Poor financial advice, dishonest fees, doctored documents, wronged customers – the Banking Royal Commission needs no further introduction. Now the key priorities of the Banks, who are in the spotlight, are remediating damage already done and dealing with regulator action.
The financial services industry has certainly had a rough half of 2018, and things don’t seem to be calming down. AMP expected to pay compensation to their wronged customers as a result of their failure to provide honest, fair and efficient financial advice, but pressure from the industry may see AMP spend upwards of $70 million on external consultants. The Australian Financial Review has been told that accounting firms KPMG, Deloitte and PwC have all submitted requests to go through more then 70,000 AMP files looking for other examples of poor financial services advice in an attempt to speed up the payment of compensation.
So far, AMP has remediated 16,000 wronged customers costing somewhere around $4.7 million; this is in addition to the five class actions from aggrieved shareholders. AMP has also said it is aware that further examples of poor financial service advice may be identified during this process, details of which will not be made public in light of ASIC’s ongoing investigation. This comes one month after the highly anticipated AGM which saw AMP’s interim chairman Mike Wilkins offer an unreserved apology for AMP’s absolutely unacceptable behaviour.
Meanwhile, last Friday was doomsday for Westpac when ASIC commenced civil proceedings against it in the Federal Court of Australia for alleged poor financial advice provided by one of its former financial planners, Mr Sudhir Sinha. ASIC allege that during Mr Sinha’s employment, he breached the ‘best interests’ duty under the Corporations Act by failing to prioritise the interests of his clients (which has been evidenced in four sample file reviews), and as Mr Sinha’s responsible licensee, Westpac is liable for his contraventions.
Westpac reportedly claimed to have informed ASIC that they already had a significant remediation program underway which had paid out approximately $12 million to wronged customers as a result of Mr Sinha’s breaches.
It is interesting that ASIC has opted to pursue civil proceedings when it has been suggested that even though civil proceedings were designed to be compatible with the ‘responsive regulation theory‘, criminal proceedings still remain the most popular. Between 2001 – 2009, 85 criminal proceedings were commenced compared to just 3 civil proceedings. The theory that ASIC should first consider civil action is not often followed in practice, and it is usually the result of a failed criminal investigation. Having said that, civil proceedings are inherently important to the effective regulation of the industry in situations where criminal proceedings would not ordinarily be available.
The end result for Westpac on this particular point is now in the hands of the Court, with proceedings listed for a directions hearing on Tuesday 19 June 2018.
And financial service providers are now not the only ones being scrutinised; the House Economics Committee has confirmed that as part of the overall review into the financial services industry, they will be reviewing ASIC’s performance and operation to understand how ASIC can be better strengthened to minimise corporate misconduct.