27 April 2018Hot off the Press
Senior counsel Rowena Orr QC gave her closing statement to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on Friday afternoon.
Ms Orr summarised the hearings: “Over the last two weeks the Commission has heard evidence of misconduct, and of conduct falling below community standards and expectations in relation to the provision of financial advice by employees and authorised representatives of financial service entities.”
Ms Orr then proceeded to review each case study from the past two weeks, and identify findings that are open to the Commission to make.
Her recommendations may result in criminal charges being laid against financial service providers.
AMP and the Commonwealth Bank of Australia (CBA) charged fees to clients with no capacity or intention to provide services, Ms Orr reminded the Commission.
AMP was aware of this practice in 2008 and reported it to the Australian Securities and Investments Commission (ASIC) in 2009, but it continued until at least January 2017.
Jack Regan, AMP’s head of financial advice, admitted to the Commission that there was “no lawful basis” for the conduct.
Ms Orr says that the evidence is sufficient for the Royal Commission to find that these charges “might have amounted to misconduct”, and that AMP contravened its statutory obligations to provide financial services efficiently, honestly and fairly; to have adequate risk management systems in place; and to report misconduct to ASIC within 10 days.
Further, AMP may have breached the Corporations Act 2001 by deliberately attempting to mislead ASIC about the extent and nature of the fee-for-no-service conduct. Ms Orr said that between 2013 and 2015 AMP made 20 false or misleading statements to ASIC.
Lastly, Ms Orr suggested that AMP had breached the Act by describing a Clayton Utz report as “independent”, despite changes having been made by AMP’s general counsel that appear to have been an attempt to limit the findings that senior executives had knowledge of the misconduct.
Ms Orr said that the Commonwealth Bank of Australia (CBA) had an internal culture of “maximising revenue streams” at the expense of its customers.
Like AMP, CBA managers knew well before ASIC was informed that customers were being charged fees-for-no-service. Ms Orr described this as “cultural tolerance” of risks and “conduct detrimental to clients but to the financial advantage of CBA.”
After lunch, Ms Orr told the Royal Commission that Westpac may have breached its obligations under the Corporations Act 2001 by failing to report the misconduct of two of its employees.
Ms Orr said that it is open to the Commission to find that the conduct of the employees was a breach of their obligations to act in the best interests of the clients, and to provide appropriate advice. She also said that Westpac’s failure to ensure that the advice provide was efficient, honest and fair, and to take reasonable steps to ensure compliance with the Act may amount to a breach itself.
Further, Westpac failed to report significant breaches to ASIC within the required 10 business days.
Ms Orr added that “Westpac had a system of remuneration for employed financial advisers which incentivised revenue generation and created a risk [that] customers would not be provided with financial advice in [their] best interests’.
Three financial advisers employed by ANZ and two ANZ subsidiaries, RI Advice and Millennium3, may have breached their statutory obligations. Ms Orr raised the case study of “Mr A”, whose advice to clients caused them significant losses to his own benefit, a possible breach of the prohibition on misleading or deceptive conduct.
Ms Orr said that ANZ failed to act on high risk for years, and placed a low priority on customer remediation for adviser misconduct.
Ms Orr described AMP as having a “culture of emphasising the growth of the business over ensuring advisers are appropriately qualified”. She told the Commission that it could make multiple findings of breaches of the Corporations Act 2001 by AMP, and its financial advisers individually.
Ms Orr told the Commission that it should recommend financial advisers Henderson Maxwell for criminal charges. The firm, headed by celebrity adviser Sam Henderson, may have committed an offence by issuing a financial services guide that misrepresented Henderson’s qualifications.
Mr Henderson’s personal conduct may also amount to misconduct, Ms Orr continued, on the basis that he failed to act in the best interests of a client, and gave priority to his own interests.
Ms Orr also said that the firm breached community expectations by allowing an employee to impersonate a client on five occasions, while Mr Henderson was uncooperative with Financial Planning Association investigations.
The three case studies involving Dover Financial, whose witness Terry McMaster collapsed while giving evidence yesterday, indicate that the firm engaged in misleading and deceptive conduct, Ms Orr told the Commission.
Dover Financial’s “Orwellian” client protection policy was described on Thursday by counsel assisting the Royal Commission Mark Costello as being “entirely misleading” and “nothing more than an elaborate attempt to exclude Dover’s liability for the acts of its authorised representatives”.
The third round of Banking Royal Commission hearings will begin on 21 May 2018.