Trust, social licence and regulation: Lessons from the Hayne Royal Commission

This paper takes a critical approach to examining key findings of the Hayne Royal Commission. Social contract theory and institutional theory are used as a lens for this examination. In taking this approach, this paper seeks to address significant questions impacting citizens and the Australian legal and regulatory systems that apply to companies generally and banking in particular. The explanatory power of institutional theory is deployed to deepen our understanding of what we are observing in the banking and financial sector. The primary argument advanced is that the Royal Commission’s recommendations relating to a stronger regulatory response and simplification of the law are supported by the theory. It is the role of the regulator to enforce the institutional rules enshrined in law. Enforcement provides clarity that the law is in fact a rule of the game which is required to influence behaviour. The effectiveness of an institutional rule in influencing behaviour will to some extent turn upon clarity; this too can be enhanced via enforcement.