THE fining of the AmBank group by Bank Negara and CIMB Bank’s credit loss of RM280.9 million in 2021 due to a processing error that saw excess funds deposited into thousands of customer accounts appears to reveal the weaknesses, lack of transparency and inability of the BOD to  determine the chain of responsibility in the both groups and take the wrongdoers to task. 

Other incidents of fiduciary negligence have also occurred in the past five years, hardly a surprise. What is surprising is that no one was fingered for prosecution.

Companies act through individuals. Investigating the conduct of individuals is the most efficient and effective way to determine the facts and extent of fiduciary negligence unless the regulators are incapable or unwilling to pursue such cases to their rightful conclusion. 

Instead of focusing on cooperation and use of agreements to hold off prosecution in exchange for penalties alone, resources should allocated with equal proportion to obtain individual convictions. 

It is good to penalise companies for fiduciary negligence but it is not much deterrent. To the companies, the fines are cost of doing business. There is no incentive for the companies to change their conduct. 

Holding individuals accountable serves as better deterrent. Individual accountability deters future illegal activity, incentivises changes in corporate behaviour, ensures that the rightful parties are held responsible for their actions, and instils confidence in our capital markets.

Culpability should extend to independent directors who are elected by shareholders to represent their interests, a class that have not been touched or even mentioned in connection to fiduciary negligence in corporate Malaysia. 
 
Example: during investigations into the collapse of Enron, it emerged that Arthur Andersen, the auditing firm, had supported the deceit by turning a blind eye to questionable accounting practices in order to secure lucrative consulting fees. A report by the Enron board condemned management for inflated profit reports and failure of controls at every level, in which “a culture emerged of self-dealing and self-enrichment at the expense of shareholders, as accountants and lawyers signed off on flawed and improper decisions every step of the way”.

Research into roots and history of fiduciary negligence indicates that the guilty companies includes those who constantly held up their company values as a public relations ploy rather than because of true commitment to them, as well as focus specifically on short-term financial results, often matched with unrealistic performance expectations.

After the settlement by the Ambank group for their role in the 1MDB saga for RM2.83 billion, with no one, collectively and individually, being held accountable, financial payoffs are now thought to be a cost of doing business for companies and banks in Malaysia.

Despite initial reluctance to disclose the extent of the processing error that resulted in an unspecified number of customers’ accounts being credited twice with a duplicate amount, CIMB Bank has on 28 Feb 2022, in announcing its quarterly results, said the bank incurred a credit loss of RM280.9 million in 2021 due to a processing error that saw excess funds deposited into thousands of customer accounts.

The AmBank and CIMB cases are a travesty of justice to the shareholders and the customers of the banks. The two banks have not even apologised, the least they could do for their shareholders and customers.

Maybe it is the culture. None of the banks have expressed gratitude to the taxpayers, whose monies, through Danamodal totaling approximately RM7.6 billion, were used to rescue and recapitalise the banks following the financial crisis of 1996/97. Even though the funds were repaid by 2007 with a final miniscule pre-tax profit of approximately RM200 million only, all these banks takes it for granted that the injection received were from the government and not the tax payers. 

Did the BOD in these banks challenge senior management and hold it to account for their actions and lapses in their responsibilities?

Is it not a crime that customers and shareholders in these banks have to pay for the conduct of the BOD and the senior management for their roles in causing these 2 banks to suffer financial losses? 

Punishment is the only way to modify behavior. Senior management and the BOD should be made to realise that they have to face the consequences for reckless and negligent conduct otherwise actions like the above will continue to be repeated in the future.

What gets rewarded gets repeated. What gets punished gets extinguished. Integrity, honesty and transparency were punished. 

Because they are unpunished, companies and banks are unafraidand unapologetic. 

Bank Negara in its Guidelines on Fit and Proper for Key Responsible Persons sets out that each individual appointed to the position of a director, CEO, any person performing a senior management function who has primary or significant responsibility for the management and performance of significant business activities of the bank and any person who has primary or significant responsibility for key control functions must have honesty, integrity, diligence, independence of mind and fairness and the skills, experience, ability and commitment to do the job.

People need to know that the game is not rigged, that the rule of law does exist, and that even when committed by powerful people, transgressions will not go unpunished. 

Fiduciary negligence can be avoided if those tasked to supervise and manage and compensated handsomely in return, had performed and undertaken their responsibilities in a committed and diligent manner expected from a person or persons tasked with them.

Actions against CEOs and BOD that oversees losses arising from irresponsible and negligent behavior will send a signal to every of their shareholders and customers that will dramatically improve the attitude and responsiveness of BOD and CEOs in their roles in the future.

It is up to the customers and shareholders initiate legal actions against the banks, like nine individuals and three companies have done against CIMB Bank Bhd and CIMB Islamic Bank Bhd recently after their current and saving bank accounts were frozen?

Let’s put forward an agenda that promotes values based and rid companies that abuse shareholders and customers. – March 10, 2022.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.