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A history of failed reform: why Australia needs a banking royal commission

Thomas Clarke writes in The Conversation (12.9.16) about past attempts through government inquiries to improve banking and financial sector practices in Australia. The author argues that these inquiries have largely failed, hence the need now for a banking royal commission.

‘The move for an inquiry into how banks treat small business customers should not overshadow the ongoing call for a broader royal commission on banks.

‘Several financial inquries (outlined below) have failed to tackle the growing concentration in the Australian finance sector, or the need to separate general banking from investment banking as the reform process in the United States, UK and Europe is contemplating.

‘Calls for a royal commission are also underpinned by ongoing reports of misconduct within the banks, summarised in a timeline of bad behaviour below.

‘Every other major industrial country is at an advanced stage in bank reform, and Australia would be isolated if it did not engage in a similar substantial and structural reform process.’

Why bankers so often fail to comply with policies and regulations

Elizabeth Sheedy and Le Zhang write in The Conversation (10.8.17) that new research shows how pay incentives, culture and employee attitudes all contribute to the failure to comply with policies and regulations in the banking sector.

‘Allegations 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.

‘Our research 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).

‘Even though risk management has become a prioroty in the financial industry since the global financial crisis, compliance is hard to monitor and so staff are tempted to disobey policies.

‘… Our research shows that it is difficult to have high rates of risk compliance in the presence of profit-based payments. Staff are likely to believe that profit-based payments signal the true priorities of the organisation and they modify their behaviour accordingly.

‘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.’

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