By Mark Eggleton: With the banking royal commission's interim report due out today, it's interÂesting to note that more regulation is not the only answer when it comes to rectifying the financial sector's malÂfeasance.
The former head of governance at the Australian Prudential Regulatory Authority, Fahrni Hosain, says we need to think more about the evolution of regulation and look more deeply at the behaviour and culture in institutions.
Hosain has co-founded new consultancy Rhizome with the aim of helping boards better navigate their operations. A speaker at the upcoming FINSIA Summit, Hosain says boards need to be supported and better informed. "The lesson we've learnt from the royal commission is boards need to be aware of their potential blindspots and we can help them join the dots on all the information they need. Our aim is to provide unbiased advice but not to implement that advice," Hosain says. "Conflicted advice is not helping boards and organisations do their jobs."
What the royal commission has brought to light is while regulation will have a strong role in future, so will company strategies and how they manifest themselves inside an organisation. Hosain says the connection point between strategy and customer outcomes needs to be worked on.
Deputy governor of the Reserve Bank of Australia, Guy Debelle, says codes of conduct are another element to investigate. Commenting on the implementation of last year's Foreign Exchange (FX) Global Code of Conduct in which he chaired the group of markets participants and central bankers who wrote the code in its entirety, Debelle says there's an issue around w effective codes can be but they are one element although "they are by no means a sole solution".
Launched mid-last year, the code was initiated primarily because the FX industry suffered from a lack of trust De belle says this lack of trust is evident both between participants in the market and, at least as importantly, between the public and the market
One positive for Debelle in putting together the code was getting all the participants in the FX market together around the table and discovering the different perspectives as to what was appropriate behaviour. The challenge was then coming up with agreed standards of appropriate behaviour.
"What might start off as greyish behaviour can morph into something worse. You have to be at least comfortable with what you're doing now and into the future."
While the FX Global Code of Conduct outlines 55 practical principles linked to FX market behaviour, closer to home the Banking and Finance Oath (BFO) is based around personal ethics where signatories are encouraged to live them in their professional life and outside of the workforce.
Former APRA chairman John Laker chairs BFO Limited and the board consists of some of the nation's finance heavyweights. Initially set up in the wake of the GFC as a reaction to what was happening internationally and to set Australia's finance sector apart from the poor behaviour of its international siblings, it is now firmly back in the spotlight 'Unfortunately, we've now had a series of misconduct and misbehaviour coming to light on a reasonably steady basis across all sectors of the industry and while the oath has always been relevant, I doubt its original parents would have thought how relevant it would become," Laker says.
''What the oath can represent in the wake of the royal commission is part of a broad initiative needed to restore trust in our financial institutions. It is a strong statement of integrity and a natural complement to a broader process.
"It's an elegant statement of aspirations and values but they're demanding principles. They're not set and forget so while the royal commission may look at regulatory changes, we see the oath as a form of self-reflection different to regulation and compliance. It is meant to encourage individuals to think on their own and to reflect on their own values in their lives and professional careers."