments in superannuation funds that hold a diversified portfolio of stocks, which includes banks.</span></em></p><p class="fine-print"><em><span>Helen Hodgson has investments in superannuation funds that have a diversified portfolio of shares, including banks. Helen Hodgson receives funding from AHURI and the ARC. Helen is a member of the Social Policy Committee and a Director of the National Foundation for Australian Women, and is on the Tax and Superannuation Advisory Panel of ACOSS. Helen was a Member of the WA Legislative Council in WA from 1997 to 2001, elected as an Australian Democrat. She is not a current member of any political party. </span></em></p>The Australian Banking Association says ‘nearly 80% of bank profits go straight back to shareholders’, the majority of whom are ‘everyday Australians’. Is that right?Mark Humphery-Jenner, Associate Professor of Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/914852018-02-08T03:15:46Z2018-02-08T03:15:46ZCBA’s board needs to take ultimate responsibility for the bank’s failings<p>Something appears to be very wrong with risk management at the Commonwealth Bank (CBA), that cuts right across the bank. There have been risk management problems in the retail (<a href="https://www.sbs.com.au/news/commonwealth-bank-admits-to-breaches-of-money-laundering-terror-financing-laws">money laundering</a>), institutional banking (foreign exchange and <a href="http://www.afr.com/business/banking-and-finance/financial-services/asics-bbsw-case-to-focus-on-the-powerful-owl-20180131-h0reh5">bank bill swap rate benchmark manipulation</a>) and wealth management (<a href="https://www.insurancebusinessmag.com/au/news/breaking-news/cba-boss-talks-about-comminsure-scandal-in-parliamentary-inquiry-58033.aspx">Comminsure scandal</a>) arms of the bank. </p>
<p>This tsunami of scandals helped to trigger the <a href="https://financialservices.royalcommission.gov.au/Pages/default.aspx">Financial Services Royal Commission</a> which will examine banking misconduct.</p>
<p>And the responsibility, the accountability for risk management stops, and starts, with the bank’s board.</p>
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Read more:
<a href="https://theconversation.com/theres-no-evidence-behind-the-strategies-banks-are-using-to-police-behaviour-and-pay-91064">There's no evidence behind the strategies banks are using to police behaviour and pay</a>
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<p>In presenting its 2018 half yearly profits, the CBA board <a href="https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/results/1h18/1h18-asx-announcement.pdf">announced</a> that the bank had set aside provisions of A$375 million in anticipation of a penalty resulting from failures to properly implement anti-money laundering controls.</p>
<p>In the <a href="https://www.commbank.com.au/guidance/newsroom/new-ceo-media-and-analyst-briefing-201801.html">media conference</a> following the appointment of Matt Comyn as the new CEO of CBA, the chair of the banks’ board Catherine Livingstone, admitted, while it was:</p>
<blockquote>
<p>…entirely appropriate to share a collective accountability for the issues that we have had… [that] the processes around operational risk management and compliance risk management…is where we have not performed as we should have. </p>
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<p>In his first media conference as CEO, Mr Comyn, not surprisingly, concurred with his new boss.</p>
<p>And it became unanimous, when a few days later the <a href="http://www.apra.gov.au/MediaReleases/Pages/18_01.aspx">progress report</a> of the Australian Prudential Regulation Authority’s Prudential Inquiry Panel into the culture at CBA, reported that investigations were being focused on “capabilities and accountabilities for risk management in the organisation, particularly for operational, compliance and reputational risk”.</p>
<h2>How the CBA manages risk</h2>
<p>CBA’s latest <a href="https://www.commbank.com.au/about-us/shareholders/shareholder-information/annual-reports.html">annual report</a> describes in some detail the risk management framework that is supposed to direct risk management across the bank. The framework, which incorporates the requirements of <a href="http://www.apra.gov.au/CrossIndustry/Documents/Prudential%20Standard%20CPS%20220%20Risk%20Management.pdf">APRA’s prudential standard for risk management</a>, comprises three main components: a risk appetite statement (which describes the types and maximum levels of risk that the board is willing to accept), a three year rolling group business plan and a risk management strategy. </p>
<p>The bank’s risk appetite is formulated by the Board Risk Committee, approved by the board, and dictates the levels of risk-taking in each business line.</p>
<p>In practise the bank actually follows what is called a Three Lines of Defence model. The so-called first line of defence is business management, which is responsible for the effective implementation of the board-approved risk management framework. </p>
<p>The second line is a separate group of staff with specific risk management skills to develop and monitor the risk management process. The third and last line is an independent group that acts as an internal audit function.</p>
<p>CBA is a large and complex organisation, and naturally there is a large, complex risk bureaucracy. This is detailed in the bank’s latest <a href="https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/results/fy17/cba-basel-III-pillar-3-disclosure-as-at-30-june-2017.pdf">risk report</a>. </p>
<p>However, APRA is clear that the board should take ultimate responsibility.</p>
<p>The lines of defence are clearly broken. If there had been one single, or maybe two, risk management failures at CBA, you could put it down to complexity, teething problems or just bad luck. But over the last decade, there has been a catalogue of bad risk decisions affecting the bank’s customers, shareholders and the Australian financial system.</p>
<p>After the first few times, surely the effectiveness of the risk framework and the three lines of defence should have been questioned and remedial action taken? But apparently it was not, and there is now frantic action by the people responsible – the CBA board - to do something (anything) about it.</p>
<p>In the media conference, Catherine Livingstone and the new CEO repeatedly talked about “collective accountability” and tried to diffuse the severity of the situation by talking about “organisation wide” and “culture” issues, as if even the staff in the bank’s branches were somehow to blame. </p>
<p>In fact, in the case of money laundering through ATMs that has drawn the ire of AUSTRAC, it was the first line business staff in the branches who raised the alarm. Their warnings were not taken seriously. To claim that the lower-level staff are somehow “collectively accountable” is bordering on the bizarre.</p>
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Read more:
<a href="https://theconversation.com/australias-financial-regulators-need-policing-91396">Australia's financial regulators need policing</a>
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<p>The accountability for the risk management failures is indeed spread far and wide but by far and away it is the joint responsibility of the board and executive committee. The <a href="http://www.afr.com/business/banking-and-finance/cba-kills-shortterm-bonuses-for-ian-narev-top-executives-20170807-gxrd2d">knee-jerk reaction</a> to cut a few bonuses is insufficient. </p>
<p>Someone in the board of the bank has to resign or be fired. Where failures are detected, bonuses already paid out, for example to <a href="https://www.commbank.com.au/guidance/newsroom/CBA-announces-changes-to-board-of-directors-201709.html">recently retired</a> board members, should be retrieved. </p>
<p>And going forward, the three lines of defence must become a real protection for customers rather than a convenient pretence, and APRA must ensure, for customers’ sakes, that the three lines are operating effectively in all large financial institutions.</p><img src="https://counter.theconversation.com/content/91485/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pat McConnell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>CBA’s risk management strategy clearly states that responsibility rests with the board of the bank for any wrongdoing.Pat McConnell, Visiting Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/891532017-12-15T04:14:30Z2017-12-15T04:14:30ZCBA admissions will make class action easier but shareholders still have a lot to prove<p>The Commonwealth Bank of Australia recently admitted it breached Australia’s anti-money laundering and counter-terrorism financing laws. The <a href="http://www.abc.net.au/news/2017-12-13/cba-breached-money-laundering,-counter-terrorism-laws/9257224">admissions</a> in its response to allegations from the Australian Transaction Reports and Analysis Centre (AUSTRAC) will make it easier for shareholders to prove their claims of misleading and deceptive conduct in a class action launched against the bank in October.</p>
<p>CBA’s willingness to admit what it has done also signals a possibility the bank might resolve the class action through a settlement. In the meantime shareholders still need to prove their claims, even if some are on stronger footing thanks to the CBA.</p>
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<p><strong><em>Read more: <a href="http://insurance.moray.com.au/publication/in-the-matter-of-hih-insurance-limited-in-liquidation-ors-2016-nswsc-482/">APRA could have investigated CBA years ago: experts</a></em></strong></p>
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<p><a href="http://www.austrac.gov.au/sites/default/files/20170803-concise-statement-cba-s.pdf">AUSTRAC’s first lot of allegations</a> noted CBA failed to comply with its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 with respect to more than 778,000 accounts. The bank is obliged to assess the risk of, monitor and report suspicious deposit activity that was being conducted through intelligent deposit machines (IDMs). These machines are ATMs that accept cash deposits that are immediately available in the depositor’s account. </p>
<p>AUSTRAC then amended its complaint on December 14, 2017, to add a further 100 alleged contraventions.</p>
<p><a href="https://www.commbank.com.au/content/dam/caas/newsroom/docs/Concise%20Statement%20in%20Response%20-%2013%20December%202017_SIGNED_20171213_4.25pm.PDF">CBA’s response</a> to the original allegations admits that it did fail to comply with the Act in certain respects and accepts that these contraventions do subject it to a civil penalty. But the bank denies other alleged contraventions. </p>
<p><a href="https://www.mauriceblackburn.com.au/about/media-centre/media-statements/2017/cba-shareholders-to-file-federal-court-class-action-today/">Law firm Maurice Blackburn</a> filed a class action on behalf of shareholders with CBA shares between July 1, 2015 and August 3, 2017. The shareholders allege that CBA – and over a dozen of its officers and directors – knew or should have known about the non-compliance. They argue this failure to disclose or rectify the situation caused loss once the share price fell after AUSTRAC made CBA’s non-compliance public. </p>
<p>None of this is proved solely by the fact that CBA admitted committing some breaches of the Act. The additional claims brought by AUSTRAC this week do not alter the existing shareholder claims, but they may see the scope of the class action increased.</p>
<h2>What CBA admits and what shareholders need to prove</h2>
<p>CBA’s admissions may impact the efficiency and conduct of the class action, but they are unlikely to affect what shareholders need to prove. CBA’s response admits much of the conduct that contravenes the Act, but that’s not the same as an admission of liability in relation to the quite different legal claims made by the shareholders.</p>
<p>CBA admits that it did not conduct a proper risk assessment of its IDMs until more than three years after the machines had been put into operation. The bank also admits that it did not conduct adequate monitoring of IDM deposits, for example by introducing daily deposit limits. This is despite having assessed the risk of IDMs being used for money laundering or terrorism financing as high. </p>
<p>CBA further admits that in over 53,500 separate instances, it did not file reports whenever a deposit of more than A$10,000 was made, as required by the Act. It also failed to file either complete or timely reports of suspicious account activity in nearly 100 instances.</p>
<p>But the shareholders’ claims are based on something different: CBA’s non-compliance with securities disclosure rules and on misleading and deceptive conduct by CBA. </p>
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Read more:
<a href="https://theconversation.com/naming-and-shaming-bankers-may-be-satisfying-but-could-backfire-74307">Naming and shaming bankers may be satisfying, but could backfire</a>
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<p>In order to win in the class action, the shareholders will have to prove the elements of the claims they allege, including that the lack of AUSTRAC compliance was the cause of the drop in CBA share price and that the plaintiffs suffered loss as a result of that drop. </p>
<p>The test for the link between non-disclosure and loss, and the way to calculate the amount of that loss, has not been determined in the class action cases so far. However, courts have heard similar shareholder arguments to those raised by the CBA shareholders in other cases, so the issues raised aren’t new. </p>
<p>For example, in the case <a href="http://insurance.moray.com.au/publication/in-the-matter-of-hih-insurance-limited-in-liquidation-ors-2016-nswsc-482/">surrounding the liquidation of HIH Insurance Limited</a>, Justice Brereton of the Supreme Court of New South Wales held that shareholders rely on the share price as an accurate reflection of share value. Accordingly, when corporate misconduct inflates the share price, the corporation indirectly causes shareholders to suffer loss.</p>
<p>A key issue the CBA class action will be whether CBA’s non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act, and the subsequent AUSTRAC civil penalty proceedings, impacted the share price and to what extent.</p><img src="https://counter.theconversation.com/content/89153/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Legg receives research funding from IMF Bentham Ltd and the Law Society of New South Wales. He is a member of the Law Council of Australia's Class Actions Committee and a director of the Australian Pro Bono Centre. He consults to the law firm Jones Day. </span></em></p><p class="fine-print"><em><span>James D Metzger does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The CBA’s response to AUSTRAC’s claims means shareholders will be assisted in part of their class action claims, but a lot still needs to be proved.Michael Legg, Professor of Law, UNSW SydneyJames D Metzger, Scholarly Teaching Fellow in Civil Procedure, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/883912017-11-30T19:06:55Z2017-11-30T19:06:55ZBroad mandate for financial services royal commission takes the heat off banks<p>It does seem anomalous that the major banks have now become supporters of the royal commission into financial services, given they have been the principal targets. But the alternatives are probably less palatable, particularly if the banks think that all past major issues of misconduct and immoral behaviour have already been brought to light. And the broadening of the terms of reference beyond banking may dilute the focus on the banks themselves.</p>
<p>The banks <a href="http://www.asx.com.au/asxpdf/20171130/pdf/43pr4y07l7v0v6.pdf">argue that ongoing speculation</a> and uncertainty are creating unnecessary costs and distractions for them, and that is most likely the case. Even if the major banks were to spend A$100 million in dealing with the royal commission that is less than 0.3% of the annual profits of the majors – so it has little impact on shareholder returns. </p>
<p>And with annual interest expenses in the order of <a href="http://www.apra.gov.au/adi/Publications/Documents/2908-QADIPS-Jun-2017-PDF.pdf">A$65 billion</a>, a cost of A$100 million or so could be quickly offset by improvements in bank borrowing costs from resolution of uncertainty. Whether the government spending a similar sum of taxpayer money on a royal commission is worthwhile is another matter.</p>
<h2>Terms of reference too broad</h2>
<p>The <a href="https://cdn.tspace.gov.au/uploads/sites/72/2017/11/DRAFT-TERMS-OF-REFERENCE.pdf">draft terms of reference</a> of the royal commission ask it to focus primarily on three issues involving financial service entities. One is the essentially legal issue of identifying past cases of misconduct in violation of regulations and laws, as well as what might be termed “misbehaviour” (legal but immoral or unethical or unfair activities). </p>
<p>One apparent omission in the draft terms of reference relates to credit – and lending has been a <a href="https://theconversation.com/mortgage-brokers-asic-goes-fishing-60040">major problem area in the past</a>. While bank lending is covered, the definition of financial services entities to be considered does not appear to include those (such as mortgage brokers and some lenders) who only require an Australian Credit Licence and not an Australian Financial Services Licence (AFSL). Likewise, some financial services entities are exempt from the AFSL requirement and that may prove problematic if the draft terms of reference are not amended.</p>
<p>The boards and senior management of the banks (and other entities) no doubt hope there are no hidden skeletons in the closets which may be uncovered to shock them, and that revisiting the known past problems will be a case of yesterday’s news.</p>
<p>Although the term “misbehaviour” strays into grey areas of defining consistency with “community standards and expectations”, identifying past misconduct is a task suitable for a royal commission. But it shouldn’t be needed. ASIC and other regulators have adequate powers (if not adequate resources) to identify and prosecute misconduct. The adequacy of those powers is also a topic for the commission.</p>
<p>The second major task of the royal commission is to identify whether misconduct and misbehaviour can be attributed to poor culture and governance practices. This is particularly problematic.</p>
<p>What evidence is to be used to show, beyond reasonable doubt, that there is a causal relationship from the amorphous, non-quantifiable, concepts of culture and governance to specific instances of, or general proclivity towards, misconduct? There’s also undoubtedly many positive behaviours and outcomes occurring within these institutions they could point to, which may imply that, on balance, the arrangements are not bad. </p>
<p>So, the third question the commission then faces, is what changes might be made to reduce these problems. Here, the danger is that it involves a step into the unknown – what would be the likely outcomes under any proposed changes. </p>
<p>In its task of making recommendations, the commission faces a number of other difficulties. There is a raft of <a href="https://theconversation.com/budget-2017-lack-of-competition-is-why-government-is-moving-so-hard-against-the-banks-77397">regulatory changes in progress</a> following on from the <a href="http://fsi.gov.au/publications/final-report/">2014 Financial Services Inquiry</a> and other government <a href="https://theconversation.com/why-the-new-banking-laws-wont-be-the-slam-dunk-the-government-is-expecting-85530">policy initiatives</a>. </p>
<p>Also relevant is the financial technology or “fintech” revolution creating new business models, products and services, and methods of customer interaction with financial services entities. These create potential for new types of misconduct and misbehaviour. How relevant lessons the royal commission draws from history will be for this new world is unclear.</p>
<p>The banks will no doubt be pleased that the scope of the royal commission encompasses most of the financial services sector rather than focusing primarily upon them. In particular, the <a href="https://cdn.tspace.gov.au/uploads/sites/72/2017/11/DRAFT-TERMS-OF-REFERENCE.pdf">reference to superannuation fund trustees</a> and use of member funds would seem to bring the controversial issue of fund governance right to the fore and will partly distract attention from the banks.</p><img src="https://counter.theconversation.com/content/88391/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Broadening the royal commission beyond banking may dilute the focus on the banks themselves.Kevin Davis, Research Director of Australian Centre for FInancial Studies and Professor of Finance at Melbourne and Monash Universities, Australian Centre for Financial Studies Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/883872017-11-30T05:17:27Z2017-11-30T05:17:27ZWhy the big four asked for a parliamentary inquiry into banking<p>The major Australian banks are following familiar public relations tactics in <a href="http://www.asx.com.au/asxpdf/20171130/pdf/43pr4y07l7v0v6.pdf">requesting</a> a parliamentary commission of inquiry into banking and financial services. </p>
<p>When the public mood is against an industry, it will try to win the public over, while getting the politicians to ignore the public mood. If that fails, the industry gradually concedes ground until attention goes elsewhere.</p>
<p>For this reason, the banks went from being steadfastly against a commission, to offering the option of self-regulation, to proposing a new “<a href="http://www.smh.com.au/federal-politics/political-news/are-we-getting-a-royal-commission-a-commission-of-inquiry-or-a-banking-tribunal-20171127-gztf1u.html">banking tribunal</a>”, to eventually conceding, after the battle had <a href="http://www.abc.net.au/news/2017-11-30/analysis-malcolm-turnbull-hates-the-inquiry-but-it-had-to-happen/9210246">already been lost</a>, to a parliamentary inquiry.</p>
<p>The big problem for the banks, and a big part of the reason that their previous lobbying failed, is that their popularity with the Australian public <a href="https://www.theguardian.com/australia-news/2017/nov/27/most-australians-want-banking-royal-commission-guardian-essential-poll">is very low</a>. This allowed, or pressured, politicians to call for the commission, and presents significant problems for the banks going forward, especially if they wish to avoid tougher regulation. </p>
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Read more:
<a href="https://theconversation.com/royal-commissions-how-do-they-work-10668">Royal commissions: how do they work?</a>
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<p>The banks capitulated only once it became “<a href="http://www.theage.com.au/federal-politics/political-news/banking-inquiry-all-but-inevitable-after-another-nationals-mp-vows-to-cross-floor-20171127-gztm8l.html">all but inevitable</a>” that an inquiry of some sort would be held. </p>
<p>Due to the recent <a href="https://theconversation.com/the-dual-citizenship-saga-shows-our-constitution-must-be-changed-and-now-87330">citizenship saga</a>, it was <a href="https://theconversation.com/turnbull-backed-against-the-wall-by-rebel-nationals-on-bank-inquiry-88183">looking likely</a> that a coalition of crossbench, Labor, Greens and some Nationals MPs would pass a bill for a commission of inquiry into the banks and other financial institutions.</p>
<p>Labor had <a href="https://theconversation.com/labor-pledges-royal-commission-into-bank-behaviour-57490">already promised</a> to set up a royal commission into the banking and financial services industry if it won the next election. </p>
<h2>Concede ground only when it’s already lost</h2>
<p>A royal commission will almost certainly bring many <a href="https://theconversation.com/banking-royal-commission-will-expose-the-real-cost-of-bad-behaviour-88380">months of bad press for the banks</a>.</p>
<p>As the industry has repeatedly made clear, it never wanted a royal commission. The banks claimed they had corrected the mistakes of the past and that a commission was “<a href="http://www.asx.com.au/asxpdf/20171130/pdf/43pr4y07l7v0v6.pdf">unwarranted</a>”.</p>
<p>So the banking industry’s public and private lobbying efforts were geared towards convincing politicians to resist calls for the commission, while trying to boost public opinion by <a href="https://www.youtube.com/watch?v=_rtRi2b1Pxg&list=PLE017CFFB36B6CA94">highlighting</a> their corporate social responsibility. </p>
<p>This involved <a href="http://www.abc.net.au/news/2017-08-14/commonwealth-bank-ceo-ian-narev-to-retire-by-july/8803302">sacking executives</a> over this scandal or that, <a href="https://theconversation.com/atm-fees-may-be-gone-but-what-will-replace-them-84594">removing</a> certain ATM fees, and <a href="http://www.abc.net.au/news/2017-08-08/commonwealth-bank-to-cut-executive-bonuses-director-fees/8784030">cutting</a> bonuses and director pay.</p>
<p>The banks have also launched advertising campaigns, <a href="https://www.youtube.com/watch?v=GOMtRAPiJfI">such as one</a> highlighting that many Australians own bank shares through their superannuation. </p>
<p>Concurrently, the banks hoped that <a href="http://www.smh.com.au/federal-politics/political-news/it-would-cost-them-seats-banks-refuse-to-rule-out-mining-taxstyle-campaign-against-royal-commission-20160412-go4ay8.html">threatening</a> to launch a “mining tax”-style ad campaign might scare politicians away from calling for a commission. </p>
<p>These campaigns have become <a href="http://www.abc.net.au/radionational/programs/breakfast/farmers-and-small-business-threaten-mining-tax/8751512">a common threat</a> since the success of the <a href="https://www.youtube.com/watch?v=AounsLUEpc8">2010 mining tax campaign</a> opened corporate Australia’s eyes to the potential effectiveness of advocacy ads.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/banking-royal-commission-will-expose-the-real-cost-of-bad-behaviour-88380">Banking royal commission will expose the real cost of bad behaviour</a>
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<p>Tactics similar to those the banks are employing now have been <a href="https://theconversation.com/how-big-tobacco-gifted-campaigns-of-misdirection-and-misinformation-to-the-gun-lobby-45108">used to varying degrees</a> of success in the United States by the tobacco industry and the gun, finance and healthcare lobbies. </p>
<p>In 1998 the American tobacco industry <a href="http://tobaccocontrol.bmj.com/content/8/4/437.full">agreed</a> to make payments of over US$200 billion to dozens of states. But this happened only after decades of public education and campaigning against smoking. </p>
<p>Similarly, the American healthcare lobby successfully fought off several <a href="https://www.ncbi.nlm.nih.gov/pubmed/7989016">attempts</a> to reform healthcare. Obamacare managed to pass in 2010 only after the industry got to <a href="http://www.nytimes.com/2013/09/18/us/politics/reaping-profit-after-assisting-on-health-law.html">substantively write it</a>.</p>
<h2>The public relations game</h2>
<p>Appearing to co-operate and atone is the best way to try to influence the terms of an inquiry. It also helps to mitigate the worst of any bad press to come. This reflects a wider, pragmatic strategy of lobbying and public relations employed by the banks and other industries.</p>
<p>The focus for the banks will now shift towards damage control, along with heavy promotion of the banks “doing the right thing” by Australia. </p>
<p>To that end, expect to see even more banners proclaiming a bank’s sponsorship of the local footy team, and ads promoting the good work done in your local community. </p>
<p>These, along with an insistence that the commission is a witch hunt, that its findings are “old news”, that the banks have already taken steps to deal with the issue, will underpin the industry’s public relations battle while the royal commission takes place.</p><img src="https://counter.theconversation.com/content/88387/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>George Rennie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Appearing to co-operate is the best way to try to influence the terms of an inquiry and manage the bad press.George Rennie, Lecturer in American Politics and Lobbying Strategies, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/865182017-11-08T02:32:24Z2017-11-08T02:32:24ZIt’s time for a royal commission into banking regulation<p>The handling of recent financial scandals show that regulators are confused about what they do, or <a href="https://theconversation.com/why-the-new-banking-laws-wont-be-the-slam-dunk-the-government-is-expecting-85530">should do</a>. And as a result the regulation of the financial system, which is vital to a strong functioning economy, is just not working effectively. </p>
<p>We can see the problem in the recent <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22committees%2Fcommrep%2F61c9ed97-7db3-4a67-a14e-a5114c0258b8%2F0000%22">testimony to the House Economics Committee</a>. Recounting the sequence of events that led the Commonwealth Bank to inform regulators of the <a href="http://www.austrac.gov.au/media/media-releases/austrac-seeks-civil-penalty-orders-against-cba">alleged breaches of money-laundering legislation</a>, CBA Chair Catherine Livingstone said:</p>
<blockquote>
<p>We were having board meetings at the time I was being called to Canberra by the Treasurer. When the board meeting, which went over multiple days, finished, which was lunchtime on the Wednesday, I immediately phoned the other two regulators, ASIC and APRA.</p>
</blockquote>
<p>This raises a raft of questions. Having known about the allegations of money laundering since 2015, why did CBA not inform the regulators until August 2017? Why did the treasurer warn CBA before CBA talked to the two regulators? When did the Treasurer first hear of the money-laundering breaches? And why did the treasurer not instruct AUSTRAC (an agency of the <a href="https://www.ag.gov.au/CrimeAndCorruption/AntiLaunderingCounterTerrorismFinancing/Pages/AUSTRAC.aspx">Attorney General’s department</a>) to inform <a href="http://asic.gov.au/about-asic/what-we-do/our-role/statements-of-expectations-and-intent/statement-of-expectations-april-2014/">ASIC</a> and <a href="http://www.apra.gov.au/AboutAPRA/Documents/140417-SOE-APRA-Statement-of-Expectations.pdf">APRA</a>? </p>
<p>In a previous parliamentary hearing, Greg Medcraft, Chairman of ASIC, had <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22committees%2Fcommrep%2F61c9ed97-7db3-4a67-a14e-a5114c0258b8%2F0000%22">said</a>:</p>
<blockquote>
<p>I met two days before with the chairman of the Commonwealth Bank, the chair of risk and the chair of the audit committee… There was no mention of what happened. Then I saw the announcement and, about a week later, the chair called me in to apologise. Timeliness and transparency are big issues in this one</p>
</blockquote>
<p>So, either ASIC and/or APRA were aware of the allegations of money laundering at CBA and took no action <a href="http://www.abc.net.au/news/2017-08-28/commonwealth-bank-to-face-independent-inquiry-apra/8848004">until prompted</a> by the treasurer, or the communications between the various agencies of government are not working as planned. Either way, this is no way to regulate a modern financial system.</p>
<h2>Even more regulatory confusion</h2>
<p>Just as he is due to <a href="http://www.abc.net.au/news/2017-10-17/asic-james-shipton-to-replace-greg-medcraft/9057190">leave his role as head of ASIC</a>, Greg Medcraft managed to end two high profile cases with modest wins. </p>
<p>Both <a href="http://www.afr.com/business/banking-and-finance/why-anz-and-nab-settled-asics-bbsw-case-20171026-gz9d90">ANZ Bank</a> and <a href="http://www.smh.com.au/business/banking-and-finance/nab-admits-staff-wrongdoing-as-it-settles-bbsw-20171027-gz9zva.html">NAB</a> have settled with ASIC for their parts in <a href="https://theconversation.com/years-on-asic-still-grappling-with-swap-rate-fixing-scandal-35851">manipulating the BBSW intereset rate benchmark</a>. Although the settlement remains to be approved by the Federal Court. </p>
<p><a href="http://www.abc.net.au/news/2017-10-25/rate-rigging-trial-adjourned-anz-nab-finalise-settlement/9083894">Westpac</a> remains the hold out, and the <a href="http://www.smh.com.au/business/banking-and-finance/westpac-traders-talked-openly-about-rigging-interest-rate-asic-alleges-20171030-gzbgx6.html">prosecution’s case has opened</a> in the Federal Court.</p>
<p>But in the euphoria at ASIC, a niggling question remains – what about the Commonwealth Bank?</p>
<p>For some time, Medcraft has <a href="http://www.theaustralian.com.au/business/opinion/john-durie/asic-and-cba-hold-their-ground-on-bank-bill-swap-rate-case/news-story/9b50dc7f7628ac630ac37c11e0e2ce33">warned</a> that action against CBA had not been ruled out and that <a href="http://www.smh.com.au/business/banking-and-finance/cba-braced-for-fourth-rate-rigging-case-20160608-gpecc4.html">information was being gathered</a>. Recently Medcraft confirmed that the regulator had “plenty of time” to <a href="http://www.financialservicescareer.com.au/news/regulator-circling-cba">take action against CBA</a>.</p>
<p>This also raises a number of questions. Not least why ASIC has not filed claims against CBA or announced that there would be no action taken against the bank. If CBA has no case to answer then ASIC should come out and exonerate the bank and relieve its long-suffering shareholders. </p>
<p>But if CBA has even a minor case to answer, and the regulator has held off hoping that the bank would settle without going to court, then ASIC may have been much too clever for their own good.</p>
<p>As a result of a <a href="http://www.abc.net.au/news/2017-08-23/commonwealth-bank-faces-shareholder-class-action/8833860">shareholder action</a> following the alleged money-laundering scandal, ASIC is <a href="http://www.abc.net.au/news/2017-08-11/asic-to-investigate-cba/8796542">now looking at</a> whether the CBA board “complied with continuous disclosure laws when it decided not to alert investors to the suspicious behaviour”.</p>
<p>This leaves ASIC in an extremely difficult position - looking at a possible failure to disclose the money-laundering scandal at CBA, while at the same time hinting that CBA may have done the same thing with BBSW.</p>
<p>But ASIC is not the only regulator to be operating in the dark. The latest Banking Executive Accountability Regime (BEAR) legislation only adds to the <a href="https://theconversation.com/bankings-new-bear-is-a-teddy-bear-not-a-grizzly-85687">confusion</a> on how best to regulate financial services.</p>
<p>When questioned in recent <a href="http://parlinfo.aph.gov.au/parlInfo/download/committees/estimate/c419b06c-d059-4ecb-b033-6d08bd9b7c6d/toc_pdf/Economics%20Legislation%20Committee_2017_10_26_5679.pdf;fileType=application%2Fpdf#search=%22rowell%22">Senate Estimates</a> about the regulatory impact statements that have been done for <a href="https://www.legislation.gov.au/Details/C2017B00229/Explanatory%20Memorandum/Text">new BEAR legislation</a>, Helen Rowell, deputy Chair of APRA, replied that she personally had “not seen them; I couldn’t say whether anyone else within APRA has seen them”. </p>
<p>This is despite the fact that APRA has been given an extra A$40 million over four year to handle the new legislation - for what, and where did this figure come from? </p>
<p>Again, this is no way to regulate a banking system. The confusion around what regulators do and how they do it, must be sorted out. </p>
<h2>Where next?</h2>
<p>The most obvious answer to clearing up this mess is to initiate a royal commission that looks specifically at banking regulation. In particular, what form a modern banking regulation system should take; which regulators should do what; what the responsibilities of parliament, ministers and regulators should be; and how regulators should share information and tackle common problems (such as <a href="https://theconversation.com/why-bankers-so-often-fail-to-comply-with-policies-and-regulations-82159">banking culture</a>).</p>
<p>Such a royal commission should concentrate on clearing up issues of regulatory philosophy, structure, legal requirements and administration. Whether or not there is an <a href="http://www.abc.net.au/news/2017-10-30/coalition-mps-may-cross-floor-for-banking-royal-commission/9100838">all-purpose banking royal commission</a>, the failures in the current system have to be remedied.</p>
<p>Of course, the government has only got itself to blame for getting in this mess. </p>
<p>The government’s own <a href="http://fsi.gov.au/">Murray Inquiry into the Financial System</a> made a recommendation that could have helped. The inquiry recommended the establishment of a new <a href="https://theconversation.com/to-clean-up-the-financial-system-we-need-to-watch-the-watchers-38359">Financial Regulator Assessment Board</a> (FRAB), which would:</p>
<blockquote>
<p>advise government annually on how financial regulators have implemented their mandates. Provide clearer guidance to regulators in Statements of Expectation and increase the use of performance indicators for regulator performance.</p>
</blockquote>
<p>Sounds sensible? Not to the government, as it chose to accept all of the major recommendations of David Murray’s inquiry <a href="https://treasury.gov.au/publication/government-response-to-the-financial-system-inquiry/attachment-government-response-to-financial-system-inquiry-recommendations/">except for this one</a>. </p>
<p>And, instead of having one professional body that looks at the performance of regulators, there has been a nonstop procession of “independent” inquiries, by <a href="https://www.commbank.com.au/guidance/newsroom/comminsure-releases-deloitte-report-into-claims-handling-201702.html">banks themselves</a>, the <a href="https://www.bankers.asn.au/media/media-releases/media-release-2016/review-into-retail-banking-remuneration-begins">banking industry </a>and even <a href="http://www.apra.gov.au/MediaReleases/Pages/17_34.aspx">regulators</a>. No big picture, just a patchwork of unconnected recommendations. And undoubtedly <a href="http://www.heraldsun.com.au/business/bank-chiefs-deny-raterise-gouging-at-parliament-hearing/news-story/0cedbd4a36dc41a731780a8054ff8524">more to come</a>. </p>
<p>An opportunity missed.</p><img src="https://counter.theconversation.com/content/86518/count.gif" alt="The Conversation" width="1" height="1" />
Parliamentary hearings reveal a lot of confusion between government, regulators and industry around banking regulation. This needs to be fixed.Pat McConnell, Visiting Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/838092017-09-14T03:57:59Z2017-09-14T03:57:59ZWhere the accountability problems started at CBA<p>The heads or deputy heads of the three main banking regulators (the Australian Prudential Regulatory Authority, the Australian Securities and Investments Commission and the Reserve Bank of Australia) spoke at the <a href="http://www.bordermail.com.au/story/4912037/stop-drip-feed-of-bad-news-rbas-plea-to-banks/?cs=9">annual regulators’ lunch</a> last week. Guy Debelle, who is <a href="http://www.abc.net.au/news/2016-09-02/reserve-bank-guy-debelle-appointed-as-next-rba-deputy-gov/7808374">relatively new to his role</a> as deputy governor at the RBA, summarised the feelings of the regulators at the lunch in regards to the public’s lack of trust in banks:</p>
<blockquote>
<p>No one feels that anything particularly has changed, because even if the issue occurred a few years ago, it still generates the headlines today, and just reinforces the belief [that the banks cannot be trusted].</p>
</blockquote>
<p>Unfortunately that’s because <a href="https://theconversation.com/banking-inquiry-findings-ask-the-wrong-questions-get-the-wrong-answers-69421">these problems</a> were never actually resolved at the time, with regulators being palmed off with internal inquiries, until the scandal went off the front page. Of course the problems that have occurred recently at banks, especially CBA, are going to be dredged up again and again, because customers (unlike regulators) really suffered and no one was ever held to account.</p>
<p>On the same day, APRA chairman Wayne Byers also <a href="http://www.apra.gov.au/MediaReleases/Pages/17_34.aspx">announced</a> the <a href="http://mobile.abc.net.au/news/2017-09-11/cba-inquiry-john-laker-former-apra-chairman-on-panel/8891240?pfmredir=sm">makeup of the inquiry panel</a> to which it has <a href="https://theconversation.com/has-apra-just-outsourced-its-job-83411">outsourced its job</a>. The agency also released the <a href="http://www.apra.gov.au/MediaReleases/Pages/17_34.aspx">terms of reference</a> that will govern the conduct of the inquiry over the next six months.</p>
<p>Way way down the list of things to do is assessing the CBA’s “accountability framework” and whether it conflicts with “sound risk management and compliance outcomes”.</p>
<p>Note the terms of reference do not discuss “accountability”, per se, merely whether the framework (i.e. organisation charts and policies) is effective or not. Instead, the terms of reference discuss whether it conflicts with other policies and organisation charts. It is Olympic standard navel gazing, rather than action on the part of APRA, and a very minor part of the panel’s work. </p>
<p>But, accountability is not only about “what” but about the “who” and, as the French philosopher Molière <a href="https://www.forbes.com/quotes/6902/">wrote</a>, “it is not only what we do, but also what we do not do, for which we are accountable”. </p>
<p>Inquiry panel member, John Laker, is also chairman of the <a href="http://www.thebfo.org/About-us/Mission-and-objectives">Banking Finance Oath</a> initiative, which works to promote “moral and ethical standards in the banking and finance profession”. He will be well placed then to remind CBA directors and managers of one of the key tenets of that oath:</p>
<blockquote>
<p>I will accept responsibility for my actions [and] in these and all other matters; My word is my bond.</p>
</blockquote>
<p>Responsibility and accountability are personal not commercial constructs and, notwithstanding the <a href="https://www.commbank.com.au/guidance/newsroom/CBA-announces-changes-to-board-of-directors-201709.html">latest knee-jerk reaction</a> to the money laundering scandal, these values have been in very short supply in CBA, over the last decade. </p>
<p>In fact, while there have been belated apologies for some of the scandals, no one in a senior position at CBA has actually taken personal accountability for any of the sequence of scandals that have recently beset the bank. </p>
<p>A detailed description of the many failures of accountability at CBA would take many thousands of words, but one scandal stands out above all others, not least because it involved the <a href="https://theconversation.com/debunking-the-myth-of-our-well-regulated-banks-9333">largest fine ever</a> visited on CBA’s long-suffering shareholders. It set the scene for how the CBA board would handle future scandals, that is to obfuscate, prevaricate and litigate. </p>
<p>On December 23, 2009, the CBA board <a href="https://www.commbank.com.au/about-us/shareholders/pdfs/2009-asx/ASB_media_statement.pdf">announced</a> a payment of some NZ$264 million to one of New Zealand’s public service departments, New Zealand Inland Revenue.</p>
<p>The NZ High Court found that CBA had been using ASB Bank, its NZ subsidiary, as a laundromat through which it washed a number of dodgy transactions each year with the purpose of avoiding NZ taxes, which fed directly into CBA group profits. It was tax avoidance on an industrial scale.</p>
<p>It should be noted that three other major banks were also fined in a total settlement of NZ$2.2 billion (about A$1.7 billion at the time), the largest fines ever paid by Australian banks. </p>
<p>The banks had fought the NZ Commissioner of Inland Revenue for several years all the way to the High Court, until <a href="https://www.risk.net/journal-operational-risk/2207237/systemic-operational-risk-smoke-and-mirrors">Justice Harrison ruled</a> the transactions were “tax avoidance arrangement(s) entered into for a purpose of avoiding tax”. </p>
<p>Why such a small number of transactions? Because they were huge Interest Rate Swaps (IRS) transactions, created at the highest levels of the organisations with the purpose of turning expenses into income, a clever idea that some tax accountant had dreamed up around 1995. </p>
<p>During the extensive and expensive litigation, the CBA board kept maintaining that they had rock solid advice that their actions were legally watertight. But they were very wrong.</p>
<p>So, did anyone take responsibility for this embarrassing, unethical and expensive failure of management and corporate governance? </p>
<p>No board member or senior manager ever took responsibility for being found to have tried to avoid huge amounts of tax in one of the bank’s key markets. In fact the opposite, Sir Ralph Norris, who had been CEO of ASB during the wash and spin cycle, was made CEO of the CBA group in 2005.</p>
<p>What message does such disgraceful and ultimately unproductive behaviour send to staff? </p>
<p>First it says, don’t take responsibility for anything, bluff and dissemble and, if found out, never ever admit to anything. If board members refuse to be accountable for their mistakes, why should anyone else, especially if <a href="https://theconversation.com/apra-needs-to-protect-whistleblowers-in-the-cba-inquiry-83638">whistleblowers are treated appallingly</a>?</p>
<p>And the NZ scandal was only the first of many scandals. </p>
<p>While CEO, Ian Narev, has expressed “<a href="http://www.smh.com.au/business/commonwealth-bank-ceo-ian-narev-disappointed-by-handling-of-life-insurance-cases-20160305-gnbbgb.html">disappointment</a>” at customers being treated shabbily, no senior leader has been held directly accountable for the <a href="https://www.michaelwest.com.au/cba-under-fire-at-asic-inquiry/">financial planning scandal</a>, the <a href="https://theconversation.com/asics-comminsure-pass-shows-why-badly-behaving-bankers-will-never-fear-jail-time-75059">CommInsure</a> scandal, the <a href="https://theconversation.com/banking-excuses-wearing-a-bit-thin-59745">manipulation</a> of BBSW and <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-455mr-asic-accepts-enforceable-undertakings-from-nab-and-cba-to-address-inadequacies-within-their-wholesale-spot-fx-businesses/">Foreign Exchange </a>benchmarks, and now the money laundering action being taken by <a href="http://www.austrac.gov.au/media/media-releases/austrac-seeks-civil-penalty-orders-against-cba">AUSTRAC</a>. </p>
<p>Making <a href="http://www.theaustralian.com.au/national-affairs/cba-chief-ian-narevs-bid-to-cool-bank-fury/news-story/7ed4918dac968a63ea2c8059ad54ebbf">belated apologies</a> is not taking responsibility for misconduct unless corrective actions follow. But, in CBA the scandals keep coming, as the apologies appear to have changed nothing in the organisation.</p>
<p>Surely someone, somewhere in the huge CBA organisation has the ethical grounding to stand up and say - “yes, we did make mistakes and, yes, we should bear the consequences, and to start the ball rolling, I resign”. Actions speak much louder than mere words.</p>
<p>The APRA inquiry will undoubtedly find that the bank’s “accountability framework” was deficient but unless names are revealed, its conclusions will be suspect. </p>
<p>However, it is not up to the panel to name and shame, but to convince the senior management of CBA that only true accountability will restore trust in the bank and that someone has to step up and take responsibility for their actions and inaction, otherwise staff will never know the right thing to do.</p>
<p>The CBA inquiry panel is due to hand down an interim report by December but by then we should know if the inquiry has any teeth by any admissions of accountability coming from the CBA board and management. But don’t hold your breath!</p><img src="https://counter.theconversation.com/content/83809/count.gif" alt="The Conversation" width="1" height="1" />
One scandal at the CBA stands out above all others, It set the scene for how the CBA board would handle future scandals, that is to obfuscate, prevaricate and litigate.Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/836382017-09-07T06:31:59Z2017-09-07T06:31:59ZAPRA needs to protect whistleblowers in the CBA inquiry<p>The Australian Prudential Regulation Authority (APRA) should ensure <a href="http://www.apra.gov.au/MediaReleases/Pages/17_34.aspx">its inquiry</a> into the governance of the Commonwealth Bank has all the unfettered powers of the prudential regulator to investigate any wrongdoing. This includes protecting whistleblowers.</p>
<p>The terms of reference of this inquiry and the panel of experts are yet to be disclosed.</p>
<p>As part of its responsibilities for considering corporate governance under the <a href="http://www.bis.org/bcbs/publ/d328.htm">Basel rules</a> (international rules regulating banking), APRA should have mostly unrestricted access to banks’ staff, to conduct its investigations:</p>
<blockquote>
<p>Supervisors should have processes in place to fully evaluate a bank’s corporate governance. Such evaluations may be conducted through regular reviews of written materials and reports, interviews with board members and bank personnel, examinations, self-assessments by the bank, and other types of on- and off-site monitoring.</p>
</blockquote>
<p>So, APRA must ensure that the members of the inquiry team can <em>at least</em> interview not only board members but also, because “culture” is involved, bank staff.</p>
<p>Groundbreaking <a href="https://theconversation.com/why-bankers-so-often-fail-to-comply-with-policies-and-regulations-82159">research</a> by Professors Elizabeth Sheedy and Barbara Griffin from Macquarie University, shows there is often a disjoint between the perceptions of senior management and front line staff on issues of risk and culture. They found senior managers have a much rosier view of how things are actually operating. </p>
<p>This also shows the APRA inquiry team need recognise that just talking to senior management is not enough to see what is actually going wrong in a firm.</p>
<p>Obviously, such wide powers must be exercised with care by the regulator. In particular, APRA must protect the confidentiality of all written and verbal material gathered during an investigation, and importantly, the sources of that information. This implies whistleblowers also need protection as part of APRA’s prudential role.</p>
<p>APRA needs to set out explicitly within the terms of reference of the inquiry that whistleblowers will be protected. Unless CBA staff are actively encouraged to provide information that is relevant not only to the money-laundering scandal but to other <a href="https://theconversation.com/banking-inquiry-findings-ask-the-wrong-questions-get-the-wrong-answers-69421">governance failures</a> at CBA, the inquiry’s conclusions will lack credibility.</p>
<h2>Why is whistleblowing an issue?</h2>
<p>Despite their <a href="https://www.commbank.com.au/about-us/opportunity-initiatives/opportunity-from-good-business-practice/sustainable-business-practices/speaking-up.html">internal policies</a>, CBA does not treat whistleblowers kindly. Like other organisations that exhibit a <a href="https://theconversation.com/au/topics/groupthink-36585">“groupthink mentality”</a>, the worst crime is not doing something wrong but rather washing the firm’s dirty linen in public.</p>
<p>The treatment of <a href="https://theconversation.com/troublemakers-and-traitors-its-no-fun-being-a-whistleblower-50755">Geoff Morris</a>, who blew the whistle on the <a href="http://www.smh.com.au/business/death-threats-and-smear-campaigns-the-lot-of-a-whistleblower-20170331-gvax60.html">CBA financial planning scandal</a>, was meant as a clear message to other CBA staff that dobbing in your mates was not to be tolerated. </p>
<p>And appalling treatment of people was not only restricted to the <a href="http://www.smh.com.au/business/banking-and-finance/cbas-insurance-arm-comminsure-told-to-reassess-rejected-heart-attack-claims-to-2012-20170322-gv4dif.html">sick and dying</a> in the case of <a href="http://www.abc.net.au/4corners/stories/2016/03/07/4417757.htm#transcript">CommInsure</a>. It also extended to the treatment of the Chief Medical Officer, Benjamin Koh, which seemed designed to send a message to other bank staff – keep your head down, or else! </p>
<p>In the CommInsure case, CBA commissioned <a href="https://www.commbank.com.au/guidance/newsroom/comminsure-releases-deloitte-report-into-claims-handling-201702.html">an “independent” inquiry</a> by Deloitte into the insurer’s claims processes which “did not identify any systemic issues relating to historically declined claims”. In an object lesson on how to write terms of reference to get the answers you want, the Deloitte inquiry has been <a href="http://thenewdaily.com.au/money/superannuation/2017/03/01/deloittes-comminsure-review-selective-and-inadequate-say-lawyers/">criticised by lawyers</a> as being <a href="http://www.smh.com.au/business/banking-and-finance/deloittes-findings-on-comminsure-dont-go-far-enough-20170228-gungnv.html">too narrowly defined</a>. This is because that particular inquiry looked only at policies selected by CommInsure and did not talk to any customers affected. Hear no evidence, see no evil. </p>
<p>A <a href="http://www.theaustralian.com.au/business/financial-services/cbas-comminsure-cleared-of-allegations-it-pressured-doctors-to-deny-claims/news-story/571e47c9841e295cb9eeae8076ce8c93">later investigation</a> by the conduct regulator, the Australian Securities & Investment Commission (ASIC) “found no evidence to support allegations that CommInsure claims managers applied undue pressure on doctors to change or alter their medical opinions”. But, interestingly, their search for evidence did not consider whistleblowing complaints. </p>
<p>APRA should ensure the terms of reference for the CBA inquiry explicitly state that the inquiry panel will have unrestricted access to all internal complaints to the bank’s Speak-Up whistleblower hotline. They should also have access to the results of any whistleblowing complaints. </p>
<p>In addition, the bank should be required to set up an additional confidential channel for reporting staff concerns on culture and governance to the independent inquiry and APRA.</p>
<p>Without clear support for whistleblowers in the terms of reference for the inquiry into CBA’s (lack of good) corporate governance, the conclusions will inevitably be tainted. APRA needs to do its job itself and head off such <a href="https://theconversation.com/apra-inquiry-into-cba-is-the-new-comedy-in-town-83105">criticisms</a>.</p><img src="https://counter.theconversation.com/content/83638/count.gif" alt="The Conversation" width="1" height="1" />
Without clear support for whistleblowers in the terms of reference for the inquiry into CBA’s corporate governance, the conclusions will inevitably be tainted.Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/834112017-09-05T02:08:52Z2017-09-05T02:08:52ZHas APRA just outsourced its job?<p>The Australian Prudential Regulation Authority APRA has <a href="http://www.apra.gov.au/MediaReleases/Pages/17_34.aspx">announced</a> an independent inquiry into the Commonwealth Bank of Australia, “focusing on governance, culture and accountability frameworks and practices within the group”.</p>
<p>Hold on a minute. Isn’t that what APRA should have been doing all along? According to the <a href="http://www.bis.org/bcbs/publ/d328.htm">principles of corporate governance for banks</a> (that APRA helped author), it has both the right and obligation to talk to anyone in the bank, at any time, to discuss corporate governance.</p>
<p>One of the key principles of <a href="http://www.bis.org/bcbs/publ/d328.htm">corporate governance for banks</a> relates specifically to the “role of supervisors” (regulatory speak for regulators):</p>
<blockquote>
<p>Supervisors should provide guidance for and <strong>supervise corporate governance</strong> at banks, including through comprehensive evaluations and <strong>regular interaction with boards and senior management</strong> </p>
</blockquote>
<p>This principle means that regulators are meant to be participants in, not merely spectators to, banking regulation. This requires, for example, “improvement and remedial action, as necessary”. </p>
<p>Among the relatively few things that regulators are required to provide is guidance into the internal organisations of bank boards.</p>
<p>In order to do that, APRA is required to have “processes in place to fully evaluate a bank’s corporate governance”. These evaluations are conducted “through regular reviews of written materials and reports [for example, board minutes], interviews with board members and bank personnel”. Importantly:</p>
<blockquote>
<p>the evaluations should also include regular communication with a bank’s board of directors, senior management, those responsible for the risk, compliance and internal audit functions, and external auditors</p>
</blockquote>
<p>So, assuming that APRA does have processes in place to evaluate a bank’s corporate governance, why does it feel the need to outsource its own job? Who knows (<em>or who should know</em>) CBA and its governance processes better than APRA? </p>
<h2>Corporate Governance and board size</h2>
<p>Corporate governance is not an easy concept, especially questions of how much is enough. In particular, how many directors are needed to oversee management and what skills should they bring to the board? The Basel principles require that:</p>
<blockquote>
<p>The board should be comprised of individuals with a balance of skills, diversity and expertise, who collectively possess the necessary qualifications commensurate with the <strong>size, complexity and risk profile of the bank</strong>.</p>
</blockquote>
<p>In short, APRA is required to ensure that there are sufficient and adequately skilled directors to oversee a bank as systemically important as CBA. </p>
<p>Until this week, there were eleven directors of CBA and its subsidiaries. Each of these subsidiaries, such as <a href="https://theconversation.com/comminsure-case-shows-its-time-to-target-reckless-misconduct-in-banking-55748">CommInsure</a>, is bigger than most Australian companies. </p>
<p>After the <a href="http://www.smh.com.au/business/banking-and-finance/commonwealth-bank-in-board-shakeup-20170904-gya3pe.html">recent board shakeup</a>, two CBA directors were dropped and one was brought on board. A future retirement was also announced. Altogether this is a reduction of almost 25% of the board’s experience. </p>
<p>But are nine board members enough? Who knows - presumably APRA does and has no problems with a board of this size. </p>
<p>In <a href="https://researchers.mq.edu.au/en/publications/strategic-risk-management-practice-in-systemically-important-bank">2010</a>, there were 11 directors of CBA, so APRA must have felt (despite <a href="https://theconversation.com/banking-inquiry-findings-ask-the-wrong-questions-get-the-wrong-answers-69421">numerous scandals</a>) that they could sanction the reduction in the board of Australia’s biggest company (at the time) by two directors (a drop of around 18%).</p>
<p>But it is not only CBA. In the same period APRA has (presumably) felt happy with the axe being taken to the boardrooms of the other three big banks. Aside from <a href="https://www.shareholder.anz.com/sites/default/files/anz_-_annual_report_2016.pdf">ANZ</a>, which has had eight directors since 2010, <a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/2016_Westpac_Annual_Report">Westpac</a> has dropped from ten to eight and <a href="https://www.nab.com.au/content/dam/nabrwd/About-Us/shareholder%20centre/documents/2016-annual-financial-report.pdf">NAB</a> from 13 to nine. </p>
<p>Overall, according to their own annual reports, the number of directors in the largest banks in Australia has dropped some 16% since 2010.</p>
<h2>Board experience and expertise</h2>
<p>But maybe it is not all about board size. What about quality?</p>
<p>Presumably APRA accepted that Catherine Livingstone, appointed Chairperson of CBA <a href="https://www.commbank.com.au/guidance/newsroom/CBA-announces-new-chairman-201610.html">last year</a>, is not a banker but an accountant from the medical industry. They must also have been happy that the CEO who was put in place after banker Ralph Norris left CBA in 2011, was a management consultant, <a href="https://www.linkedin.com/pulse/unwanted-advice-dead-man-walking-patrick-mcconnell">Ian Narev</a>. </p>
<p>And presumably APRA was not unhappy that the latest two CBA directors are a <a href="https://www.commbank.com.au/guidance/newsroom/cbas-new-non-executive-director-201606.html?ei=gsa_newsroom_board">lawyer</a> and a <a href="https://www.commbank.com.au/guidance/newsroom/changes-to-board-of-directors-201503.html?ei=gsa_newsroom_board">technology specialist</a>, not bankers. In fact today, bankers make up less than a third of CBA’s board directors. </p>
<p>That in itself would not be too much of a problem, except that the <a href="https://www.linkedin.com/pulse/cba-case-groupthink-patrick-mcconnell">executive management committee</a> of CBA is packed with management consultants and lawyers, with less than 40% having significant banking experience. </p>
<p>Having experience outside of banking is very important for bank directors. But a lack of in-depth experience can also lead to problems. In the UK, a damning <a href="http://www.bankofengland.co.uk/pra/Documents/publications/reports/hbossum.pdf">report</a> on the failure of the Halifax/Bank of Scotland (HBOS) found that: </p>
<blockquote>
<p>As a group, the non-executive directors (NEDs) on the [HBOS] Board lacked sufficient experience and knowledge of banking. […] The lack of experience and knowledge of banking amongst the NEDs was compounded by similar lack of banking experience within the executive management team.</p>
</blockquote>
<p>CBA is definitely not HBOS, although HBOS was a star performer until it became unstuck. Nonetheless APRA should pay heed to the warnings of its fellow regulators.</p>
<p>Since 2010, APRA has overseen a significant reduction in the size of boards across the banking sector and a dilution of seasoned bankers on the board of CBA. </p>
<p>When its senior staff had regular communication with the bank’s directors and senior management, APRA should have picked up on the risks and scandals that CBA has become embroiled in in the last decade. </p>
<p>They would have shared “information on corporate governance with other supervisors” such as <a href="http://www.austrac.gov.au/media/media-releases/austrac-seeks-civil-penalty-orders-against-cba">AUSTRAC</a> and ASIC. APRA would not have been surprised when the CBA board <a href="https://www.commbank.com.au/guidance/newsroom/CBA-ASX-update-on-AUSTRAC-matter-201708.html?ei=card-view">threatened</a> to fight the latest money-laundering allegations in court.</p>
<p>This is why it comes as a surprise that APRA, an independent regulator with unparalleled access to the inner workings of all major banks and bristling with internal expertise, should need to outsource its inquiry of corporate governance at CBA.</p>
<p>If APRA cannot evaluate a bank’s governance, who can?</p>
<p>Or maybe APRA is embarrassed that somewhere along the line it has dropped the ball and become far too cosy with the banks it is supposed to regulate.</p>
<p>Maybe an inquiry into APRA should be on the cards?</p>
<p>Quis custodiet ipsos custodes? Who regulates the regulators?</p><img src="https://counter.theconversation.com/content/83411/count.gif" alt="The Conversation" width="1" height="1" />
If APRA cannot evaluate a bank’s governance, who can?Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/834332017-09-04T08:35:53Z2017-09-04T08:35:53ZAnother day, another scandal: CBA blames customers for identity theft<p>Barry Lakeman has had a gutful. “I’ve got bone cancer,” says the 59-year-old farmer from outback Western Australia. “The chances of pulling through are about 60/40.” Worse, he says, his son is disabled. He has epilepsy and a brain tumour and requires special medical treatment.</p>
<p>On top of all this, Lakeman is a victim of identity theft. Last month, local police called to ask him if he’d lost his gun licence. They had found it, they told him. It displayed his photo but the licence number didn’t match. “It was a forgery … the number at the top of the card was different from the number on my card.”</p>
<p>Lakeman’s banking documents were found in a gutter in Victoria three years ago. Today, an officer from the Commonwealth Bank called him and suggested he or his wife Karen had taken the documents to Victoria themselves; that they’d lost them.</p>
<p>“There were other incidents,” says Lakeman. “In 2015, a company in Victoria rang me and said, ‘We have finished the canvas for your caravan.’ … I don’t even own a caravan.”</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Barry and Karen Lakeman.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>That year, the Northam police, southeast of the WA town of Toodyay where the Lakemans now reside, told him they were investigating the identity theft. They were assisted by Geoff Shannon, the principal of Unhappy Banking, who took the case to the Financial Ombudsman Service (FOS), a bank-funded scheme to resolve customer complaints about banks.</p>
<p>“It doesn’t look like an isolated incident,” says Shannon. “There are credit cards and so on, identities for sale on the dark web and we know people were quietly sacked from BankWest (owned by CBA) in 2014 for selling documents.”</p>
<h2>Cover-ups compound the mistakes</h2>
<p>Emails from a BankWest source, obtained by michaelwest.com.au, describe a meeting that took place at the bank’s headquarters in WA on November 14, 2014. </p>
<p>“This week we were all ushered into a meeting and asked to sign a confidentiality form about what was discussed in the meeting. We were informed nothing in this meeting would be put in writing as they did not want a paper trail,” said the email.</p>
<p>“We were informed in the meeting that a large number of staff had just been sacked due to fraudulent activity, essentially some were ripping off customers, some were ripping off the bank. As you can imagine this is very hush hush and they would be really pissed off if the media found out.” </p>
<p>Detailed questions were put to Commonwealth Bank about the meeting and claims, contained in the emails, that staff had sold confidential customer documents. The bank declined to respond. The bank also declined to respond to questions about the Lakeman case, saying it did not talk about individual client matters.</p>
<p><a href="https://thewest.com.au/news/wa/fake-police-id-gold-bars-for-sale-on-dark-web-ng-b88528968z">A report</a> in The West Australian in July this year said counterfeit BankWest credit cards and utility bills were openly for sale on the dark web.
This story came hard on the heels of revelations that Medicare details could be bought on the internet. </p>
<p>Whether the BankWest credit cards and Lakeman’s personal documents were stolen by the same people is uncertain. But it was just a few days later that the bank called the Lakemans and told them their documents had been found by the side of the road in Victoria.</p>
<p>“It was November 26, 2014. I was out harvesting and we were waiting for the contractors to come in and the phone went. It was a phone call from the local bank manager,” says Lakeman.</p>
<p>“He told me they had had a phone call from Alexandria in Victoria. We were told ‘All your banking documents, your ABN, your phone number, all your details have been found beside the side of the road.’</p>
<p>"How did they get there?” I asked.</p>
<p>“Have you and your wife been to Victoria?”</p>
<p>“Not for three years.”</p>
<p>“Your wife must have taken them over there and left them there.”</p>
<p>“I went off my head,” said Lakeman. “It’s 4,000k away. We were never told who found them or when. It really hurt us because when we tried to move and buy a house there was a black mark against us. It affected our credit rating.”</p>
<p>Lakeman is not happy the bank is still running the line that he and his wife might be responsible for their own identity theft.</p>
<p>The CBA is by no means alone in being vulnerable to the identity theft of its clients. All banks are surely susceptible to the same risks. The broader issue is how they handle it. Mistakes happen, it is cover-ups that are avoidable.</p>
<p>As the government continues to hold fast in the face of rising community calls for a royal commission into the banks, it has emerged that the CBA’s money-laundering scandal appears to have been accompanied by a cover-up.</p>
<p>Bank executives were told about deficiencies in their transactions monitoring in 2015. They spent the next two years <a href="https://www.michaelwest.com.au/do-not-stuff-up-this-institution-narev-told-the-inside-story-of-australias-biggest-money-laundering-scandal/">fobbing off investigations</a> by the Australian Federal Police and AUSTRAC.</p>
<p>The bank is <a href="https://www.michaelwest.com.au/banks-regulators-and-the-reverse-nuremberg-defence/">used to getting its own way with regulators</a> and, according to sources, felt it could contain the problem. AUSTRAC finally got fed up and filed a lawsuit against the bank. </p>
<p>CBA has sought to contain or cover up all its scandals. It threatened to pull its advertising from Fairfax Media when the financial services scandal broke – it tried to contain it. It tried to contain Storm Financial Group, Comminsure and then the massive money-laundering scandal now afoot – 55,700 breaches.</p>
<p>And now there is identity theft on top. “Why didn’t they call the fraud squad, or the police?” asks Barry Lakeman.</p>
<p>A good question, indeed. </p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/83433/count.gif" alt="The Conversation" width="1" height="1" />
One bank customer whose identity was stolen asks: ‘Why didn’t they call the fraud squad, or the police?’ It’s a very good question.Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/829792017-08-24T08:06:20Z2017-08-24T08:06:20ZExplainer: what exactly must companies disclose to investors?<p>The Commonwealth Bank of Australia is now <a href="https://www.mauriceblackburn.com.au/current-class-actions/commonwealth-bank-of-australia-potential-class-action/">facing the possibility of a class action lawsuit</a> over allegations it failed to adequately disclose to investors that it may have breached Australian anti-money laundering rules, as far back as 2015. </p>
<p>This class action provides an opportunity for the courts to clarify companies’ precise disclosure obligations. Often, companies settle these cases before they get to court so there isn’t much precedent to go by. </p>
<p>But companies’ disclosure requirements are clearly set out in the ASX <a href="http://www.asx.com.au/regulation/rules/asx-listing-rules.htm">listing rules</a>, the <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s1041h.html">Corporations Act</a> and the <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/asaica2001529/s12da.html">ASIC Act</a> - public companies must immediately disclose any information that could affect the price or value of their shares. </p>
<p>Should the CBA case make it to court, it would be a significant step towards clarifying what and when exactly companies need to disclose to investors. But this is not the only current case relating to company disclosures. <a href="https://www.slatergordon.com.au/class-actions/current-class-actions/newcrest-mining">Newcrest Mining</a>, <a href="https://www.mauriceblackburn.com.au/current-class-actions/slater-and-gordon-shareholder-class-action/">Slater & Gordon</a>, <a href="https://www.mauriceblackburn.com.au/current-class-actions/bellamy-s-class-action/">Bellamy’s</a>, and <a href="https://www.slatergordon.com.au/class-actions/current-class-actions/murray-goulburn-class-action-investigation">Murray Goulburn</a> are all currently facing class action litigation over their disclosure practices. </p>
<h2>What are the disclosure obligations?</h2>
<p>The <a href="http://www.asx.com.au/documents/about/abridged-continuous-disclosure-guide-clean-copy.pdf">listing rules</a> of the Australian Stock Exchange state that companies must immediately inform the ASX if they become “aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities”. </p>
<p>This covers any number of developments, from the impact of <a href="https://www.mauriceblackburn.com.au/current-class-actions/bellamy-s-class-action/">product market concerns</a>, and major changes affecting the valuation of assets. US law indicates that it could also include exposure to <a href="https://www.law360.com/articles/947816/texas-judge-greenlights-100m-halliburton-class-settlement">possible liabilities</a>. Companies must also <a href="http://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/reporting-obligations-for-disclosing-entities/">lodge financial reports</a> with the Australian Securities and Investments Commission.</p>
<p>Potential litigation or regulatory intervention, for example, should be disclosed. Research shows both litigation and regulatory actions <a href="http://dx.doi.org/10.1111/fima.12171">generally affect share prices</a> and raise the risk of financial penalties. Even if the company wins the case, it must still spend significant sums on lawyers. This makes the firm’s future cash flows more risky and can affect how much investors are willing to pay for the firm’s shares. Under similar laws in the US, failing to disclose such litigation risk has <a href="https://www.law360.com/articles/947816/texas-judge-greenlights-100m-halliburton-class-settlement">precipitated class actions</a>.</p>
<p>These disclosure obligations <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s793b.html">are enshrined in law</a> and are part of a company’s contract with the ASX. As long as the company remains listed on the ASX, it effectively makes a statement that it is complying with that contract. </p>
<p>On top of all this, disclosures have to be accurate. Australian <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s1041e.html">law</a> specifically prohibits companies from “mak[ing] a statement, or disseminat[ing] information” that is false or misleading, is likely to affect the price of a financial product, and that should reasonably have been known to be false. </p>
<h2>What if companies fail to disclose?</h2>
<p>Shareholders can <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s1041i.html">recover loss or damage</a> if they can show that the misleading statement affected stock prices. In basic terms, this involves showing that the price declined when traders became aware that the information was false. </p>
<p>For example, US technology company Fitbit was <a href="http://securities.stanford.edu/filings-documents/1057/FI00_03/2016111_f01c_16CV00151.pdf">sued</a> because of alleged misstatements that led to a share price decline. The litigants explicitly noted the fall in share price in arguing that the alleged false statements caused loss or damage and that the company traded at an inflated price. </p>
<p>Shareholders can recover damages from the company, or any other “<a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s1041i.html">person involved in the contravention</a>” of the Corporations Act. This can include company directors, in some cases. In practice, litigation insurers often pay the damages. </p>
<p>But class actions also have wider implications. On top of <a href="https://doi.org/10.1016/j.jcorpfin.2013.10.005">damaging a firm’s reputation</a>, class actions can <a href="https://doi.org/10.1016/j.jfi.2011.09.001">hurt</a> executive’s career prospects and <a href="https://doi.org/10.1016/j.jcorpfin.2014.05.007">make it harder</a> for companies to access credit. </p>
<p>Failing to meet disclosure obligations can also mean directors aren’t fulfilling their <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s180.html">duties of care</a>. These require directors to act “with the degree of care and diligence that a reasonable person would exercise”, and violations of this duty can lead to lawsuits and regulatory intervention by ASIC.</p>
<h2>What about omissions?</h2>
<p>Companies can make a relevantly false statement in two ways. They can disclose incorrect or misleading information. Alternatively, they can fail to disclose material information. </p>
<p>Remaining silent is impractical as companies must release some information - such as financial reports - to satisfy their obligations. Omitting negative information from these disclosures renders the disclosure “misleading” and likely to at least stabilise the firm’s share price. </p>
<p>In the related field of consumer protection, on which these provisions are loosely based, <a href="http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCAFC/2012/20.html?stem=0&synonyms=0&query=full%20federal%20court%20optus%20commission%202012">omitting information</a> that would have changed the person’s mind is also prohibited.</p>
<p>In the end, the law does not specify what makes a statement “materially misleading”. However, in this context, it would likely mean a statement that could affect the firm’s share price. This contrasts with small errors in disclosure that would not affect share prices or would not affect the decision to buy the shares.</p>
<p>At the moment there is little guidance from the courts on the scope of companies’ disclosure requirements and the damages shareholders can recover if companies violate them. This CBA case might clarify this and motivate companies to comply with their obligations. It could also better enable shareholders to pursue remedies when companies violate them.</p><img src="https://counter.theconversation.com/content/82979/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Humphery-Jenner receives funding from the Australian Research Council.</span></em></p>ASX rules and other legislation state that companies must disclose any information that could affect the price or value of shares.Mark Humphery-Jenner, Associate Professor of Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/825052017-08-15T20:14:20Z2017-08-15T20:14:20ZClimate change is a financial risk, according to a lawsuit against the CBA<p>The Commonwealth Bank of Australia has been in the headlines lately for all the wrong reasons. Beyond <a href="https://theconversation.com/allegations-against-the-cba-show-the-need-for-a-royal-commission-into-the-banks-82063">money-laundering allegations</a> and the announcement that <a href="http://www.abc.net.au/news/2017-08-14/commonwealth-bank-ceo-ian-narev-to-retire-by-july/8803302">CEO Ian Narev will retire early</a>, the CBA is now also being sued in the Australian Federal Court for misleading shareholders over the <a href="https://www.theguardian.com/australia-news/2017/aug/08/commonwealth-bank-shareholders-sue-over-inadequate-disclosure-of-climate-change-risks">risks climate change poses to their business interests</a>.</p>
<p>This case is the first in the world to pursue a bank over failing to report climate change risks. However, it’s building on a trend of similar actions against energy companies in the <a href="http://www.nytimes.com/2015/11/06/science/exxon-mobil-under-investigation-in-new-york-over-climate-statements.html">United States</a> and <a href="http://www.documents.clientearth.org/library/download-category/climate-governance/">United Kingdom</a>. </p>
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Read more:
<a href="https://theconversation.com/asics-comminsure-pass-shows-why-badly-behaving-bankers-will-never-fear-jail-time-75059">ASIC's CommInsure pass shows why badly behaving bankers will never fear jail time</a>
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<p><a href="https://envirojustice.org.au/sites/default/files/files/170807%20Concise%20Statement%20(as%20filed).pdf">The CBA case was filed on August 8, 2017</a> by advocacy group Environmental Justice Australia on behalf of two longstanding Commonwealth Bank shareholders. The case argues that climate change creates material financial risks to the bank, its business and customers, and they failed in their duty to disclose those risks to investors. </p>
<p>This represents an important shift. Conventionally, climate change has been treated by reporting companies merely as a matter of <a href="http://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">corporate social responsibility</a>; now it’s affecting the financial bottom line.</p>
<h2>What do banks need to disclose?</h2>
<p>When banks invest in projects or lend money to businesses, they have an obligation to investigate and report to shareholders potential problems that may prevent financial success. (Opening a resort in a war zone, for example, is not an attractive proposition.) </p>
<p>However, banks may now have to take into account the risks posed by climate change. Australia’s <a href="http://www.accr.org.au/big_bank">top four banks</a> are heavily involved in fossil-fuel intensive projects, but as the world moves towards renewable energy those projects may begin to look dubious. </p>
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Read more:
<a href="https://theconversation.com/risky-business-how-companies-are-getting-smart-about-climate-change-65221">Risky business: how companies are getting smart about climate change</a>
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<p>As the G20’s <a href="https://www.fsb-tcfd.org/">Taskforce on Climate-Related Financial Disclosures</a> recently reported, climate risks can be <em>physical</em> (for instance, when extreme weather events affect property or business operations) or <em>transition</em> risks (the effect of new laws and policies designed to mitigate climate change, or market changes as economies transition to renewable and low-emission technology). </p>
<p>For example, restrictions on coal mining may result in these assets being “stranded,” meaning they become liabilities rather than assets on company balance sheets. Similarly, the rise of renewable energy may reduce the life span, and consequently the value, of conventional power generation assets.</p>
<p>Companies who rely on the exploitation of fossil fuels face increasing transition risks. So too do the banks that lend money to, and invest in, these projects. It is these types of risks that are at issue in the case against CBA.</p>
<h2>What did the CBA know about climate risk?</h2>
<p>The claim filed by the CBA shareholders alleges the bank has contravened two central provisions of the <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/">Corporations Act 2001</a>:</p>
<ul>
<li><p>companies must include a financial report within the annual report which gives a “true and fair” view of its financial position and performance, and</p></li>
<li><p>companies must include a director’s report that allows shareholders to make an “informed assessment” of the company’s operations, financial position, business strategies and prospects.</p></li>
</ul>
<p>The shareholders argue that the CBA knew – or ought to have known – that climate-related risks could seriously disrupt the bank’s performance. Therefore, investors should have been told the CBA’s strategies for managing those risks so they could make an informed decision about their investment.</p>
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Read more:
<a href="https://theconversation.com/allegations-against-the-cba-show-the-need-for-a-royal-commission-into-the-banks-82063">Allegations against the CBA show the need for a Royal Commission into the banks</a>
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<p>The claim also zeros in on the <a href="http://www.news.com.au/finance/business/green-groups-to-target-commonwealth-bank-over-potential-adani-financing/news-story/94d9701fe05b3801612015bd33bfb9ae">lengthy speculation over whether the CBA would finance the controversial Adani Carmichael coal mine</a> in Queensland. (The bank has since <a href="http://www.smh.com.au/environment/climate-change/desperate-commbank-rules-out-lending-to-adanis-carmichael-coal-mine-20170811-gxughp.html">ruled out financing the mine</a>.) The shareholders assert that the resulting “controversy and concern” was a major risk to the CBA’s business.</p>
<h2>Global litigation trends</h2>
<p>While the CBA case represents the first time worldwide that a financial institution has been sued for misleading disclosure of climate risk, the litigation builds on a broader global trend. There have been a number of recent legal actions in the United States, seeking to enforce corporate risk disclosure obligations in relation to climate change:</p>
<p>Energy giant Exxon Mobile is <a href="http://www.nytimes.com/2015/11/06/science/exxon-mobil-under-investigation-in-new-york-over-climate-statements.html">currently under investigation</a> by the Attorneys General of New York and California over the company’s disclosure practices. At the same time, an <a href="http://www.rgrdlaw.com/cases/exxon/">ongoing shareholder class action</a> alleges that Exxon Mobile failed to disclose internal reports about the risks climate change posed to their oil and gas reserves, and valued those assets artificially high.</p>
<p>Similar pathways are being pursued in the UK, where <a href="http://www.documents.clientearth.org/library/download-category/climate-governance/">regulatory complaints</a> have been made about the failure of major oil and gas companies SOCO International and Cairn Energy to disclose climate-related risks, as required by law.</p>
<p>In this context, the CBA case represents a widening of litigation options to include banks, as well as energy companies. It is also the first attempt in Australia to use the courts to clarify how public listed companies should disclose climate risks in their annual reports.</p>
<h2>Potential for more litigation</h2>
<p>This global trend suggests more companies are likely to face these kinds of lawsuits in the future. Eminent barrister Noel Hutley <a href="https://cpd.org.au/2016/10/directorsduties/">noted in October 2016</a> that many prominent Australian companies, including banks that lend to major fossil fuel businesses, are not adequately disclosing climate change risks. </p>
<p>Hutley predicted that it’s likely only a matter of time before we see a company director sued for failing to perceive or react to a forseeable climate-related risk. The CBA case is the first step towards such litigation.</p><img src="https://counter.theconversation.com/content/82505/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anita Foerster receives support from Australian Research Council Discovery Project – DP 160100225, ‘Developing a Legal Blueprint for Corporate Energy Transition’.</span></em></p><p class="fine-print"><em><span>Jacqueline Peel receives support from Australian Research Council Discovery Project – DP 160100225, ‘Developing a Legal Blueprint for Corporate Energy Transition’.</span></em></p>A new lawsuit against the CBA puts climate change in a new legal light: a financial hazard. The case opens up fresh lines of attack on institutions that contribute to climate change.Anita Foerster, Senior Research Fellow, The University of MelbourneJacqueline Peel, Professor of Environmental and Climate Law, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/821592017-08-09T19:44:40Z2017-08-09T19:44:40ZWhy bankers so often fail to comply with policies and regulations<figure><img src="https://images.theconversation.com/files/181505/original/file-20170809-26001-1s85pwk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Traders are less likely to follow policies when companies and co-workers are heavily profit-focused.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><a href="https://theconversation.com/allegations-against-the-cba-show-the-need-for-a-royal-commission-into-the-banks-82063">Allegations</a> that the Commonwealth Bank of Australia has been complicit in money laundering is just the latest example of issues with regulatory compliance and risk management in the financial sector. </p>
<p><a href="http://finsia.com/docs/default-source/submissions/experimental-research-report.pdf?sfvrsn=625b9993_2">Our research</a> shows that some of the problem is due to the incentives paid to financial professionals to boost profits. But the personal attitudes of individual staff members also matter, as does tenure (how long individuals have been in the industry). </p>
<p>Even though risk management <a href="http://www.apra.gov.au/CrossIndustry/Documents/Draft-Prudential-Practice-Guide-CPG-220-Risk-Management-October-2014.pdf">has become a priority</a> in the financial industry since the global financial crisis, compliance is hard to monitor and so staff are tempted to disobey policies. </p>
<h2>Risk management</h2>
<p>Recent years have seen regular scandals in the financial industry, notably the <a href="https://theconversation.com/watching-the-dominos-fall-in-the-libor-crisis-11358">Libor</a> interest rate rigging, <a href="https://theconversation.com/asics-comminsure-pass-shows-why-badly-behaving-bankers-will-never-fear-jail-time-75059">CommInsure</a> and the <a href="https://theconversation.com/how-wells-fargo-encouraged-employees-to-commit-fraud-66615">more than a million fraudulent accounts</a> created by 5,000 Wells Fargo employees.</p>
<p>Good risk management is designed to ensure risks are within the organisation’s appetite, which should reduce scandals. Senior leaders set the risk appetite and the policy framework - they design the rules that staff should follow. </p>
<p>Finance professionals are <a href="http://www.apra.gov.au/CrossIndustry/Documents/Draft-Prudential-Practice-Guide-CPG-220-Risk-Management-October-2014.pdf">expected to comply</a> with all kinds of policies, from limits on the amount/kinds of loans they can make, to policies to reduce the risk of cyber-attack, not to mention reporting of suspicious transactions.</p>
<p>But these policies can mean that potentially profitable deals aren’t pursued, or that time is “wasted” that could be devoted to generating profits.</p>
<h2>Our experiment</h2>
<p>Our experiment sought to find out more about how incentive schemes and culture affect compliance with risk management policies. With help from industry body <a href="http://finsia.com/">FINSIA</a>, we invited 306 financial professionals into a lab and put them through a simulation that mimics investment decisions - buying securities, granting loans, underwriting insurance etc.</p>
<p>The participants had to do some simple analysis (with a calculator) and then decide whether to invest. Over an hour they could complete up to 60 transactions and were given a risk policy/limit to follow. We observed how often participants violated the rules during the session, focusing on those transactions that were outside of policy.</p>
<p>Participants were randomly assigned to one of five “treatments” representing a range of workplace environments that varied how the employees were paid and the behaviour of managers/peers: variable payment and profit-focused, variable payment and no-focus, variable payment and risk-focused, fixed payment and profit-focused, fixed payment and no-focus.</p>
<p>In the risk-focused treatments, participants were told that managers and co-workers prioritise risk management. Participants with variable payments received cash based on the amount of profits they could generate during the session (less penalties for non-compliance). The rest received a fixed payment.</p>
<p>In the profit-focused treatments, we gave participants information showing that managers and co-workers prioritise profits:</p>
<blockquote>
<p>“Your manager rarely mentions the risk policy but talks often about the need to meet budget. He is always giving you motivational messages to encourage you to boost profits. You notice that colleagues who breach policy are excused if they are top performers. The risk policies are often criticised by staff because they can interfere with meeting profit targets; risk managers have low status compared with people who have great profit figures.”</p>
</blockquote>
<p>The following chart shows the compliance rates in each treatment - the proportion of “bad” transactions where the rules were followed.</p>
<iframe src="https://datawrapper.dwcdn.net/jUI8w/1/" scrolling="no" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="207"></iframe>
<p>We found that when people had variable payments that are linked to profits, their compliance with risk management was significantly reduced. When managers and co-workers were also profit-focused, compliance reduced even further. Interestingly, the variable payments did not produce significant increases in productivity in our experiment. Participants worked about the same amount as those on fixed payments.</p>
<p>On the other hand, when participants were paid a fixed amount regardless of profit, compliance with risk management policies was higher. Although still not perfect. Surprisingly, some people broke the rules even when there was no financial benefit for them to do so. This could be human error or just for the enjoyment of rule-breaking.</p>
<p>But compliance with risk management depends not only on incentives, but also on individual factors. For example, we observed different compliance behaviour across individuals depending on their personal attitudes towards risk management and compliance. </p>
<p>We also found that those with longer tenure in the financial industry were more likely to act in compliance with risk policy. Perhaps such people understand why good risk management matters having lived through a few scandals.</p>
<h2>What to do about it?</h2>
<p>These findings can be used to guide human resource policies. For example, financial institutions could screen potential employees for their attitudes to risk management. And they could choose to promote or reward staff with favourable attitudes.</p>
<p>But there are other important implications for the industry. Since incentive structures that are profit-based have an adverse impact on risk compliance and do little for productivity, such remuneration programs should be reconsidered. Perhaps it’s time to switch to fixed payments across the industry. </p>
<p>Our research shows that it is difficult to have high rates of risk compliance in the presence of profit-based payments. Staff are <a href="http://finsia.com/docs/default-source/submissions/experimental-research-report.pdf?sfvrsn=625b9993_2">likely to believe</a> that profit-based payments signal the true priorities of the organisation and they modify their behaviour accordingly.</p>
<p>But in the end, non-compliance with regulation and policies occurs even in the best environments. Scandals caused by non-compliance are inevitable, although financial institutions can reduce the rate of non-compliance through improved practices.</p><img src="https://counter.theconversation.com/content/82159/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth Sheedy has in the past received research funding from Macquarie University and from the Centre for International Finance and Regulation. She is a member of the Risk Management Association of Australia. She sometimes consults to financial institutions. </span></em></p><p class="fine-print"><em><span>Le (Lyla) Zhang has in the past received research funding from Macquarie University. She is the Associate Director of MGSM Vernon L. Smith Experimental Economics Laboratory.</span></em></p>New research shows that pay incentives, culture and employee attitudes all contribute to the failure to comply with policies and regulations.Elizabeth Sheedy, Associate Professor - Financial Risk Management, Macquarie UniversityLe (Lyla) Zhang, Lecturer in Economics, Macquarie Graduate School of ManagementLicensed as Creative Commons – attribution, no derivatives.