The Oath

Trust is the foundation of my profession.

I will serve all interests in good faith.
I will compete with honour.
I will pursue my ends with ethical restraint.
I will help create a sustainable future.
I will help create a more just society.
I will speak out against wrongdoing and support others who do the same.
I will accept responsibility for my actions.

In these and all other matters;
My word is my bond.

The Vision


A banking and finance industry that
meets the community’s needs and has its full confidence thereby fulfilling its integral role in society.
The former chairman of the Australian Prudential Regulation Authority made his first public comments since co-authoring the devastating report on Commonwealth Bank's culture and governance failings.
"In any financial institution, organisational culture is squarely the responsibility of boards, in the first instance," Dr Laker said.

The comments come ahead of appearances at the Hayne royal commission over the next fortnight by CBA chairman Catherine Livingstone and National Australia Bank chairman Ken Henry, who are preparing to be grilled on culture and accountability.

Dr Laker backed recent observations made by Dr Henry on the ABC that banks exist primarily for their customers, rather than shareholders.

Dr Laker said commissioner Kenneth Hayne's interim report had highlighted the "need to focus on sustainable, long term results, balancing all stakeholders' interests, not just the realisation of short-term profitability".
"We all accept now the royal commission has determined the financial services industry has broader obligations to society and the economy, as well as shareholders," Dr Laker told an event organised by Criterion Conferences, attended by representatives of the major banks, regulators and the Reserve Bank on Wednesday.

All of the major banks are now benchmarking themselves against the findings in the CBA prudential inquiry, due with APRA shortly, but Dr Laker said they shouldn't expect regulators to have the answers for improving culture; rather, that's the responsibility of banks' top-level leadership.
 
The CEOs of all the major banks, Macquarie and the regional banks will also front Commissioner Hayne from next Monday to respond to a litany of failures exposed by the inquiry.
 
"The purpose and broader social responsibly of financial services appears to have been lost in these cases. The organisation cultures that condoned, or even encouraged, such behaviour are fraught and if they have not already been weeded out, they need to be," he said.
 
"Financial institution participants, in succumbing to these failures, appeared not to have a sense of professional responsibility to behave in ways to protect customer and counterbalance any tendency towards greed."
 
While culture itself is an "inherently complex force, particularly for a large financial institutions", Dr Laker said the "tone is set from the top".

The culture review

Despite regulators around the world focusing more on risk culture, he said banks should not "look to policy makers to develop a prudential standard you can tick" and "don't expect supervisors to determine an institution's culture… It is the institution itself that must shape and name its culture."
Yet the same event heard from the head of governance, behaviour and culture at the Dutch central bank, Wijnand Nuijts, which described how De Nederlandsche Bank (also the prudential regulator) has created a special supervisory team including behavioural psychologists, who conduct culture reviews in all major financial institutions in the Netherlands to identify risks inherent from poor board and management decision-making processes.
 
The Finance Sector Union, in its submission to the Hayne interim report, has called for a new cultural review section to be created within APRA "empowered to conduct regular culture reviews of the kind undertaken in the Netherlands DNB should be imposed on APRA".
Dr Laker declined to comment on whether the Dutch model should be created in APRA.

Banks are expecting Commissioner Hayne next week to hone in on remuneration polices, including the practical operation of "balanced scorecards", after his interim report suggested reforms to reduce sales-based incentives for front line staff need to be made higher up the chain.
"Eliminating incentive based payments for front line staff will not necessarily affect the ways in which they are managed if their managers are rewarded by reference to sales or revenue and profit," the interim report said.
Dr Laker said boards and senior executives must "drive the tone through the middle" but this is easier said than done because efforts often meet the "permafrost of middle management".
He described the "stark conclusion" in the interim report that trust had been eroded due to the pursuit of greed.
 
"Short-termism, particularly when incentivised by remuneration arrangements that gave excessive weight to short term financial results at the expense of customer outcomes, is always cited as a major factor" of bad behaviour, Dr Laker said.
 
It was fair to challenge this by asking, "isn't the pursuit of profit meant to drive the market economy and doesn't acting in ones self interest help to maximise society's welfare?"

More than invisible

However, he said banks appear to have lost perspective on the teachings of economist Adam Smith. While advocating for a free market, Smith also argued it should be based on ethics, including trust, and sympathy for others, as identified in his Theory of Moral Sentiments.
 
"In the financial services industry, Smith's invisible hand does not seem to have guided us to an inherently moral market place," Dr Laker said.
 
"Financial institutions, in many places, still have some way to go in embedding a clear customer focus in the governance framework and in risk management and decision-making processes."
Commissioner Hayne's interim report had been "painful reading for all of us who are committed to strong and trustworthy financial services industry in Australia," Dr Laker admitted.
But the "harsh spotlight of the royal commission has raised the question of how to improve culture and conduct, which is perhaps more relevant today given the community's patience is being sorely tested."
 
Culture repair would be a long term project, and will need to focus on improving accountability, management communication and incentives, including recruitment processes and how bankers are promoted.
 
On the ABC last Thursday, Dr Henry said banks needed to ask a "profound question": "Why do we exist and to whom do we owe a responsibility?"
 
"Do we exist in order to make profits and do we see our customers as the means by which we make profits for our shareholders, or instead, do we exist because of our customers, and do we see our shareholders as providing the means by which we deliver for our customers an exceptional service for our customers?" Dr Henry asked.
 
NAB had a strong conviction "the reason we exist is because of our customers," he added.
But Dr Laker said: "That question, obviously, was not asked in many cases."