Case studies on remuneration misincentives and unethical behavior in the financial sector
1. The case study is related to consumer lending ‘NAB Introducer home loans’ Here. the third parties or the introducers received commission on the reference of the loan application towards NAB. The maximum loan that was referred was for the home loan. The commission that was paid to the Introducers were a part of the loan amount that was given to the customers when the loan was approved and the money was withdrawn (Huntand Terry, 2018). Introducer earned a handsome amount of $ 488,000 in four years. The false cases that the employees of NAB did was applying the signatures to the forms that were consent which had effects triggering a payment of Commission to the introducer where there was no warranty and the other thing was the bank staffs were accepting the false documents of the customers for documentation from those who had applied for home loans. The employees did not even had face to face interaction with the customers for any verification. They did not even show the relationships with the Introducers. There were a number of branch managers that were involved in this case. This shows that how the staffs had become to earn extra money. This was a bad thing that had happened in the banking and financial sector of Australia. There were no security and the loans were given like anything without verifying the documents of the customers where in the later investigation it showed that all the documents of the customers were fraud.
The other case study is of CBA broker relations and accreditation. In this case study CBA gave rights to the brokers for giving them referrals about loans where 41% of the total home loan customers were given by the broker cell (Hoyle, 2018). The brokers had an unit named Australian Credit Licence. The brokers were controlled by this unit and there were no connections among the brokers and the bank. The referrals were submitted to the Australian Credit Licence by the brokers and those were further submitted to the bank. Even the customers had no idea about the amount of commission that was to be paid to the brokers from the loan amount. This case led to the rise of false applications and even false commission as there was no contact between the brokers and the bank. This led to the false documentation of both the parties and there was huge chaos that took place in the banking and finance departments of Australia. It so happened that the brokers acted as the agents of CBA during their conversation with the customers which was also a wrong thing that the customers and the employees did not have knowledge about. This led to chaos in the people’s mind. The commission that was paid to the brokers was in relation to the amount of the loan and the time duration the customers pay back the loan. The brokers were given so much importance that they acted on behalf of the bank.
The final case study is of the Aussie home loan broker misconduct. The company Aussie is a broker of mortgage where there was thousand brokers operating in Australia. From August 2017, the Aussie is the subsidiary of CBA. CBA gave Aussie the license to work with the name of CBA while talking to the customers for any kind of loans. The conduct that was bad for Aussie was that they acted on behalf of the bank, which in return brought faith in the customers. They did not know the reality. Even the customers did not know thye amount of commission that was to be given to the brokers. The other thing that happened is that one of the brokers of Aussie was giving all the loans to only one lender, which is Westpac, who only took employment verification document for disbursing the loans. It was very easy to make a false income statement by the Aussie brokers. Due to this reason many people who did not have the capability of repaying the loans got the loans from the banks and financial institutes and later could not repay the loans to the bank and did not have any evidence of them thus the amount was fortified. Those brokers were charged of criminal offences as a result of the conducts. But on the other hand Aussie did not report anything against the brokers as they knew what was going on. The situation became so worse that the customers were unable to pay their loans as they were not capable of paying them.
ASX corporate governance principles and the need for better enforcement of laws
Agency theory is such a theory that is responsible to address the problems that rose due to the differences among the desires and the goals among the agent and the principal (Bosseand Phillips, 2016). This thing occur when the principal do not have any information about the actions of the agents that work for them. The case studies that are presented above shows the example of agency theory where the banks and the financial institutions did not have any idea about the actions of the agents which resulted in the misconduct of the documents. In this case both the parties were liable of the things. The staffs did not bother to verify the documents and the income statement of the people submitted by the brokers and the brokers had already made duplicate documents (Pepperand Gore, 2015). This was the case of the scenario of the bank and financial institutes of Australia which could not be resisted after so much of regulations. These things shows the black side of the banking and financial system in the places like Australia.
2. There are a number of principles related to the governance of the central corporate that is present to govern the banking rules. Still there are many cases where the banks used corporate behaviour, which is unethical in nature. According to the reports of the Royal Commission, they stated that irrespective of all the surveillance that is done on the banks they still keep their profits ahead of the people. The treatment that is done to the people by the staffs of the banks are very much dis-hearting and very much unprofessional in nature. These are mainly of the few reasons that will be presented in due course of time (Smith, 2018). Firstly, there are no rules or laws against the unethical practice that is going on in the banking sector. Due to this the staffs of the banks are not taking any care of the people. There should be a law about this to protect the interest of the people, otherwise there will be a huge problem in the banking sector in Australia and there will be new banks from outside the country that will operate there in Australia. Secondly, the management of the banks and financial service institutes do not take any step towards this kind of things so that these things get stopped. The management should be very strict on these kind of issues and should deal with these strongly. It is the people for whom the staffs are getting the salary, they should not disrespect the people that come to their branches for any kind of services (Matthews, 2016). These things should be dealt nicely so that there are no issues that rises in the financial sector of Australia. If the necessary steps are not taken then the people will loose faith from the bank and will not go to take any facility or keep money with the financial institutes of Australia.
3. The Australian banking and financial sector have mainly four banks that are very important inn Australia. The names are Westpac Banking Corporations, National Australia Bank, Commonwealth Bank of Australia and national bank of Australia. There are other different types of banks that are filled within the place that provides the services to the customers. The main purpose of the service sector is that the people are serviced more. It is the people for whom this different is closed every day (Beckand Paton, 2018). The behaviours of the staffs that work for them and she gets the work done by the organisations. On the other hand The banks of USA treats their customers very well. They treat their customers very well and do not keep profit ahead of the people. The customer satisfaction is the main motive of the banking and the financial sectors of USA. According to the reports of the Royal Commission, it is stated that the main banks of Australia have records of taking bribe for any work done by them which allowed them to make duplicate documents of the customers and even failed to verify the customers that they had. They even mis-selled the insurance to the people who did not have the capability to afford it (McIlroy, 2018). These reports about the banking and financial sector was very much offensive as because the banking and financial sectors do not have the rights to use the finances of the customers in their will. The management needs to be strong enough to fight against these things. The big banks of Australia are involved in this scandal which is a shame to the whole sector. It may so happen that the banking sector might be ruled by the banks of different countries or the banking sector will vanish completely in Australia. On the other hand the bank and financial institutions of USA is a lot different to that of Australia. They are the most highly regulated sector in the United State of America. This is the reason they provide good customer service to the people who come for the services. There are proper rules and regulations of the banks by the regulatory board so that there are no issues regarding the customer service and satisfaction that rises within the banks. This is how the bank and financial sectors of USA is much better than the bank and financial sectors of Australia which can be seen from the retaining of the customers. Here, in USA the people get proper service in this sector and there are no issues that rises. While in Australia there are a number of cases that showed that they do not care about the customer satisfaction and only focused on the profits of the bank which affects the banks in a very bad manner. The banks of Australia do not have the same grip over their customers like that tof the banks of USA have. This is because they give the people according to the needs of the people and not just to fulfil their targets. These are the things that should be applied by the banks and financial sectors of Australia that helps the sector to boost again from the damages that has been done over a long period of time.
Reference List
Beck, J. and Paton, G., 2018. Corporate law: The Royal Commission: Corporate culture spotlight: Where is all this heading?. Governance Directions, 70(6), p.351.
Bosse, D.A. and Phillips, R.A., 2016. Agency theory and bounded self-interest. Academy of Management Review, 41(2), pp.276-297.
Hoyle, S., 2018. Taming the misconduct within. Professional Planner, (113), p.28.
Hunt, B. and Terry, C., 2018. Financial institutions and markets. Cengage AU.
Matthews, A., 2016. The financial services industry: Whistleblowing and calls for a royal commission. Precedent (Sydney, NSW), (136), p.35.
McIlroy, J., 2018. Bank scandals fuel calls for completely new system: Why we should nationalise the big four under democratic control. Green Left Weekly, (1178), p.8.
Pepper, A. and Gore, J., 2015. Behavioral agency theory: New foundations for theorizing about executive compensation. Journal of management, 41(4), pp.1045-1068.
Smith, M., 2018. Refined appetite for acquisition. Professional Planner, (113), p.10.
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