Causes and Solutions for Misconduct in the Financial Services Industry

This paper reviews the efficacy of the Australian government's 2018 initiatives to counter widespread misconduct identified by its Royal Commission into misconduct in the banking, superannuation, insurance, and financial services industry. As regulators exist to protect stakeholders, there is a need for: (i) regulators to become accountable to them and (ii) the ability of stakeholders to appoint representative bodies to direct and control qualified stakeholder advocates who could also become co-regulators. The role, size, cost and intrusiveness of regulators could be reduced. Regulators could require firms to: (a) remove current unethical conflicts inherent in Anglophone corporate constitutions; (b) establish constructive management of other conflicts; (c) provide independent voice to stakeholders for improving operations, reporting misconduct, harms, risks and/or unsatisfactory service. These changes could provide the means to achieve the outcomes specified in 2018 by the largest global fund manager who has identified the need for “A new model of corporate governance”. The appointment of various classes of stakeholder advocates for the different stakeholder constituencies of each firm offers the prospect of competitive advantages with continuous, more economic, comprehensive, nuanced and reliable control of mismanagement, misconduct and malfeasance than the practice of embedding regulators within a firm