15.1 ASIC

15.1.1 Approach to regulation

Peter Kell, Deputy Chairman of ASIC, told the Commission that ASIC’s regulatory aim is to have a superannuation system that delivers good outcomes for consumers.[1] He said that ASIC is concerned with the fair treatment of consumers and reducing poor conduct,[2] and that it takes a risk-based approach, focused on acting where consumers might be harmed.[3]

Mr Kell said that ASIC believes general deterrence in the superannuation industry is important.[4] This is because of the large amount of money involved and the importance of superannuation to consumers.[5] He said that ASIC believes that litigation is a ‘critical part’ of general deterrence,[6] though deterrence can also be achieved through other methods, such as administrative orders and licence conditions.[7]

Under the ASIC Act and Corporations Act, ASIC can bring a range of court proceedings against superannuation trustees or their directors. For example, ASIC can bring civil penalty proceedings against a trustee for making false or misleading statements to its members.[8] Similarly, it can bring civil penalty proceedings if directors of a trustee fail to act in good faith, or engage in unconscionable conduct.[9]

Mr Kell conceded that ASIC had not, in fact, brought many court proceedings regarding superannuation.[10] He said that this was not due to any confusion about the division of regulatory responsibility between ASIC and APRA, but because there were some parts of the SIS Act that ASIC was not responsible for.[11] ASIC is prepared to take on a greater role as a conduct regulator for RSE licensees, but considers it would need additional powers to do so.[12] By way of example, Mr Kell said that ASIC might be prepared to take action against a trustee for breach of the sole purpose test under such an expanded role.[13]

One of ASIC’s other enforcement tools is the power to accept enforceable undertakings (EUs). Mr Kell said that ASIC will consider an EU where it can get better or different outcomes as compared to a court proceeding.[14] However, part of the ‘threshold test’ for using an EU was whether ASIC was otherwise prepared to go to court.[15] He said that using EUs without being prepared to go to court would mean the tool would not have ‘credibility’.[16]

15.1.2 Fees for no service

Mr Kell said that the fees for no service project was a significant undertaking. The project involved 27 investigations across 31 licensees, and the collection of more than 2.5 million documents.[17] ASIC had imposed banning orders, a licence condition, and accepted EUs, though at the time of Mr Kell’s evidence it had not commenced any proceedings.[18] In implementing the project, he said that ASIC had given priority to remediating customers. The estimated compensation bill at the time of Mr Kell’s evidence was $850 million, though he said the total compensation amount could be more than $1 billion.[19]

At that time, Mr Kell said that ASIC had only considered remediation due to consumers. It had not assessed what profits the entities had made by charging fees for no service. Mr Kell’s evidence was that ASIC would consider the issue, but so far had been focused on ‘the main game, getting money back into the pockets of consumers’. In this context, Mr Kell said that ASIC had publicly argued in favour of a disgorgement power, so that it could deal with the money entities make from misconduct.[20]

Mr Kell agreed that another way of deterring entities from this sort of misconduct was to commence proceedings and obtain large civil penalties that deprived entities of their profit. In respect of the fees for no service conduct, he said that ASIC was ‘certainly alert’ to the risk of limitation periods expiring, and that ‘you will expect to see’ ASIC commence proceedings.[21] In September 2018, three weeks after Mr Kell gave evidence, ASIC filed proceedings against NAB’s two superannuation trustees for charging fees for no service. I have said more about the subject of fees for no service in the body of this report.

15.1.3 Grandfathered commissions

In 2016, NULIS wrote to ASIC about grandfathered commissions. It thought that it should be allowed to continue paying grandfathered commissions to advisers, and planned to do so.[22] Mr Kell said that internally ASIC thought that the law was uncertain and involved complex legal issues.[23] As a result, ASIC replied noting NULIS’s view and that it did not seek a ‘no action’ letter from ASIC. ASIC did not take any further action.[24] Mr Kell said that, in hindsight, ASIC should have considered whether continuing grandfathered commissions satisfied a ‘best interests test’. At a broader level, his evidence was that ‘the entire [grandfathering] provision is not in the interests of consumers’.[25] It was initially ‘depicted as a transition issue’, but was ‘actually an extremely expansive provision’. He said that grandfathering generated conflicts of interests and unnecessary costs, and while ASIC can and should look at individual cases, the matter should be dealt with at a policy level.[26]

15.1.4 Transfer of ADAs

Mr Kell also gave evidence that in ASIC’s view, there was no systemic problem with the default transfer process following the introduction of MySuper.[27] However, he said that ASIC’s work around the transition of accrued default amounts (ADAs) to MySuper products had been focussed on a specific project where advisers had tried to avoid transitioning their clients to MySuper. He said that ASIC had not found large numbers of advisers engaging in misconduct, but had not considered the transfer of ADAs through ‘the broader prism’ of trustees and wealth management firms.[28] In light of the evidence heard by the Commission, he considered that ‘more broadly there is a systemic issue’.[29]

15.1.5 Branch selling program

As described earlier, between 2012 and 2018 ANZ sold its Retail Smart Choice Super product through its bank branches. Timothy Mullaly, Senior Executive Leader of the ASIC Financial Services Enforcement team, told the Commission that ASIC was concerned that this sales process might involve personal financial advice, which would breach the law.[30]

In the middle of 2014, ASIC started surveillance of ANZ’s distribution practices. Its investigation into the superannuation selling practices of ANZ, as well as those of CBA and Westpac, became part of a broader project within ASIC called the Wealth Management Project.[31] In May 2015, the Wealth Management Project Board set a target to issue civil penalty proceedings against one of the three banks by the end of October 2015.[32] In July 2015, the target date changed to November 2015.[33] However, by the end of November 2015, ASIC had still not issued a proceeding. Mr Mullaly said that was because investigations were continuing, and ASIC still needed to get more evidence and advice.[34]

In December 2016 ASIC sent a ‘position paper’ to ANZ. That position paper said ASIC suspected that the distribution processes were against the law.[35] ANZ and ASIC also met to discuss ASIC’s concerns.[36] In February 2017, ANZ sent a position paper in response.[37] It denied breaching the law. It did not offer to change its conduct, or stop engaging in the conduct. It did not suggest any other way to resolve ASIC’s concerns.

On 10 May 2017, ASIC sent ANZ a draft court pleading.[38] It told ANZ that it would commence proceedings by 15 May 2017, and asked whether ANZ would make any admissions.[39] Mr Mullaly said that this was intended to show ANZ that ASIC was ‘serious’ and would go to court if the matter did not resolve.[40] But despite its stated intention to commence proceedings, ASIC was willing to resolve the matter with an EU. He said that while ASIC was prepared to go to court if it did not get the outcome it wanted, ASIC actually thought an EU would be a better outcome than commencing proceedings.[41]

On 12 May 2017, ANZ replied and suggested a meeting.[42] On 15 May 2017, ANZ’s Group General Counsel emailed Mr Mullaly asking for ‘one final chat’ before ASIC commencing proceedings.[43] Mr Mullaly said this showed that ASIC had ‘got their attention’.[44] As a result, ASIC did not commence proceedings.[45]

By the end of May 2017, ANZ told ASIC that it was prepared to accept an EU.[46] In October 2017, ASIC gave ANZ a draft EU.[47] ANZ and ASIC then negotiated the terms of the EU for 10 months.[48] As part of those negotiations, ANZ and ASIC had to agree exactly what ANZ would stop doing. Mr Mullaly said that ANZ tried to narrow the conduct that would be prohibited.[49] ASIC also wanted to include contextual information about how many superannuation accounts had been opened, and how much money had been contributed to those accounts.[50] ANZ did not want to include that information,[51] and ASIC agreed to delete it.[52] The final EU was signed on 4 July 2018, and accepted by ASIC the next day. ANZ had to stop the distribution process within 45 days of the EU.[53]

Mr Mullaly said ASIC’s main concern was stopping the conduct.[54] He said the EU process meant the conduct stopped in a ‘very timely way’.[55] He said that if they had gone to court in May 2017, there was ‘no guarantee that we would be anywhere near resolving the matter’.[56] He said that ASIC had considered seeking a court injunction to stop the conduct, but decided it would be ‘futile’.[57] Mr Mullaly also thought that the EU gave ASIC a better result than they could get from a court order. He said those better results included ‘the cessation of the conduct; the precise specification of what ANZ ‘could not do’; and the implementation of a monitoring process.[58]


[1] Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, 2 [4].

[2] Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, 2 [4].

[3] Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, 7 [22].

[4] Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, 43 [154].

[5] Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, 43 [154].

[6] Transcript, Peter Kell, 17 August 2018, 5260.

[7] Transcript, Peter Kell, 17 August 2018, 5260.

[8] ASIC Act ss 12DB, 12GBA and 12GBC(1).

[9] ASIC Act ss 12CA, 12CB, 12GBA and 12GBC(1); Corporations Act ss 181(1), 1317E(1) and 1317J(1); Transcript, Peter Kell, 17 August 2018, 5261.

[10] Transcript, Peter Kell, 17 August 2018, 5261.

[11] Transcript, Peter Kell, 17 August 2018, 5262.

[12] Exhibit 5.318, Statement of Peter Kell, 13 August 2018, 56 [203].

[13] Transcript, Peter Kell, 17 August 2018, 5262.

[14] Transcript, Peter Kell, 17 August 2018, 5251.

[15] Transcript, Peter Kell, 17 August 2018, 5250–1.

[16] Transcript, Peter Kell, 17 August 2018, 5250.

[17] Transcript, Peter Kell, 17 August 2018, 5254.

[18] Transcript, Peter Kell, 17 August 2018, 5254.

[19] Transcript, Peter Kell, 17 August 2018, 5254.

[20] Transcript, Peter Kell, 17 August 2018, 5255.

[21] Transcript, Peter Kell, 17 August 2018, 5255–6.

[22] Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, Exhibit PK-151 [ASIC.0800.0011.3312].

[23] Transcript, Peter Kell, 17 August 2018, 5257; Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, Exhibit PK-150 [ASIC.0800.0012.1761].

[24] Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, Exhibit PK-151 [ASIC.0800.0011.3312]; Transcript, Peter Kell, 17 August 2018, 5256.

[25] Transcript, Peter Kell, 17 August 2018, 5258.

[26] Transcript, Peter Kell, 17 August 2018, 5258.

[27] Exhibit 5.318, Witness statement of Peter Kell, 13 August 2018, 30 [110].

[28] Transcript, Peter Kell, 17 August 2018, 5259.

[29] Transcript, Peter Kell, 17 August 2018, 5259.

[30] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, 2 [7].

[31] Transcript, Timothy Mullaly, 17 August 2018, 52256.

[32] Transcript, Timothy Mullaly, 17 August 2018, 5227; Exhibit 5.312, 20 May 2015, Papers for the Wealth Management Project Board Meeting of 20 May 2015, 43.

[33] Exhibit 5.313, 2 July 2015, Papers for the Wealth Management Project Board Meeting of 2 July 2015, 4.

[34] Transcript, Timothy Mullaly, 17 August 2018, 522730.

[35] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, 7 [26]; Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, Exhibit TM-5 [ASIC.0041.0003.2762].

[36] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, 8 [27].

[37] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, Exhibit TM-3 [ASIC.0041.0006.0051].

[38] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, Exhibit TM-7 [ASIC.0041.0001.7094].

[39] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, Exhibit TM-6 [ASIC.0041.0001.7093].

[40] Transcript, Timothy Mullaly, 17 August 2018, 5233.

[41] Transcript, Timothy Mullaly, 17 August 2018, 5232–3.

[42] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, Exhibit TM-8 [ASIC.0041.0001.7107].

[43] Exhibit 5.314, 15 May 2017, Email from Mr Santamaria to Mr Mullaly.

[44] Transcript, Timothy Mullaly, 17 August 2018, 5234.

[45] Transcript, Timothy Mullaly, 17 August 2018, 5234.

[46] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, 8 [34]; Transcript, Timothy Mullaly, 17 August 2018, 5238.

[47] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, 1213 [56].

[48] Exhibit 5.310, Witness statement of Timothy Mullaly, 3 August 2018, 12 [54].

[49] Transcript, Timothy Mullaly, 17 August 2018, 5237–9.

[50] Transcript, Timothy Mullaly, 17 August 2018, 5241; Exhibit 5.377, 25 January 2018, ANZ Smart Choice – Terms of draft EU – Comparison, 3 [2.9].

[51] Exhibit 5.379, 28 March 2018, Letter from Allens to ASIC, 2.

[52] Exhibit 5.380, 15 May 2018, Letter from ASIC to Allens, 2.

[53] Exhibit 5.256, Witness statement of Mark Pankhurst, 1 August 2018, Exhibit MP-221 [ANZ.800.870.0001 at .0006, cl 3.6].

[54] Transcript, Timothy Mullaly, 17 August 2018, 5234, 5242.

[55] Transcript, Timothy Mullaly, 17 August 2018, 5234.

[56] Transcript, Timothy Mullaly, 17 August 2018, 5235.

[57] Transcript, Timothy Mullaly, 17 August 2018, 5235.

[58] Transcript, Timothy Mullaly, 17 August 2018, 5240.