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Banking & Finance | Business | Legal

Ethics versus compliance – restoring consumer trust in financial services

11 Apr 2019, by Amy Sarcevic

As the Australian financial services sector continues to grapple with a post-Royal Commission consumer trust deficit, the efficacy of a compliance-based approach to banking has been called into question.

Despite ethical mandates, such as ASICs “fairness initiative” and AFCA’s “fairness review”, a compliance framework continues to dominate banking practices; with efforts to instill a culture of ethics described by some as tokenistic.

Ahead of the Consumer Law Conference, Catherine Wolthuizen of the Consumer Policy & Research Centre says, “I believe that making a genuine commitment to fairness is the best way to remain resilient to the types of scandals uncovered by the Royal Commission.

“It is difficult to fit an amorphous concept like fairness into a minimalist approach like compliance; and I do worry about the compartmentalisation of the ethical standard people hold themselves to in their personal capacity and in the day to day work that they do.

“The Banking Oath has campaigned for high standards of ethical conduct and lots of bankers have signed the oath and done so proudly. But we have seen inconsistencies between the ethical standards set out in the Oath, and what has happened in practice.

“Understanding and adopting policies and practices which have fairness and good customer outcomes at their heart is a way of bridging this gap”.

Richard Harris, a Partner at law firm Gilbert + Tobin, is also due to address the Conference and believes the Royal Commission – and resultant penalties regime – is pushing the sector towards a compliance mindset.

Among the recommendations included in the regime were the introduction of civil penalties; materially increased fines (up to $525 million per contravention); a tripling of the maximum prison sentence (from five to fifteen years); a substantial increase of maximum penalties for civil contraventions; an extension of civil penalties to other forms of misconduct not previously captured; and disgorgement in civil penalty proceedings.

Harris believes the severity of these penalties – combined with the ‘default to litigation’ approach that emerged from Commissioner Hayne’s recommendations, could lead to adverse outcomes.

“Litigation is a blunt instrument to find the truth and to coerce a financial institution to be law-compliant”, he said.

“For the most part, banks are trying very hard in a complicated environment. Default to litigation – combined with excessively strong penalties – may inadvertently cause the relationship between banks and the regulators to deteriorate, in a manner which harms rather than helps outcomes”.

Catherine Wolthuizen and Richard Harris are among an esteemed line up of speakers to address the Consumer Law Conference – 14-15 May 2019, Sydney  – where discussions will range from regulatory relationships to data protection and the changing face of consumers.

Register now to secure your seat.

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