Assessment Task 2

Essay: Learning a Lesson from Corporate Failures: The Need for a ValueBased
Compliance Management System

A. An Overview of the Financial Services Sector in Australia

Australia has a complex money related administrations part and is in a perfect world
situated as a middle for the Asia-Pacific locale. This is shown by profound and fluid
money related markets and territorial authority in speculation the board just as in zones
including foundation financing and organized items. The quality of the money related
administrations division is supported by an ordered retirement funds conspire, very
talented and multilingual workforce and propelled business framework. Exceptionally
created budgetary markets make Australia one of the real focuses of capital markets
movement in Asia. Supporting a lot of Australia's monetary administrations quality is the
development of its venture subsidizes area. Australia has one of the biggest pools of
contestable assets under administration all inclusive, esteemed at about A$1.3 trillion
(US$850 billion).

Export

The Australian business is hoping to expand on our capacities to exploit rising open
doors in the area and all around, with the dynamic help of the Australian and State
Governments. Australian-based firms are looking to position Australia as an inside for
magnificence for assets the executives. Store supervisors are quickly growing their
tasks the world over, especially in the AsiaPacific locale Australia is perceived for its
advancement and refinement in the arrangement and organization of oversaw
subsidizes items.

Finance

Investors in Australia can also look to Australia’s financial services industry for
investment financing. Financial sector regulation is recognised as world best practice,
and provides a transparent and secure base for expansion within the region.

Investments

Australia offers worldwide money related administrations establishments’ openings in a

quickly growing residential market and a perfect area for overhauling markets in the
Asian time zone. The Australian Government is focused on expanding upon Australia's
solid administrative condition and budgetary part skill, and immovably building up
Australia as a monetary focus in the area. The legislature is taking various activities to
help this target. The administration has passed enactment which has continuously
diminished the retention charge rate on indicated dispersions from oversaw supports
making it a standout amongst the most focused on the planet today. The administration
has initiated a noteworthy survey of Australia's assessment framework, perceiving the
significance of tax assessment for our universal aggressiveness by and large, and for
the intensity of the money related administrations area specifically. The legislature is
additionally taking a gander at open doors for disentanglement of Australia's money
related administrations guideline and arranging common acknowledgment concurrences
with key universal markets. Assentions have just been marked with the United States,
Hong Kong and New Zealand. What's more, the administration has verified Australia's
status as an affirmed goal for venture assets under China's Qualified Domestic
Institutional Investor program. The legislature has gathered a board of specialists
including monetary area agents, driving scholastics and senior government authorities
which – close by a devoted group in the Commonwealth Treasury – will work to
recognize obstructions to internal and outward speculation and create approaches that
will assist Australia with growing its potential as a money related focus.

The following is further information on the financial industry sectors:

 Asset-based finance and leasing

 Funds management/Superannuation
 Hedge funds
 Insurance
 Investment banking
 Payment systems, clearing and settlement
 Private banking
 Private equity/Venture capital
 Retail banking

Asset-based finance and leasing

Australia's asset-based finance and leasing industry is a dynamic part of the country's
financing market with equipment leasing facilitating approximately 40 per cent of the
nation's equipment capital expenditure. The market has attracted a range of global and
domestic competitors offering the full range of products including asset-backed debt
financing, operating and finance leases, vendor finance and structured finance for large
assets such as aircraft and industrial equipment. Global competitors in this market
include non-bank finance companies such as GE Commercial Finance and CIT
Financial, as well as the large corporate banks and manufacturers' captive finance
companies.

Funds management/Superannuation
Leading the Asia-Pacific region, Australia has one of the largest and fastest growing
funds management sectors in the world. The sector is driven largely by the country's
governmentmandated retirement scheme and continues to create new opportunities for
fund managers, service providers and related entities. Further strengthening this
burgeoning sector is the sophistication of Australia's investor base. Retail investors
engage the market with a confidence and know-how that highlights the maturity of the
sector and ensures an on-going demand for cutting-edge products. The sector has
attracted many foreign asset managers, including companies such as Aberdeen,
Allianz, AXA, BNP Paribas, CAAM, Credit Suisse, Fidelity, Invesco, Schroders, State
Street and Vanguard. Australian legislation enables single entities to have overall
responsibility for managed investment schemes and provides a clear framework for
funds managers and investors by simplifying the investment process and streamlining
legal obligations.

Hedge funds

Australia’s hedge fund industry, underpinned by Australia’s globally significant

investment management industry, has grown rapidly in recent years to become the
largest in Asia. Hedge fund managers in Australia offer a wide range of strategies
including: long/short; relativevalue; arbitrage; event-driven and macro strategies in
global and regional equities; fixed income/credit; derivatives and futures. Australia’s
hedge funds industry has attracted, and is supported by, strong service providers. Their
provision of risk assessment, unit pricing and operational procedures within the sound
regulatory and governance framework that underpins Australia’s financial services
industry is an important aspect of the Australian hedge funds industry.

Insurance

Australia has a developed, sophisticated, well regulated and highly competitive

insurance sector. Australia's insurance market is generally segmented into three
sectors:

 Life insurers – offering risk related insurance and pension products (referred to
as superannuation products)
 Health Insurers – offering private health insurance to compliment Medicare, the
Australian government health care scheme
 General insurers – offering all insurance other than life and health insurance.

The life and general insurance markets have a mix of strong domestic and international
competitors, while the private health insurance is predominantly domestic with a
significant number operating as not-for-profit entities. The sophistication of the
Australian insurance market has attracted a number of leading international competitors
including brokers (AON, Marsh, Willis, JLT), underwriters (Allianz, BUPA, Zurich, AMP,
AXA, Tower, MetLife) and reinsurers (General Re, Munich Re and Swiss Re).

Investment banking
Australia has a well-developed, world class investment banking sector. Most of the
world's leading institutions offering investment banking services have a presence in
Australia, with several using Australia as a base for activities within the Asia-Pacific
region. And many more niche players continue to enter the market. These institutions
offer the full range of investment banking services and products, including corporate
finance, capital markets, private infrastructure financing, structured finance, offshore
funding, derivative markets, underwriting, securitisation, and corporate advisory
services. The Australian Prudential Regulation Authority (APRA) provides information
on licensing and the regulation of banking businesses in Australia. Australia's financial
markets are among the largest, fastest growing and most sophisticated in Asia. The
country is a regional leader in a range of products including asset backed securities,
Real Estate Investment Trusts (REITs), exchange traded and over-the-counter (OTC)
derivatives, corporate bonds and hedge funds.

Payments, clearing and settlement systems

The Australian payment, clearing and settlement systems contribute to the smooth
functioning of the economy by providing a service that is safe, efficient, and reliable.
The environment consists of five main categories of payments and related systems for
clearing and settlement:
 Cash transactions, including notes and coins, are cleared via the Australian Cash
Distribution Exchange System (ACDES)
 Paper transactions, encompassing cheques and other paper based instruments,
are cleared via the Australian Paper Clearing System (APCS)
 Direct entry transactions, including direct entry (DE) credit and debit, and
electronic data interchange (EDI), are cleared via the Build Electronic Clearing
System (BECS)
 Consumer electronic transactions, which covers automated teller machines
(ATMs), credit and debit cards, electronic funds at point of sale (EFTPOS), and
stored value cards (SMART cards etc.), are cleared via the Consumer Electronic
Clearing System (CECS)
 High-value electronic transactions, which encompasses Clearing House
Electronic Subregister System (CHESS), Financial Transactions Recording and
Clearance System (FINTRACS), Reserve Bank Information and Transfer System
(RITS), and other high-value electronic payment streams, and are cleared via the
High Value Clearing System (HVCS).
 These systems have evolved and adapted for new products and technologies
over time. Private banking despite its relatively small population, Australia has one of
the world's largest private wealth markets. And this market is growing at a rate that
outpaces many of the world's most affluent nations.
The sustained rise in value of Australian equities and other asset classes has
augmented the total pool of financial assets held by Australians.
The composition of private wealth has also changed with the cash component of
wealth decreasing, while holdings of superannuation (pension funds) and equities have
increased. On an individual level, Australia has more high net worth individuals than
Hong Kong and Singapore combined and demand for private banking services is on the
rise.
The majority of the 10 leading global firms now have private banking facilities in
Australia and the increasing sophistication of Australian investors is expected to
encourage more firms to establish private banking operations in Australia.

Private equity/Venture capital

Australia’s venture capital industry has grown significantly in recent years driven by
increased demand from emerging and expanding businesses for equity funding. Private
equity bids are becoming more innovatively structured and the average bid size is
continually rising. An increase in institutional investors seeking alternate investment
options is also seeing an increased flow of funds into private equity. With strong
fundamentals, Australia's private equity market is well-positioned for future growth. The
country's innovative culture and R&D infrastructure is supported by government and
provides a continuous pipeline of ideas and projects. Australian venture capital taxation
law is structured in accordance with international best practice.

Retail banking
Posting a string of strong profit announcements in recent years, Australian retail banks
have enjoyed a period of ongoing prosperity. The four largest domestic banks in the
sector are the domestic banks ANZ, the Commonwealth Bank of Australia, National
Australia Bank and Westpac Banking Corporation. Under the Government's Four Pillars
Policy mergers between these four organisations are prohibited. A number of mid-tier
banks operate in the space. These include St George, Bendigo Bank, the Bank of
Queensland, Adelaide Bank, and Suncorp. There are a number of foreign retail banks
operating in Australia that have been gaining market share. These include ING Bank,
HSBC, Citigroup and Rabobank.
 B. Summary of the regulator and compliance framework for financial services
organisations
Tighter compliance regulations have challenged financial institutions in a variety of
ways. Yet those who adapt best may enjoy a distinct competitive advantage.
Compliance risk has become one of the most significant ongoing concerns for financial-
institution executives. Since 2009, regulatory fees have dramatically increased relative
to banks’ earnings and credit losses (Exhibit 1). Additionally, the scope of regulatory
focus continues to expand. Mortgage servicing was a learning opportunity for the US
regulators that, following the crisis, resulted in increasingly tight scrutiny across many
other areas (for example, mortgage fulfillment, deposits, and cards). New topics
continue to emerge, such as conduct risk, next-generation Bank Secrecy Act and Anti-
Money Laundering (BSA/AML) risk, risk culture, and third- and fourth-party (that is,
subcontractors) risk, among others. Even though a lot of work has been done to
respond to immediate pressures, the industry needs a more structural answer that will
allow banks to effectively and efficiently mature their risk-and-control frameworks to
make them more robust and sustainable over time.

C. Examples of major corporate collapses / examples of breaches

Name Country Date Business Causes

Dick Smith Australia 201 Retail On 5 January 2016, the retailer
(retailer) 6 collapsed and was placed into
receivership. McGrathNicol were
appointed as administrators by the
company's board and Ferrier
Hodgson appointed by the
company's major creditors
National Australia Bank (NAB) and
HSBC Bank Australia.
Bankwest Australia 200 Banking Following the purchase of
8 Bankwest by the Commonwealth
Bank Of Australia (CBA), there
have been calls for a royal
commission specifically into the
conduct of bank following
allegations made that the CBA
engineered defaults of Bankwest
customers in order to profit from
clawback clauses under the
purchase agreement
Onetel Australia 200 Telecomms After becoming one of the largest
1 Australian public companies,
losses of $290m were reported,
the share price crashed, and it
 entered administration. In ASIC v
Rich[1] the directors were found
not to have been guilty of
negligence.
HIH Insurance Australia 200 Insurance In early 2000, after increase in
1 size of the business, it was
determined that the insurance
company's solvency was marginal,
and a small asset price change
could see the insurance company
become insolvent. It did. Director
Rodney Adler, CEO Ray Williams
and others were sentenced to
prison for fraudulent activity.
Qintex Australia 198 Real Qintex CEO Christopher Skase
9 estate was found to have improperly
used his position to obtain
management fees prior to the $1.5
billion collapse of Qintex including
$700m unpaid debts. Skase
absconded to the Spanish resort
island of Majorca. Spain refused
extradition for 10 years during
which time Skase became a
citizen of Dominica

D. Components of typical compliance management system

 Compliance Management Systems (CMS) – Every financial institution is

expected to have an effective CMS that is adapted to its business strategy and
operations. Every exam contains an assessment of an entity’s CMS. Some key
findings include:
 Non-Banks: Non-banks are more likely to lack a robust compliance
management system (CMS) because of:
- Lack policies and procedures
- Lack of compliance audits
- Lack of an effective CMS structure results in a number of violations
- Lack of an unique compliance function
- Lack of training
- Lack of consumer complaint response system
- Lack of monitoring and quality assurance focused on regulatory
compliance
 - Lack of a centralized/consistent approach to quality assurance which
leads to management compliance awareness and focus
 Banks: Many banks have a CMS, but are missing one or more of the key
components of an effective CMS. The supervisory report says that most
deficient systems are due to a lack of periodic internal monitoring AND
independent compliance audits.

There are four control components strong and coordinated, financial institutions
should be successful:

1. Board of Directors and Management Oversight – Communicate clear

expectations, adopt clear policies, and define an appropriately staffed
compliance function.
2. A Compliance Program – A formal, written compliance program with
policies/procedures, training, monitoring and corrective action.
3. A Consumer Complaint Management Program – Responsive to complaints and
inquiries (defines, tracks, monitors, and analyzes).
4. An Independent Compliance Audit – Review if policies and standards are being
implemented.
Other things to keep in mind from the supervisory report:
 Mortgage Servicing Concerns – The new mortgage servicing rules will not
go into effect until January of 2014. However, it appears that those new
rules are already influencing the approach and thought process. The
CFPB points to issues with servicing transfers, payment processing and
loss mitigation management.
 Fair Lending (provision of adverse action notices) – In the Fall 2012
Supervisory Highlights, Fair Lending was an acknowledged top priority.
Continuing upon that same theme, the CFPB states that some lenders are
not complying with various aspects of the adverse action notification
requirements under ECOA and Regulation B. Common errors include:
o Not providing notice of adverse action.
o Not providing reasons for the adverse action.
o Not providing notice within 30 days of receipt of a completed
application.
 Supervision Program Developments & Priorities – Recent guidance from
the CFPB has been focused on Fair Lending (see TRUPOINT Partners’
blog) as well as bulletins concerning auto finance and mortgage servicing.
o New Fair Lending Exam Procedures – launched new baseline
procedures with the hopes of helping financial institutions identify
fair lending risks.
 o Indirect Auto Finance – A compliance bulletin was released in order
to remind lenders of their responsibility in the lending process
(managing and monitoring dealer markups).
o Mortgage Servicing – A compliance bulletin was released to
provide guidance to servicers and sub-servicers relating to transfer
of service (including policies and procedures).
o Risk Based Approach to Exams – They note that exams will be
prioritized based on the areas of greatest risk to consumers.
Therefore, risk assessments are an essential component to this
prioritization. The risk assessments should just focus on an
organization-wide level (market size and risk) review. Risk
assessments should also consider the risk at the product line level
(product size and market intelligence) when appropriate.
E. An Overview of value-based management concepts

Value-based management (VBM) provides a precise and unambiguous metric—value

—upon which an entire organization can be built. The thinking behind VBM is simple.
The value of a company is determined by its discounted future cash flows. Value is
created only when companies invest capital at returns that exceed the cost of that
capital. VBM extends these concepts by focusing on how companies use them to make
both major strategic and everyday operating decisions. Properly executed, it is an
approach to management that aligns a company's overall aspirations, analytical
techniques, and management processes to focus management decision making on the
key drivers of value.
Adopting a value-based mindset and finding the value drivers gets you only halfway
home. Managers must also establish processes that bring this mindset to life in the daily
activities of the company. Line managers must embrace value-based thinking as an
improved way of making decisions. And for VBM to stick, it must eventually involve
every decision maker in the company.

There are four essential management processes that collectively govern the adoption of
VBM. First, a company or business unit develops a strategy to maximize value. Second,
it translates this strategy into short- and long-term performance targets defined in terms
of the key value drivers. Third, it develops action plans and budgets to define the steps
that will be taken over the next year or so to achieve these targets. Finally, it puts
performance measurement and incentive systems in place to monitor performance
against targets and to encourage employees to meet their goals.

These four processes are linked across the company at the corporate, business-unit,
and functional levels. Clearly, strategies and performance targets must be consistent
right through the organization if it is to achieve its value creation goals.

F. Role of values as part of the compliance management system

When it comes to a business and corporate management, compliance refers to the

company obeying all of the legal laws and regulations in regards to how they manage
the business, their staff, and their treatment towards their consumers.

Avoidance of Criminal Charges

This is, perhaps, the most beneficial importance of compliance in a business. No

business wants to face criminal charges for not adhering to the law. There are so many
different regulations and laws in regards to how a business should manage its staff, how
stock is handles, how advertising is handles, the rules of engagement when buying and
selling, rules on negotiating with customers, on employee salary, safety rules, and so
many others. With a proper compliance kit and proper compliance management a
company can stay on the light side of the law. To keep track of all these different
compliance requirements, it is important for a business to have two different things. First
it must have a compliance department headed by a Chief Compliance Officer (CCO)
and this department will monitor all of the compliance guidelines, issues, cases, and
projects. Secondly the company must have a compliance kit. These kits are extensive
software and databases that will automatically keep track of all the information and will
help audit court cases, compliance risk management factors, performance
management, and others.

Building Positive Reputation

The success of your business pretty much depends on its public image. When a
company starts facing several court cases,the general public will lose their trust in the
company and sales in products and services will eventually drop. Compliance will
ensure that a company can uphold a positive image and build consumer trust. This also
helps build consumer loyalty, since customers are more likely going to return to a
service or product from a company they identify as trustworthy. This also helps a
business with sponsors, advertisers, and government requirements. A business that
fulfills regulatory business compliance through successful corporate compliance
management generally gets signed quickly and easily whenever needed. They also pull
through incidents like individual court cases discreetly before it grows into a public
concern.
Higher Productivity in the Company

Internal compliance to safety, wages, employee benefits, compensations, and employee

protection will create a positive environment in the work area. Employees are more
fervent to work when they feel that that they are well compensated for their efforts and
that they are safe within the business’ reach. It is important that internal compliance is
adhered to, since it will ensure that employees are satisfied and that all complains or
issues are monitored and addressed properly before they grow and affect the entire
corporation.

Reference:

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Verafin Inc. (2015). Available at : file:///D:/ACCOUNTING/05%20ASSESSMENT

%20%20A/ass2/mortgage%20choice%20customer%20charter.pdf (Accessed: March 6,
2023)

Arndorfer, I. (2015). How to perform a financial institution risk assessment. Available at :

https://www.bis.org/fsi/fsipapers11.pdf. (Accessed: March 6, 2023)

Devore, J. (2021). What is a Compliance Management System? And Why is it

Important?. Available at: https://blog.screensteps.com/compliance-management-
system-basics. (Accessed: March 9, 2023)

COMPLIANCE EXPERTS. (2022). Essentials For Your Compliance Management

System. Available at: https://www.complianceexperts.com/2015/05/15/14-essentials-for-
your-compliance-management-system/ (Accessed: March 9, 2023)

Kaminski, P. (2017). Sustainable compliance: steps toward effectiveness and efficiency

Available at: https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/
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March 9, 2023)