Australian Financial Services Research Articles

Dynamic capabilities for nimbleness and resilience in a continuous digital transformation: action design research in an Australian financial services organisation

PurposeThe research aims to understand the co-existence of nimbleness and resilience in a continuous digital transformation, along with the dynamic capabilities needed to balance the challenges of their co-existence.Design/methodology/approachThe current study draws on dialogical action design research (D-ADR) to investigate interactions among practitioners and executives. Data are collected from a major Australian financial services organisation (FSO) and many international experts.FindingsThe study presents a framework, the continuous transformation model (CTM), to describe digital transformation within an FSO context, emphasising nimbleness and resilience as its foundational pillars. This framework facilitates the identification of the critical role of organisational capabilities in managing continuous digital transformation, supported by dynamic IT capabilities. More importantly, the findings underscore how these capabilities enable managers to effectively balance the coexistence of nimbleness and resilience.Research limitations/implicationsThe CTM contributes to the enterprise information systems literature by offering a coherent understanding of balancing resilience and nimbleness to succeed in digital transformation. In particular, the research model elucidates the relationship between dynamic capabilities and continuous digital transformations.Practical implicationsDigital transformations are not a one-off exercise. Managers in the FSO context must cultivate their organisational capabilities to achieve nimbleness and resilience during their digital transformation journey.Originality/valueThe relationship between dynamic capabilities and continuous digital transformation sheds light on establishing successful management processes within FSOs.

Did Emotional Intelligence Traits Mitigate COVID-19 Uncertainty Effects on Financial Institutions’ Board Decision-Making Process?

This study uses a qualitative research mixed methods design to explore the Coronavirus pandemic’s uncertainty effect on mature board governance practices and a board decision processes framework within 16 large Australian financial services entities. Findings provide support for two effects. Firstly, the Coronavirus pandemic had led to a hesitation effect on the board members on-going journey of developing a conscious sense of ‘self’ and awareness. Secondly, the skills and diversity of personalities of directors comprising the board has a positive impact on the effectiveness and success of strategic decisions. The ongoing ambiguity impact of the Coronavirus pandemic on effective board decision-making processes was investigated. The board members expressed confidence in the Australian financial services sector’s ability to overcome the global Coronavirus pandemic’s temporary uncertainty impact on board decision processes frameworks. Future research may extend the focus to senior executives’ or owners’ EI personality traits to investigate the relationship between such individual’s or teams’ traits and ongoing effective board decision-making processes during uncertainty in either developing or developed countries or a cross-cultural study.

Risky business: understanding the green voice behaviour of Australian professionals

PurposeAs Australians experience more fierce and frequent natural disasters, there are urgent calls for businesses to meaningfully respond to climate change. Australian financial and professional services employees occupy an ambiguous space as climate mitigation measures have different economic implications for their clients. The purpose of this paper is to investigate how Australian professionals experience climate change and respond to the issue within their workplace.Design/methodology/approachThis mixed methods study applies a systems thinking framework to investigate: how do professionals’ experiences of the issue of climate change and the workplace influence their cognitions, emotions and behaviour? And in particular, what psychosocial antecedents precede voicing climate concern?FindingsFirstly, a survey of professionals (N = 206) found social norms, perceived behavioural control and biospheric values, but not attitudes, significantly predicted prohibitive green voice. Middle managers were significantly likely to voice climate concern, whereas senior managers were significantly likely to express climate scepticism. Ten professionals were then interviewed to gain a contextualised understanding of these trends. Interpretive phenomenological analysis identified five interrelated themes: (1) active identity management, (2) understanding climate change is escalating, (3) workplace shapes climate change response, (4) frustration and alienation and (5) belief that corporations prioritise profit.Originality/valueFindings are discussed in relation to how employees may both embody and adapt their organisations. These results have implications for understandings of workplace meaningfulness and organisational risk governance.

Concurrent 24. Presentation for: Looking down the (oil) barrel of a class action?

Presented on Thursday 19 May: Session 24 Class actions against oil and gas companies are nothing new. More than 15 years ago, Esso settled the action against it by businesses suffering property damage and economic loss from that damage following the Longford gas explosion for $A32.5 million. There have been other class actions following oil spills, and others by shareholders for alleged breaches of continuous disclosure obligations. With the focus of investors increasingly on climate change disclosure, and some courts now finding expanded duties of care owed in relation to climate change, oil and gas companies can expect to see more actions in the future, including claims of ‘greenwashing’, like the one issued by a shareholder against Santos in August 2021 relating to statements made in Santos’ 2020 annual report. This paper provides some practical tips for companies facing class action proceedings, including preparatory steps which can be taken, such as establishing internal and external teams, dealing with insurers, as well as preserving and locating relevant documents. It provides recommendations about appropriate internal and external communication about the claim so as to avoid issues like waiver of legal professional privilege and PR problems, and it addresses some enquiries which should be made about opponents, as well as the judge assigned to the matter. Specific considerations arise in funded class actions, in light of recent regulatory changes. Early checks should be made as to whether the litigation funder holds an Australian Financial Services Licence and whether the funding arrangement has been properly established as a managed investment scheme. To access the presentation click the link on the right. To read the full paper click here

Looking down the (oil) barrel of a class action?

Class actions against oil and gas companies are nothing new. More than 15 years ago, Esso settled the action against it by businesses suffering property damage and economic loss from that damage following the Longford gas explosion for $A32.5 million. There have been other class actions following oil spills, and others by shareholders for alleged breaches of continuous disclosure obligations. With the focus of investors increasingly on climate change disclosure, and some courts now finding expanded duties of care owed in relation to climate change, oil and gas companies can expect to see more actions in the future, including claims of ‘greenwashing’, like the one issued by a shareholder against Santos in August 2021 relating to statements made in Santos’ 2020 annual report. This paper provides some practical tips for companies facing class action proceedings, including preparatory steps which can be taken, such as establishing internal and external teams, dealing with insurers, as well as preserving and locating relevant documents. It provides recommendations about appropriate internal and external communication about the claim so as to avoid issues like waiver of legal professional privilege and PR problems, and it addresses some enquiries which should be made about opponents, as well as the judge assigned to the matter. Specific considerations arise in funded class actions, in light of recent regulatory changes. Early checks should be made as to whether the litigation funder holds an Australian Financial Services Licence and whether the funding arrangement has been properly established as a managed investment scheme.

The professionalization of financial planning in Australia: an institutional logics perspective

PurposeThis paper researches the professionalization of financial planning in Australia. The authors investigate how the institutional logic of major institutions inhibits this occupation from moving toward a professional status.Design/methodology/approachThe study uses documentary analysis of government inquiries into Australian financial services from 1997 to 2017 to ascertain the various institutional logics relating to the professionalization of financial planning. The method involves generating ideas from the data and applying an institutional logic framework to make sense of impediments to the professionalization of financial planning in Australia.FindingsThe regulator adopted a self-regulation logic that empowered financial institutions to govern financial advice. These financial institutions have a logic of profit maximization that creates conflicts of interest in financial planning. The financial planning professional bodies adopted a logic of attracting and retaining members due to a competitive professional environment. Thus, financial planners have not been defined as fiduciaries, professional standards have not increased and an ineffective disciplinary resolution system exists.Research limitations/implicationsThis research illustrates the various institutional logics that need to be addressed to professionalize financial planning in Australia. However, the data used is limited to that drawn from the parliamentary inquiries.Originality/valuePrior research on the emergence of professions such as accounting has shown that financial institutions are sites of professionalization. This research shows that financial institutions impede professionalization in financial planning. Also, where the state granted legitimacy to other professions, this research indicates that the state regulator's logic of self-regulation has not legitimized financial planning.

Disclosure effectiveness in the financial planning industry

PurposeScandals in the Australian financial services industry highlight the conflicts of interest between those who provide financial advice (financial planners) and their clients. Disclosure is a potential governance tool to manage these conflicts of interest by reducing asymmetries in information. Yet, the efficacy of disclosure is questionable as scandals persist, so this paper aims to research the effectiveness of disclosure in financial planning.Design/methodology/approachThis research used a qualitative approach involving the triangulation of data from parliamentary inquiries in financial services with data collected in semi-structured interviews with financial planning professionals.FindingsThe findings draw a clear portrayal of the disclosure requirements and illustrate how disclosure processes are onerous and complex. Starting with detangling the complex interactions between the beneficial role of disclosure in reducing information asymmetry and unethical behaviour and the detrimental effect of information overload, the authors then highlight effective disclosure techniques used by financial planners, including visualisation of material information. The study reveals that financial planners perceive their role as filtering information for clients and ensuring clients’ comprehension, due to the onerous disclosure requirements.Research limitations/implicationsThe study is of interest to researchers, practitioners, policymakers and society as it implies that how disclosure occurs is as important as what information is disclosed. Those who wish to foster effective disclosure in the financial services industry need to consider the quantity, quality and process of disclosure. A limitation is the research focusses on financial planning practices and not client outcomes, which could be considered in future research.Originality/valueThe study adds to the understanding of how disclosure is used as a governance tool and how the quantity of information may impede the effectiveness of disclosure in the financial planning industry. In addition, the study identifies and elaborates on the influential factors and best practices for enhancing the disclosure effectiveness by financial planners.

Occupational boundaries: Gender capital and career progression in the financial planning industry

AbstractGender inequality and occupational segregation in Australian financial services present a stark disparity, with men working as financial planners and women being over‐represented in lower‐paid administrative positions. This article uses a gender capital theoretical framework to examine gender segregation between financial planning and paraplanning occupations. Analysis of interviews with 26 financial professionals suggested that masculine capital, including confidence and persuasive soft skills, marked success as a financial planner. Feminine capital, including organizational skills, was aligned with the role of paraplanner. These findings contribute a new perspective on why gender segregation occurs in financial planning. These findings bear relevance as financial planning professionalizes.

Representative account or greenwashing? Voluntary sustainability reports in Australia's mining/metals and financial services industries

AbstractWhy are more and more companies voluntarily issuing costly, potentially exposing standalone sustainability reports on environmentally and socially problematic issues? Using legitimacy theory, this study analyses ways companies seek to strategically enhance legitimacy by leaning towards either ‘representative’ reporting of both favourable and unfavourable information especially in an industry's highest impact domains, or ‘greenwashing’ (including whitewashing non‐environmental issues), which downplays unfavourables and high‐impact domains and highlights favourable but less relevant points. Content analysis compared Global Reporting Initiatives (GRI) reports from 2011 to 2019 by Australian financial services companies (107 reports) and mining and metals companies (122). Specifically, to critique reporting quality in fine grain, it disaggregated results into levels (from omission to full quantitative treatment) of disclosure of good/bad/neutral news indicators and violation‐related/non‐violation‐related ones and identified highest impact domains. Neither industry's reporting was very representative. Relatively though, mining and metals leant towards representation: fuller disclosure on environmental aspects (its highest impact domain), including unfavourables: bad and violation‐related indicators. Financial services companies only led in disclosing neutral social indicators, not bad or violation‐related ones, so leant towards greenwashing. Results also suggest that after the GRI clarifying materiality principle in 2016, financial services disclosure quality dropped further by de‐emphasising environmental without lifting social disclosures, while mining and metals' stayed unchanged. The results confirm and better specify widely indicated reporting weaknesses, contributing to content analysis methodology and legitimacy theory. This arms guideline setters, investors and other stakeholders to better evaluate/design reports and might encourage firms to voluntarily improve disclosures.

Australia’s Licensing Regimes for Financial Services, Credit and Superannuation: Three Tracks Toward the Twin Peaks

Licensing regimes form an integral part of Australia’s Twin Peaks system of financial regulation. This article surveys three of the different licensing regimes that were particularly relevant to the Financial Services Royal Commission: the Australian Financial Services Licence (AFSL); the Australian Credit Licence (ACL); and the Registrable Superannuation Entity (RSE). Taking into account the recent changes to regulation of superannuation in the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth), the article analyses the structure and content of these three regimes, and their broader regulatory context, to determine whether there is scope to consolidate, rationalise, and harmonise these licensing regimes. From that survey, the article concludes that there is scope for rationalisation of the AFSL and ACL regimes, but that the RSE licensing regime should continue to be separate.

The Australian Government is Justified in Establishing a Single Disciplinary Body

ABSTRACT Published empirical research (McInnes 2020) proves licensing financial advisers through multiple profit-driven Australian Financial Services licensees contributes to conflicts of interest by association. Government’s response is to regulate advisers by adopting a single disciplinary body (Frydenberg & Hume 2019) to professionalise advisers like established professions. This paper supports Government’s move to implement this body (Taylor 2020c; Maddock 2020), albeit delayed by COVID-19 (Taylor 2020a), by using the evidence published in a Routledge book (McInnes 2020). It aims to motivate advisers to work with policymakers to reshape financial advice into a true, accredited profession to address the problem of conflicted association, to make advice accessible (Marsh & Phillips 2019) and conflict free, while also dismantling costly compliance legislation (Smith & Sharpe 2020).

Surveying the Use of Pharmaceutical Cognitive Enhancers in the Australian Financial Services Industry

The non-medical use of pharmaceuticals such as methylphenidate and modafinil for cognitive enhancement has been explored in college students, medical students and various professions in the US and Europe. We present results of an anonymous online survey of such use among members of the Australian financial services industry. Our hypothesis was that industry sectors would report different preferences for different drugs, reflecting different workplace task demands. The survey was advertised to industry groups, online media articles, and social media outlets between September 2016 and October 2017. Industry sector, hours worked per week, and other demographic and personal health factors were also surveyed. 372 responses were received, of which 140 were valid and complete, and 69 were variously incomplete but usable. Different sectors of the financial services industry reported significantly different rates of use among colleagues. Respondents from different industry sectors also nominated different substances as most prevalent with significantly different frequencies. There was a significant difference in reported hours slept per night between those who reported workplace use and those who did not. A number of side effects were also reported, including headaches and mood swings. This is an important first step in exploring the use of attempts at pharmaceutical cognitive enhancement in competitive professional workplaces with diverse task demands.

The shifting corporate culture in the financial services industry: Explaining the emergence of the ‘culture of greed’ in an Australian Financial Services Company

In Australia in 2018, a Royal Commission investigating misconduct within the financial services sector uncovered systemic problems associated with the provision of financial services. The Commission concluded that the causes of the problems identified lay with the systems and cultures cultivated by the businesses involved. An analysis of the environment in which financial services firms evolved provides greater understandings of corporate behaviour in this regard. The conclusion drawn is that in the post deregulation environment a number of factors combined to produce settings in which undesirable behaviours could occur. Competitive pressures led to unwise business decisions. Associated with this, turnover at the executive level led to a lack of continuity and a loss of corporate memory with its associated value structures. Combined with an emphasis on short term outcomes this resulted in behaviours that were contrary to ethical business codes.

Treating Vulnerable Consumers ‘Fairly’ When They Make a Complaint About Banking or Finance in Australia

The Australian Financial Services Reform Act 2001 (Cth) requires that licenced banking and financial services providers establish internal dispute resolution (‘IDR’) systems complying with requirements promulgated by the Australian Securities and Investments Commission (‘ASIC’). In addition, licence holders are required to be members of an ASIC approved External Dispute Resolution (‘EDR’) scheme so that if a complaint is not resolved following the use of internal mechanisms, an external dispute resolution facility is available for most banking consumers. In late 2018, a new EDR body was established, the Australian Financial Complaints Authority (‘AFCA’), to deal with external complaints. The 2018 Royal Commission into the banking and finance sector uncovered significant issues in terms of the banking and financial sector and raised a number of serious concerns that were largely linked to how consumers contracted with banks and other organisations however information about existing complaint handling arrangements was limited. In particular, there was little demographic information about consumers who use IDR and EDR arrangements or what factors may be relevant in terms of the settlement of complaints and disputes. In this regard, currently sections 912A(1)(g), (2) of the Corporations Act direct the form of AFSL holders’ IDR and EDR systems, but they do not impose any obligations on AFSL holders in terms of conduct when providing the systems. In terms of consumers more generally, it is unclear how many consumers could be classified as ‘vulnerable’ and may settle a dispute on less favourable terms because the impact of proceeding may place them in an even more disadvantageous position. It is suggested that better reporting in relation to IDR and EDR activity together with targeted independent advocacy services and training of relevant staff in respect of the Australian Consumer Law could assist consumers and enable more effective reporting of misconduct issues.

Applying design thinking in a hierarchical organisation

Many large financial services organisations are seeking to develop their employees’ design capability to develop innovative customer solutions. Yet, there appears limited understanding on how individual employees (without a background in design) view the relationship of design thinking to innovation. This study investigates how employees perceive design thinking and its potential link to drive innovative practices within a large Australian multinational financial services organisation. An exploratory qualitative approach used face-to face semi-structured interviews with diverse participants from across the organisation. A modified existing design capability framework was used to map each individual’s perspectives and illustrate the organisation’s current DT and innovation capacity. Findings from this study contribute new insights regarding employee perceptions and design capability requirements

Welfare meeting financial services: The Cashless Debit Card dichotomy

Australia has been developing and expanding its policies on compulsory income management. This has culminated in the introduction of the Cashless Debit Card. This card is intended to reduce access to discretionary cash that people may receive as part of their welfare payment. The limitation is designed to block people from accessing any services linked to alcohol and gambling. However, the introduction of this card means that welfare now falls under the Australian financial services arena. This article analyses the dichotomy that exists as a result of this intersection and focuses on highlighting inconsistencies between the two regimes.

Deconstructing Digital Currency and Its Risks: Why ASIC Must Rise to the Regulatory Challenge

Digital currency is a ‘disrupter’ of financial services and currency markets, and as such presents new regulatory challenges. International regulatory responses to digital currency range from being largely ignored in some jurisdictions to being banned in others, with most jurisdictions charting a middle course of ‘wait and see’ while attempting to deal with pressing issues (such as taxation liability and potential money laundering and terrorism financing issues). This article explains digital currency, its benefits, its problems, its risks and the regulatory response so far. It analyses the extent to which the Australian Securities and Investments Commission (ASIC, the national securities regulator) may or may not have regulatory power and jurisdiction under existing Australian law, and the role of other relevant regulators and institutions. It concludes that digital currency may well be a ‘financial product’ under Corporations Act 2001 (Cth) s 763A (though many suppliers/issuers of that product will be website operators located outside Australia). If it is a financial product, ASIC would also have jurisdiction over issuers and markets that trade in that product. This conclusion could easily be fortified by legislative confirmation; however, it is suggested that ASIC should in all events test its powers to determine whether any legislative change is needed. Regulation by ASIC would add to recent moves to deal with digital currency by the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Taxation Office (ATO). In all cases, this article argues that the time has come for Commonwealth regulation of digital currencies by ASIC as the relevant regulator. This would then trigger the obligations set out in the Corporations Act and the ASIC Act, including Australian Financial Services Licensing, Australian Market Licensing, standards of efficiency, honesty and fairness, disclosure provisions, possible market offences and corporate regulation generally. The suggested jurisdiction of ASIC would build on its existing role as well as the roles of the Australian Competition and Consumer Commission, the ATO and AUSTRAC.

Legitimacy in Australia’s Financial System External Dispute Resolution Framework: New and Improved or Simply New?

The new Australian Financial Complaints Authority (‘AFCA’) has become an important and influential fixture in the Australian financial services landscape. It must be regarded as legitimate in order to adequately fill this role. This article examines AFCA’s legitimacy, by reference to the predecessor schemes on which it was modelled, to assess whether recent reforms to the financial system external dispute resolution (‘EDR’) framework have rectified previously existing legitimacy gaps and, consequently, improved the EDR framework. Considering AFCA’s largest predecessor scheme, the Financial Ombudsman Service, provides evidence that certain features of EDR schemes’ informal justice model potentially give rise to legitimacy gaps with accompanying adverse consequences. AFCA’s underpinning legislation and rules are closely scrutinised to ascertain the likelihood of these adverse consequences continuing, notwithstanding recent reforms. Mitigating factors and further items for consideration are proposed, noting that adaptability built in to AFCA’s design eases the way for further legitimacy-constructing reforms, if needed.

Flexible Work: Barrier to Benefits?

ABSTRACT The Australian financial services industry has been a leader in offering flexible work policies, positioning them as a solution to the tensions between women’s dual work and family roles. While Australian legislation provides the right to request flexible work, this study uncovers how, in one finance organisation, flexible work is framed as an employee benefit within a suite of benefits. The study shows that employees using flexible work arrangements are less likely to understand and know how to access the full range of benefits, many of which have short- and longterm financial implications. This has consequences for the long-term financial security of women (as the heaviest users of flexible work arrangements) and for financial planners, both as employees of organisations in the Australian finance industry and as providers of advice to women working in this sector.

An analysis of challenges to ASIC’s s 920A banning orders against financial services providers in the AAT and the courts

Section 920A of the Corporations Act 2001 (Cth) provides ASIC with a flexible power to ban individuals from the Australian financial services industry on a number of grounds. The objective of this power is to protect consumers through upholding compliance with the law and adherence to professional standards. Banned individuals may apply to the Administrative Appeals Tribunal (AAT) to review the merits of such decisions, and on limited points of law such cases may be further appealed to the Federal Court of Australia (FCA). This article analyses the practice of the AAT and the FCA in determining challenges to s 920A banning orders. The 50 AAT cases examined in the article provide interesting examples of misconduct by financial advisers, stockbrokers and traders, insurance brokers and operators of investment schemes. The article shows that whilst the AAT has shown a flexible approach in considering the circumstances of each banning (setting aside four bans and varying the length of 15 bans), it has nevertheless exhibited a firm approach in the other 31 cases in affirming bans following serious misconduct. The article concludes by suggesting some minor reforms to further enhance the range of protective enforcement tools available to ASIC.