Markets and Legal Framework

A1. Corporation’s Act 2001 is a law that is pertinent to the case study of Commonwealth Bank of Australia- Rogue One. This law governs the disclosures by various entities in Australia. The disclosures made by the entities are protected when they are made to the Australian security investment committee by the senior management person or any designated authority within the Corporation who can make such disclosure. The other acts like Australian Securities and Investment Commission (ASIC), the Australian Federal policy (AFP), Australian Prudential Regulatory Authority (APRA), and the Whistleblowing laws are pertinent to the present case. Apart from this the Trade Practices Act 1974 also aims to protect the whistleblowers in Australia against any unfair practices committed by the entities in the country. The Whistleblower Protection Act 2019 to significantly expand its application for the protection of customers from all the unfair practices done by the entities in Australia. Apart from this the whistleblowers are also protected by providing various confidentiality provisions under the Corporations Act 2001. It is very evident from the present case study that the Commonwealth Bank of Australia had engaged in the fraud scheme from the period between 2003 till 2012. Section 9 of the corporation act governs the misconduct on the part of the entity and therefore this act will be applicable in this present case.

Trade Practices Act 1974 determines the protection of consumers in Australia against the operations of the companies which are subjected to cause harm to its client. There were various accusations upon CBA that it had manipulated the documents and had not disclosed regarding the amount of investment money it had to the Australian security investment committee (DeRoma, 2018). On these grounds, the CBA will be subjected to the ASIC Act. The Australian security investment committee regulation 270 involves systematic issues and regulatory measures to ensure the proper functioning of corporate as well as financial entities in Australia. This act aims to regulate the behavior and practice of entities which may cause harm to its consumer. Therefore the case study of Commonwealth Bank of Australia: Rogue One determined the fact that all the camps and provident activities like a misrepresentation of documents, disclosure of information to ASIC, Misrepresenting facts to the customers and making them invest in the bank are all the grounds which make the Commonwealth Bank of Australia subjected under these regulations and legislation.

A2. Jack Welch is also the chief executive officer of the company known as general electric. He had said that provide me the compensation plan of the company and I will show you how the employees behave. He meant that any compensation pattern followed by an organization has the potential to describe the probable behavior of the employees in the organization. The remuneration policy in a company works such that the employees are paid according to the particular value they provide to the organization. Compensation of a company is also known as an accumulation of the organization's capital. This capital is the responsibility of the leaders of the organization to manage in such a way that remuneration can also be invested to the employees to provide them the encouragement of performing better in the organization. Therefore the intention behind Jack Welch’s statement is that compensation does play a major role in determining the behavior of the employees as it inherently regulates the behavior and does connect the employees towards the vision of the organization and helps in bringing the management and the employees on the same page.

Coming directly to the Commonwealth Bank of Australia case, the financial planners provide an annual remuneration to the employees which also incorporate short term incentives like bonuses. These incentives boost the employees and enhance performance which indirectly encourages the investors to put in more money into the company. Just like any other organization the financial planners of CBA had also maintained sales targets to be achieved by the employees but this create a torture room when aggressive sales are driven in the organization to achieve the excessively shorter remuneration incentive scheme (ABC News Breakfast, 2018). Therefore it can be concluded that the remuneration plan of a company like for example CBA in here, largely creates and impacts the culture and behavior of the employees in the organization and in turn, the corporate culture developed by such a remuneration plan impacts the overall organizational performance. The corporate culture acting as a driving force develops the collective behavior of the working force in the company which directly contributes to build the workplace environment. CBA’s failure to provide appropriate compensation to its employees had disrupted the organizational culture within the company and the same was projected in a misrepresentative manner to its clients and investors.

When one enters into the area of compensation for remuneration policies there can be multiple methods deployed for its successful working and various changes may be required from time to time. It becomes necessary to structure the design of the incentive balancing of the employees. There is a very simple and direct fact that if the employees of the company are happy they will work dedicatedly towards the company. The management needs to understand the particular instances which motivate the employees. The compensation matrix must be formulated in such a manner that it satisfies the desire of the individual and generates a better performance of the employees and the organization as a whole. There should be regular optimization and revision of the compensation packages and the incentives from time to time in consideration with not only the overall performance of the company but also based on individual statistical performance.

A3. Any organization faces difficulties in promoting compliance, adequate corporate culture, good governance, and ethical behavior (Bonny and Lacey, 2015). It was contended that the Commonwealth Bank of Australia had earlier a good reputation amongst the clients but the same was damaged by the misconduct on the part of the financial planning committee (CFPL). The royal commission has investigated upon the fact that the financial planners had-operated in an unethical manner and had falsely misrepresented the important criteria of involvement of risk in investment. It was also found by the royal commission that the CFPL was involved in the falsification of various disclosure made to the Australian security investment committee. Apart from this the financial planner department of the Commonwealth Bank of Australia had also not disclosed important information to the ASIC. The unethical practice of providing incentives to the customers for the sake of attracting them to invest in the company is also regarded as an unethical practice under the banking practice act and the Corporations Act 2001 (Cth).

These are few grounds that can create a barrier to promote ethics in the financial institution and the same was faced by the commonwealth bank of Australia in the present case. The whistleblowers have contended to the fact that the CFPL had not made adequate measures to provide rewards to the employees to encourage them to achieve the targets (Alford, 2005). The CFPL had created under pressure upon the employees of the financial institutions and had threatened them to dismiss from their position in case of them not achieving the target. These are the major grounds of not having corporate governance in the institution. Equilibrium must be maintained by the financial department of the institution or any organization. Also, the major problem that can be identified is the end of the management of the commonwealth bank of Australia because the financial institution had tried to deceive the public by hiding all the fraudulent misconduct on the part of this week. Jeff Morris who was a whistleblower and had been protected under the whistleblower protection act and thereby he had disclosed the fact that the CBA had not complied with the provisions of corporations act.

The case study had referred to the fact that the CBA has been accused for nondisclosure to the ASIC. The CFPL play the major role in the case of commonwealth bank of Australia for its accusation upon the ethics and corporate governance. According to the principles provided under the Corporation's Act 2001 (Cth), it is important that the operations of the financial institution must make sure that it complies with the ethical behavior, compliance, and corporate governance. it currently is seen after analyzing the case study of Commonwealth Bank of Australia that the management of the financial institution had not complied with the provisions of various governing acts and therefore the financial institution had to compromise with its reputation among the customers.

A4. There are various major regulating bodies and players in the financial industry in Australia that determine the governance and regulations of various entities in the country. However, with time certain amendments have been made in the financial planning industry, especially in regards to the financial advisor standards and ethics authority FASEA. One of the major regulatory authorities and players in the financial industry is the Australian Securities and investment commission.

Regulatory body governs the legislations and all the legal regulations related to the financial market operations like investments, governing the superannuation funds and all the other transactions related to the financial sector in Australia. Moreover, the ASIC also regulates the misconduct and unfair operations committed by various entities and financial institutions in the territory of Australia. The major aim of this regulatory body is to protect the clients from the misconduct committed by the entities in the country by encouraging the participation of entities to comply with the various banking practice acts and code of conduct as mentioned in the Corporation's Act 2001. Apart from this the Australian Prudential Regulatory Authority (APRA) also works to govern and manage the operations of the banking sector in Australia that primarily deals with the transaction of credit unions and insurance (APRA, 2018).

This major player of the financial industry governs the Banking Act of the year 1959 and promotes the adequate responsibility and avoidance of any misrepresentation by the financial corporations. The Reserve Bank of Australia is also one of the major players in the financial services of Australia. RBA regulates and oversees the monetary policies in Australia. Its major aim is to maintain and stabilize the financial flow in the country and ensure that the entities are avoiding by the standards laid down under the Australian security investment committee. The Australian prudential regulatory authority encourages superannuation growth and consultation with the customers regarding the operations of investment in Australia and manages all the operations of the financial service. The Australian government had made certain changes by way of amendments in the Financial Advisor Standards and Ethics Authority (FASEA). The utmost aim of making such amendments was to encourage and extend the standards of ethics which need to be followed by the corporations in Australia.

The amendment and its enforcement were made from January 1st, 2020. Numerous changes in the standards and new amendments were made under the act for extending the obligations of legality to the corporations in Australia. Various instances can be observed in the country when the financial institutions are trying to avoid their legal responsibilities and the protection of customers. This is the reason why changes in the Corporations Act 2001 (Cth) were made with the inclusion of Whistleblower Act was made (Martin, 2013). Changes in standard 1 have been made in the Act to encourage the professional attitude in the financial entities in the country. The code aims to maintain the maximum level of trustworthiness and honesty which will be inclusive of competence and diligence in the financial industry. There is a various instance where various conflicts of interest arises between the financial services. The changes in section 961 aim to avoid any conflict of interest between the duty of the corporation and the interest of the client. Changes have also been made under standard 2 of the act which works to protect the customers subjected under the financial industry.

A5. The Australian security investment committee is very well known as a watchdog of corporate operations in the territory of Australia. However, the regulating body is criticized in the case of Commonwealth Bank of Australia and it's dealing with the investigation into the Commonwealth financial planning limited. The case study refers to the fact that a senate inquiry was held for the investigation conducted by the Australian security investment committee by the royal commission in Australia. The Commonwealth financial planning limited was found to commit various misconduct and various unethical practices by its responsible members and shareholders of the company. It was contended by the royal commission that the CFPL has been found to abide by no professional standards during their responsibility of providing pieces of advice of finance. The financial planners of the Commonwealth Bank of Australia had completely disregarded and cheated the customers by misrepresenting the facts of the risk involved in the investment with the bank.

This is the reason why the Australian security investment committee came into the picture for taking strict action against the misconduct committed by CFPL (BBC News, 2018). The royal commission refers to the fact that the Australian security investment committee was not quick enough to take action against the misconduct committed by the financial planners. Rather an undue delay can be observed on the part of the regulating body and no protection of whistleblowers can be observed by the royal commission in the present case. The Australian Security Investment Committee was also criticized for not regulating the process of compensation to the customers who are being cheated by the financial planners of the Commonwealth Bank of Australia (Chen and Lee, 2016). There were various whistleblowers in the territory of Australia that had contended the fact that the regulating body had not appropriately provided any monetary compensation to the clients.

Apart from what has been mentioned in the case study, various other constants limit the regulating body like Australian security investment committee to adequately discharge their functions to govern and regulate entities in Australia. The rise in the regulatory parameter can be considered as a major challenge for regulating bodies to discharge their functions because the growth in superannuation which is estimated at around 3 trillion dollars will create more burden upon the shoulders of the regulating body (Maria and Jan, 1997). The Australian security investment committee may find difficulty to oversee the functions upon the huge shift in the parameter of the investors and financial institutions in the country. It is the responsibility of the regulating body to take responsibility and govern the disclosure provisions regarding funds and other important information of financial entities.

The dramatic growth of financial institutions will make things difficult for the ASIC to meet the end needs. the sudden increase in the complexity and confusion in the financial system can also turn out to be a major problem and limitation for the regulating body as due to the change in technology and transactions, the functions of the regulating body might get slow. Apart from this, the Australian financial industry has also witnessed the complexity of products which can also become a challenge for the Australian security investment committee. The regulating body must try to maintain equilibrium between various priorities like having adequate resources to operate the regulations and surveillance upon stakeholders of the financial industry.

References for Markets and Legal Framework

Alford, C. 2005. The whistleblower’s reality check’, The Centre for Association Leadership 31, 456- 567. http://www.gwsae.org/executiveupdate/2004/May/rea lity.htm.

Australian Prudential Regulation Authority (APRA). 2018. Prudential Inquiry into The Commonwealth Bank of Australia. Retrieved from https://www.apra.gov.au/sites/default/files/CBA-Prudential-Inquiry_FinalReport_30042018.pdf

ABC News Breakfast. 2018. Banking royal commission revelations 'worse than I thought', says former ACCC boss. ABC News. Retrieved from http://www.abc.net.au/news/2018-04-20/banking-roya-l-commission-allanfells-accc-reaction/9679182

BBC News. 2018. Commonwealth Bank offers to pay record fine in laundering case. Retrieved from https://www.bbc.com/news/world-australia 44351257#:~:text=Commonwealth%20Bank%20offers%20to%20pay%20record%20fine%20in%20laundering%20case,4%20June%202018&text=Australia's%20Commonwealth%20Bank%20has%20said,not%20immediately%20report%20to%20authorities

Bonny, P., Goode, S., and Lacey, D. 2015. Revisiting employee fraud: gender, investigation outcomes and offender motivation. Journal of Financial Crime 22, no. 4 (June), 447-467. doi:10.1108/JFC-04-2014-0018

Chen, J., Douglas, C., Hou, W. and Lee, E. 2016. CEO Accountability for Corporate Fraud: Evidence from the Split Share Structure Reform in China. Journal of Business Ethics 138, no. 4 (November), 787-806. doi:10.1007/s10551-014-2467-2

DeRoma, P. 2018. Commonwealth Bank of Australia Money Laundering Case. Retrieved from https://sevenpillarsinstitute.org/commonwealth-bank-of-australia-money-laundering-case/

Maria, W. and Jan, C. 1997. Eating its own: the whistleblower’s organisation in vendetta mode’, Australian Journal of Social Issues 32, no. 1 (June), 45. doi/abs/10.1002/j.1839-4655.1997.tb01291.x

Martin, B. 2013. Illusions of whistleblower protection’, UTS Law Review 5, 120–5. https://www.bmartin.cc/pubs/03utslr.pdf

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