The causes having been identified, the next question is how the entities and regulators have responded to these events.
Those responses must be understood in light of the way in which the issues emerged. That history was set out in the Interim Report but should be repeated here.
In 2014, ASIC started its ‘Wealth Management Project’, a major project focusing upon the financial advice businesses conducted by ANZ, CBA, NAB, Macquarie, Westpac and AMP. In April 2015, ASIC announced that it was ‘investigating multiple instances of licensees charging clients for financial advice, including annual advice reviews, where the advice was not provided’. ASIC said that it would ‘consider all regulatory options, including enforcement action’ where it found evidence of breaches of the law and that it would ‘look to ensure that advice licensees follow a proper process of customer remediation and reimbursement of fees where such breaches have occurred’. As events turned out, however, until immediately before the time the Commission began taking evidence about fees for no service, ASIC had undertaken some investigations and had pursued remediation, but had taken no enforcement action. Rather, as Mr Peter Kell, Deputy Chair of ASIC, said, ‘[m]ost of ASIC’s work in the [fees for no service] project [had] focused on remediation’. And it was not until a few days before those hearings began that ASIC announced:
- first, that it had agreed with ANZ that ANZ would give an EU in relation to the charging of fees for no service; and
- then, a few days later, that it had agreed with CBA that two of CBA’s financial advice licensees (CFPL and BWFA, a CBA licensee that ceased to provide advice in 2016) would give an EU in relation to the charging of fees for no service.
In October 2016, ASIC reported that AMP, ANZ, CBA and NAB had all identified systemic issues in relation to the charging of ongoing fees; Westpac had identified a systemic issue ‘in relation to one adviser only’; Macquarie had not identified any systemic failures in respect of fees for no service.
ASIC said that ‘[m]ost of the systemic failures identified’ had occurred before the FoFA reforms, which became mandatory on 1 July 2013. But the report also revealed that, as at 31 August 2016, compensation arising from fees for no service was estimated to be more than $178 million in respect of about 200,000 customers, and that by 31 August 2016, about $23.7 million had been paid, or agreed to be paid to over 27,000 customers. Between 31 August 2016 and 31 January 2018, the total compensation paid or agreed to be paid and the number of customers affected increased markedly, to the figures given by Mr Kell in his April 2018 statement: more than $216 million and more than 305,000 customers. And, contrary to the tenor of ASIC’s 2016 report, the evidence to the Commission showed that there had been some significant systemic failures after the FoFA reforms.
As I said in the Interim Report, advice licensees may well regard their undertaking remediation programs for clients who had been charged fees for no service as their public acknowledgment of wrongdoing. But, until about March 2018, ASIC’s chief focus had been upon remediation. And the only formal and public steps that ASIC had taken with respect to the issue, beyond issuing its reports and press releases, was ASIC’s acceptance of the ANZ and CBA EUs, just before the Commission began its hearings about fees for no service. Those undertakings went no further than to record ASIC’s ‘concerns’ and the acknowledgment by the relevant entities that those concerns were ‘reasonably held’. As I also said in the Interim Report, this was well short of a full and frank acknowledgment by the entities that what they had done was wrong; there was also no public denunciation of the conduct as wrong.
ASIC’s October 2016 report about fees for no service focused upon advice licensees associated with AMP, ANZ, CBA, NAB or Westpac. The report showed, among other things, that some of the advice licensees had not then completed their review and remediation activities. As the work of the Commission proceeded, it became clear not only that some entities had still not completed their review and remediation activities, but also that the work would have to continue for some time. It is important to record why that is so.
First, some entities appear not to have given the tasks high priority. The work of identifying who should be compensated and how much compensation should be paid is detailed and time consuming. In their evidence to the Commission, some entities recognised that they had given too little attention to these matters and had not done enough work, quickly enough.
Second, some entities began to look for particular kinds of cases where fees were charged for no service only because evidence was led in the Commission about some other entity having charged fees in those circumstances. So, when evidence was led, in April 2018, about Count Financial Limited having charged ongoing fees to dead clients, other entities asked, apparently for the first time, whether they had also done this. So, for example:
- In May 2018, NAB made a breach notification to ASIC and APRA concerning fees it had charged to members following notification of their death. NAB identified this breach after undertaking reviews to confirm whether it had charged ongoing advice fees to members where they were deceased, having become ‘aware of similar issues affecting another finanicial services entity’.
- In June 2018, AMP made a breach notification to ASIC and APRA that, in short, it had retained or not properly refunded premiums charged to members after their death. That breach notification identified 3,124 members with a total of $922,902 in premium refunds owing. At 5 September 2018, AMP had identified that 4,645 customers were affected by this issue, with $1.3 million in premium refunds owing. In the sixth round of hearings, AMP’s Group Executive for Wealth Solutions and Chief Customer Officer, Mr Paul Sainsbury explained that AMP commenced an investigation into whether it had charged deceased members fees after notification of their death following ‘Commonwealth Bank’s circumstances around premiums [for] deceased members’.
Third, some entities proposed what ASIC described as ‘review and remediation processes that were legalistic and not focused on customers’ interests’. Issues of that kind were considered more fully in the case study about NULIS Nominees (Australia) Ltd. As that case study showed, negotiations about these processes could be, and in that case were, protracted.
Fourth, progress appears to have been hampered by deficiencies in record keeping: deficiencies by both the licensee in having access to the authorised representatives’ records, and by the authorised representative in recording whether or not the service was provided.
Until the Commission began to examine these matters, however, compensation appears to have been ASIC’s sole focus. As the Commission’s work proceeded, ASIC’s focus widened. First, ASIC moved to secure the EUs given by ANZ and CBA. In September 2018, ASIC instituted civil penalty proceedings against MLC Nominees Pty Ltd and NULIS in the Federal Court of Australia alleging contraventions of various provisions of the Corporations Act, the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the Superannuation Industry (Supervision) Act 1993 (Cth) in connection with the charging of certain advice fees. And, still more recently, ASIC has said that it is considering other forms of response.
FSRC, Interim Report, vol 1, 124–5.
Exhibit 2.1, Witness statement of Peter Kell, 12 April 2018, 2 .
ASIC, Media Release 15-081MR, 16 April 2015.
ASIC, Media Release 15-081MR, 16 April 2015.
Exhibit 2.1, Witness statement of Peter Kell, 12 April 2018, Exhibit PK-4 [ASIC.0902.0001.3189].
Exhibit 2.1, Witness statement of Peter Kell, 12 April 2018, 11 .
ASIC, Report 499, 27 October 2016, 5 .
ASIC, Report 499, 27 October 2016, 6 .
ASIC, Report 499, 27 October 2016, 7.
Exhibit 2.1, Witness statement of Peter Kell, 12 April 2018, PK-3 [ASIC.0902.0001.3370].
FSRC, Interim Report, vol 1, 125.
Enforceable Undertaking, ASIC and ANZ, 29 March 2018, 5 pt 3; ASIC, Media Release 18-092MR, 6 April 2018; Enforceable Undertaking, Commonwealth Bank Subsidiaries, 9 April 2018, 9 [3.5.5]; ASIC, Media Release 18-102MR, 13 April 2018.
FSRC, Interim Report, vol 1, 126.
ASIC, Report 499, 27 October 2016, 21.
See Transcript, Darren Whereat, 20 April 2018, 1519–20, 1546; Transcript, Sarah Britt, 23 April 2018, 1607, 1609–10, 1619.
Transcript, Marianne Perkovic, 19 April 2018, 1340–1.
Transcript, Linda Elkins, 15 August 2018, 4962–3.
Exhibit 7.80, Witness statement of Andrew Thorburn, 19 November 2018, 55–6 , [194(d)].
Exhibit 7.80, Witness statement of Andrew Thorburn, 19 November 2018, 55 [194(a)].
Transcript, Paul Sainsbury, 17 September 2018, 5884; Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, Exhibit PJS-2 Tab 3 [AMP.6000.0281.0046].
Transcript, Paul Sainsbury, 17 September 2018, 5884; Exhibit 6.234, Witness statement of Paul Sainsbury, Exhibit PJS-2 Tab 3 [AMP.6000.0281.0046 at .0046].
Transcript, Paul Sainsbury, 17 September 2018, 5892.
Transcript, Paul Sainsbury, 17 September 2018, 5891.
ASIC, Report 499, 27 October 2016, 42 .
See, eg, Transcript, Brian Hartzer, 21 November 2018, 6838; Transcript, Andrew Thorburn, 26 November 2018, 7096–7; Transcript, Michael Wilkins, 21 November 2018, 7196–7.
ASIC v MLC Nominees Pty Ltd & Anor FCA, NSD1654/2018; ASIC, Media Release 18-259MR, 6 September 2018. See also the case study about NAB and NULIS in vol 2 of this Report.