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

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:

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.

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.

Author: Howard Rapke

Contacts:

Melbourne

Howard Rapke, Managing Partner 
T: +61 3 9321 9752 
E: howard.rapke@holdingredlich.com

Sydney

Greg Wrobel, Partner 
T: +61 2 8083 0411 
E: greg.wrobel@holdingredlich.com

Brisbane

Paul Venus, Managing Partner 
T: +61 7 3135 0613 
E: paul.venus@holdingredlich.com

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The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.  

Published by:

Howard Rapke

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