Article:

Royal Commission Impact - the brave new world for the Australian financial services sector

14 November 2018

The Australian Prudential Regulation Authority (APRA) released the Final Report of the Prudential Inquiry into the Commonwealth Bank of Australia (CBA) in May of this year.  This looked at the frameworks and practices in relation to the governance, culture and accountability within the organisation.

APRA’s report, combined with the impact of the Royal Commission’s current investigations, has many in the financial service sector wondering just what the future holds.  Aside from the uncertainty, there will be huge structural shifts ahead.  The impact of this will be more widely felt than by those in the big banks and insurance companies.

The findings of the Royal Commission are forcing Boards and Senior Management to consider two key questions:

  • How and why did these things happen?
  • What can be done to avoid them happening again?

It is clear that the conduct and culture within some organisations has not always focused on the customer and that the professional mantra of: efficiently, honestly and fairly has been lost along the way. In some cases, management of some organisations appears to have put profits before customers and remediation and rectification of known compliance issues has been far too slow, and this will need to change going forward, with the bar set by community and regulator expectations now much higher.

Boards need to take note, as the APRA report warned that a "light hand on the tiller" approach and a mindset of "chronic ease” is not acceptable and directors need to demonstrate that they are engaged with emerging non-financial risks and failed to sufficiently challenge management.
Improvements are required in a number of areas including:

  • Organisational culture
  • Governance
  • Accountability
  • Review of executive remuneration.

While there is sure to be more to come with the Royal Commission’s final report due to be realised in February 2019, and many organisations have already commenced internal programs to challenge their current governance, reporting, compliance and remuneration models.

Nothing is certain, but increased Regulator scrutiny, greater fines and potential court actions are all possible so Senior Management and Boards will be facing very different challenges in the future.

BDO’s National Financial Services team, which I am proud to lead, is geared to help clients navigate in uncertain times. We’ve expanded our team, and now have a set of professionals with the skills and credentials to help our clients prepare and respond to issues pertaining to the Royal Commission.

These include:

  • Tailored assurance and independent review services
  • Remediation program support and resourcing
  • Board reporting and risk framework reviews
  • System and data enhancement reviews
  • Culture and conduct assessments
  • Preparing for the implementation and monitoring of the Banking Executive Accountability Regime “BEAR”.  

For more information visit Financial Services Sector Inquiries or for a tailored discussion please contact tim.aman@bdo.com.au or a member of your local financial services team.