Australia: Why executives - and former executives - in the banking, superannuation and financial services sectors should be on standby for scrutiny

Last Updated: 25 January 2018
Article by Howard Rapke

Most Read Contributor in Australia, August 2018

As the business world kicks into action for the new year, there may have been little rest over the holidays for directors and officers in the banking, superannuation and financial services industry.

Told just before Christmas that they would be subject to scrutiny as part of the Federal Government's Royal Commission into misconduct in the Banking, Superannuation and Financial Services Industry – for conduct as far back as the beginning of 2008 – it is likely that plenty of reflection is currently taking place for some.

The Royal Commission, to be conducted by Ken Hayne QC, has requested that a wide variety of financial institutions identify any misconduct by the entity (including by its directors, officers or employees or by anyone otherwise acting on its behalf) and if so, the nature, extent and effect of that misconduct.

Misconduct, as defined by the formal terms of reference, may include having broken a Commonwealth, State or Territory law, misleading or deceptive behaviour - or both, breaching trust or duty or unconscionable conduct, or a breach of professional standards.

Accordingly, banks, insurers and superannuation funds, and indeed any entities that fall within the definition of 'financial services entities' may well have had cause to reflect over the Christmas and New Year period as to what misconduct they may want to own up to, when to not do so may mean that at some later stage (depending on what matters surface during the course of the Royal Commission) they could be criticised for not doing so.

Having been involved in eight Royal Commissions myself and acting generally in the regulatory and investigations field, this request prompts two key issues:

  1. What is to occur if a corporation (be it a bank, insurer or a superannuation entity) chooses to disclose any matters of misconduct which are likely to directly impact on individual directors, officers or employees. It could be that employees may not be so keen to have such items disclosed but the corporation considers it is in its best interests to do so within the 'headlights' of the Royal Commission.
  2. Accordingly banks, insurers or superannuation entities may then want to make sure that, if they are to in effect self report, individual directors, officers and employees may need to have their own legal advice and be separately represented before the Royal Commission.

It cannot be forgotten that although banks, insurers or superannuation entities may be the subject of media coverage resulting from the Royal Commission, if there are subsequent prosecutions bought by regulators for matters resulting from the Royal Commissioner's final report, the biggest impact is upon individuals, not corporations.

Corporations may be obliged to pay fines, they may be the subject of some publicity and there may be an impact upon their share price but it is individuals whose careers and reputations may be seriously affected.

Finally, it should not be forgotten that directors and officers (D&O) insurance may well respond in providing coverage for fees incurred in obtaining proper representation before the Royal Commission.

This is very relevant when QC's who may be retained to appear at a Royal Commission may be charging $10,000 or more per day, as well as the significant cost of solicitors fees. D&O insurance is for the 'rainy day' situation.

It may well be that it is timely for directors and officers to refresh their familiarity with the terms of the D&O policies, or to become familiar if they have not done so to date, once it becomes apparent that they may be called before the Royal Commission.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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