Assignment Task:
Assignment Part A: Problem-based, case study question. Word range: 800-1,000 words.
Henry is the wealthy CEO of the leading Australian bank, CashKings Pty Ltd. He reserves the final say on all business initiatives and has a ruthless policy regarding expenditure and generating profits. "I'm not your boss, the shareholders are, now go and make them money" is one of his famous catchphrases. He has a keen eye for a good corporate opportunity, producing tens of millions of dollars each year in aggregate profit.
One day he is approached by an executive from his analysis division regarding an alarming increase in default rates on a specific loan product targeting first home buyers. "Sir, the rates we offer as part of our honeymoon package have seemed to entice a great deal of the market to borrow from us, however it appears one in two homes are being foreclosed."
Henry, agitated that he had been interrupted with this bad news, puts his arm around the executive's shoulder and says, "So what? We give them an opportunity to read the fine print. We're a bank, not a charity. What do they want me to do, go down there and pay off their loan for them? The product is to stay as is and I don't want to hear another word about it. Are we managing to salvage every single cent?"
The executive replies: "Yes sir, the housing market is stable so we are able to recover 100% of the loan value, but." "Good," replies Henry. "That will be all." CashKings has been approached by the banking board to sign the Banking Code of Practice. "Why on earth would I sign something that isn't legally binding", replies Henry. "Get out of my office and don't come back!"
After multiple reports warning Henry against pursuing his hardline business model he is in your office, demanding to know the importance of what he describes as "business ethics". He is an impatient man and does not care about the feelings of his customers. He is only interested to know whether this will affect his bottom-line profit margins. And Henry also thinks that industry codes (such as the Banking Code of Practice) are "nonsense".
Advise Henry.
Assignment Part B: Short essay question. Word range: 400-600 words.
Access online and read the following article, and then answer the question below. Note: In the event that you are unable to access the online version, the article is also reproduced below.
'Kenneth Hayne''s banking royal commission reported a year ago, but are customers any better off? by Daniel Ziffer, ABC News Australia, 4February 2020.
With reference to any of the findings made by the Banking Royal Commission of Inquiry, discuss as to whether and why, you agree, or disagree, with any of the views expressed in the above article.
Kenneth Hayne''s banking royal commission reported a year ago, but are customers any better off?
By business reporter Daniel Ziffer 4 Feb 2020
PHOTO: Kenneth Hayne made 76 recommendations in his report released on February 4, 2019. (AAP: David Geraghty)
The Hayne royal commission dragged through the shock and gore of banking industry scandals in 2018.
Key points:
Since Kenneth Hayne delivered his final report, banks have changed their fees and products.
About $1.5 billion in remediation has been returned to customers, and the total is expected to hit $10 billion.
Financial regulators are more likely to litigate when considering breaches of the law, and legislation is delivering more transparency.
It was a tough examination for Australia''s banks, insurers and financial services companies.
Even harder was swallowing the medicine prescribed by the final report in February 2019.
A year since the commissioner, Kenneth Hayne, dropped 76 bombshell recommendations to fix the industry, there has been immense upheaval.
Billions of dollars of stolen money is being returned to customers, multiple court cases are underway and only one of the bosses of the big four banks has passed the milestone of two years in the top job.
"I actually think a lot has changed," chief executive of Financial Counselling Australia Fiona Guthrie said.
"There's been millions of dollars of compensation, the banks have stopped selling poor products that were really low value, they have simplified their products, improved complaint handling and I think we're, more importantly, probably seeing more appropriate culture and an ethical bedrock in the industry".
Hayne's final report laid the groundwork for change
For consumers, plenty of good things have flowed from the shock delivered by the final report:
Financial regulators the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) are revved up, and now ask, "why not litigate?" when considering breaches of the law. Both watchdogs are prosecuting civil and criminal cases they would not have previously bothered to take to court. The Commonwealth Bank, for example, pleaded guilty to 87 criminal counts of ''hawking'' life insurance in unsolicited phone calls;
Banks are now automatically transferring vulnerable customers to low-fee and fee- free accounts. They do not make people aware when they are stuck in a dud home loan, but banks deserve credit for killing off unsolicited overdraft offers, charging dishonour fees on basic accounts and simplifying the products they offer;
Superannuation fund trustees and directors who do not act in the best interests of members now face civil penalties. They are also banned from wining and dining employers to shift their employees'' accounts;
Legislation is coming to outlaw unfair contract terms in insurance and provide more transparency for customers;
About $1.5 billion in remediation has already been returned to customers, and the total is expected to hit $10 billion.
Banks still working to rebuild trust
Last week the chief executive of the Commonwealth Bank, Matt Comyn, said there was no question that the trust and reputation of the industry had been eroded substantially.
Compensation, crackdowns and overhauls
Commissioner Kenneth Hayne's final report offers 76 recommendations, all of which the Federal Government and Labor say they will support and implement. Find out more here.
"So rebuilding that is extremely important," he said.
Anna Bligh, the former Queensland Premier and now head of the Australian Banking Association, agreed.
"I think the public want to know there were consequences," she said.
"And I think, if you're fair, you'd say that over the last 12 months there are a lot of people in the banking industry that have personally felt consequences."
When the banks buckled to mounting political pressure in November 2017, the chairs and chief executives of each of the big four banks signed an extraordinary letter calling on the Federal Government to bring on a royal commission.
Just two years later, only three of those eight people remain in their roles. But there is still a lot of work to be done.
Fees charged on compensation.
AMP refunded former customers charged fees for no service through new superannuation accounts - set up with AMP, and charging high fees for poor performance.
Legislation to make Kenneth Hayne's recommendations law still has to pass Parliament, and some of the bills will not be introduced until the end of the year.
The Government decided not to ban commissions in the mortgage broking industry - something that the commissioner had singled out as "money for nothing" - or increase protections for small business loans.
Scandals continue to pile up, as over-worked regulators scramble to deal with scores of cases referred to them to investigate and prosecute.
More big names could be taken to court.
Financial Counselling Australia's Ms Guthrie is across the scope of the banking industry, having met everyone from bank bosses to people in financial distress.
She said the new bank bosses understood the need for change across the industry, but she also remained concerned that memories of the royal commission will fade.
"I have no doubt under their current leadership in the banking industry that the changes are going to stick," she said.
"But what''s going to happen in five, seven or 10-years time? I think it''s an open question."
Customers could see the results is in court.
Banks repay fees for work not done
The big banks and AMP repay fees for financial advice never received, but where''s the penalty? asks Stephen Letts.
Watchdogs ASIC and APRA took both minnows and big fish - including the Commonwealth Bank and the bosses of fund management giant IOOF - to court last year, with mixed results.
Swinburne University corporate governance expert Helen Bird said to expect more big names forced to front court.
"At this stage I think about half a dozen matters, of which there were probably three that are quite high profile, and the rest you probably wouldn''t describe in the same sentence," Ms Bird said.
But do not expect swift justice.
"It wouldn't be surprising to me to hear of at least a two-year delay while we get through the investigation process," Ms Bird said.
"And of course it depends very much on the size of the matter and the complexity of the matter."
So the pain will continue for Australia's banks, at least for the next few year.