Misconduct in banking and finance

06 January, 2020Andy Schmulow

Andy Schmulow examines what the scandal at Australia Westpac bank shows about wider failures of governance and culture in financial services and the need for personal accountability at the top.
Broken glass

As part of a panel discussion in late 2018, I was asked whether the findings of the [Australian] Royal Commission – into misconduct in the banking, superannuation and financial services industry (the Hayne inquiry) – would be the end of the problems facing the banking industry in Australia.

My response was that not only were we not at the end of the scandals – we were barely at the beginning.

Misconduct in Australia’s financial industry is as a result of a significant deterioration in culture and a relentless drive for profit.

Compliance departments have been starved of resources, and disempowered. Investments in infrastructure – like IT platforms capable of complying with a bank’s anti money-laundering and counter-terrorism financing obligations – have not been made.

Don’t forget, those obligations are laid down in legislation, and integral to bank licence conditions. We have witnessed leadership in these institutions incapable of reading the writing on the wall – writing large enough to be read from space.

Take two examples.

Commonwealth Bank Financial Planning (CBFP)

In 2014 the Australian Federal Senate handed down a report into Commonwealth Bank Financial Planning (CBFP). Over 600 pages, it uncovered such rife misconduct that it recommended a Royal Commission (RC) of Inquiry into CBFP.

The CEO, Ian Narev, brushed off the findings. A faux remediation scheme was set up. The lack of robust corporate governance and robust culture that allowed the collapse of trustworthiness at CBFP let misconduct spread across almost every division of its parent, the Commonwealth Bank of Australia (CBA).

This process was reinforced by external culture that treated:

  • the law with arrogance and contempt
  • the potential punishments with bemusement, understandably
  • the regulators as indentured labour
  • the victims as worthless.

And all the while the bonuses kept growing. But the effects were catastrophic. CBFP and CommInsure had to be off-loaded, because they had become radioactive.

CBA was fined AS$700m for money-laundering and a further north-of AS$2bn for remediation. With that came vast, potentially irredeemable, damage to the bank’s reputation.

Reports on CBA, including those of the RC, Treasury and APRA, identified many problems, but weak culture and indifferent leadership were the recurring themes.


The CEO of Westpac, Brian Hartzer, has, unfortunately, followed much the same model.

He downplayed the seriousness of his bank’s misconduct, because it did not get its knuckles rapped by the Royal Commission. Westpac’s chairman, Lindsay Maxsted asserted in the aftermath that the RC findings didn’t really apply to Westpac.

Hartzer pushed back against increased – or should that be “a bare minimum” of – regulatory oversight, complaining that the regulators had become somewhat of a nuisance. In that same environment Hartzer, as CEO, presided over an eye-watering number of money laundering breaches.

Westpac’s PR pointed out that they had self-reported and felt unfairly treated. But the fact that self-reporting was their legal obligation – and not a favour done to the community – seemed to escape them.

Like his fellow CEOs, Hartzer is paid millions of Australian dollars a year. We are told this is necessary in order to attract world-leading talent.

But if he is a world-class leader, surely he would have taken account of the AS$700m fine levied against CBA and proactively investigated Westpac’s compliance with money-laundering regulation?

He states he heard about the wide-scale money laundering in his own institution only a month ago.

Banking executive accountability

The fact is culture is disproportionally affected by the tone from the top. And until the top executives of these banks treat dishonesty, fraud and misconduct as unacceptable nothing will change within.

Australians should demand that entities like the Australia Prudential Regulation Authority (APRA) – invested with new powers under the Banking Executive Accountability Regime (BEAR) – step in and hold executives, CEOs, chairs, and directors personally accountable, when their enfeebled corporate governance and their feckless culture will not.

Because at present, Australians are only assured of accountability by exposure from the fourth estate.

Andy Schmulow
Dr Andy Schmulow is a senior lecturer in law at the University of Wollongong. He is currently engaged in consultancy work to South African FSPs on culture, governance, and compliance. In this work he uses the examples cited above as illustrative of the issues.

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