The financial advice industry will be a testing ground for the securities regulator’s tough new litigious stance on the country’s largest financial institutions, recent disclosures have revealed.
In particular, ASIC’s sharper focus on bringing institutions to account regarding “fee for no service” – commonly associated with advice funded by ongoing commission arrangements – has been made clear this week.
“ASIC is determined to take enforcement action against the major banks and financial service providers and to use all legal powers necessary to investigate the significant issue of fees for no service,” ASIC deputy chair Daniel Crennan QC noted in a statement. The release said that the regulator forced file notes to be handed over as part of an ongoing investigation into AMP Group for fees for no service conduct and related false or misleading statements.
ASIC said Clayton Utz had provided them with its internal file notes from the firm’s interviews with current and former employees and officers of AMP, who were interviewed by Clayton Utz in connection with its report to AMP in October 2017 regarding fees for no service.
The interview notes had been withheld from ASIC by AMP, which claimed the notes were subject to legal professional privilege, a claim ASIC disputed.
“ASIC is pleased that the documents have now been produced but is disappointed that the matter was not resolved sooner,” Crennan said.
ASIC was found to be ineffective at holding institutions to account despite the work it had done leading up to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, a point Commissioner Kenneth Hayne highlighted in his final report.
“Until this Commission was established, ASIC and the relevant entities approached the fees-for-no-service conduct as if it called, at most, for the entity to repay what it had taken, together with some compensation for the client not having had the use of the money. That is, the conduct was treated as if it was no more than a series of inadvertent slips brought about by some want of care in record-keeping,” Hayne noted.
“It is necessary to keep steadily in mind that entities took money (a lot of money) from their customers for nothing. The conduct was so widespread that seeing it as no more than careless must be challenged,” he stated.
ASIC has responded Hayne’s criticisms over its handling of fees for no service this week; in addition to pushing Clayton Utz to hand over its internal file notes relating to its AMP investigation, the regulator has published a detailed report card on actions taken by institutions to rectify their respective fee for no service failures.
“ASIC’s ongoing supervision of the review programs undertaken by AMP, ANZ, CBA, Macquarie, NAB and Westpac has shown that most of the institutions are yet to complete further reviews… beyond those already identified and reported to ASIC since 2013,” it stated.
“These reviews have been unreasonably delayed,” ASIC Commissioner Danielle Press said.
“ASIC acknowledges that they are large scale reviews – they relate to systemic failures over long periods with reviews going back six to 10 years and cover 36 licensees from the six institutions that currently authorise more than 7,000 advisers. However, we believe the institutions have failed to sufficiently prioritise and resource their reviews, particularly as ASIC advised them to commence the reviews in mid-2015 or early 2016,” she said.
The big four banks and AMP have set up programs to compensate customers impacted by the reported failures. Approximately $350 million has been collectively paid or offered to customers who were charged financial advice fees for no service at the end of January 2019.
Additionally, these institutions have provisioned more than $800 million towards potential compensation for further systemic fee for no service failures, even though the reviews are incomplete.