Tag: ASIC

Time, money and ASIC ‘impeded’ APRA

The main issue with taking legal action against rogue super funds is that the process costs time and money, APRA has told the royal commission, via Investor Daily.

APRA’s Helen Rowell was the first witness to take the stand on Friday 17 August, where counsel assisting Michael Hodge was quick to try and gain insight into APRA’s role as a regulator of the $2.6 trillion superannuation sector.

Mr Hodge asked whether APRA would ever commence litigation against trustees, to which Ms Rowell explained that this is a “potential” action, but that other methods would be preferable, such as an enforceable undertaking.

One of the criticisms that has been made by the Productivity Commission in its draft report of APRA is that the “behind closed doors” nature of its activities is not effective for achieving what Mr Hodge called “general deterrence”.

Ms Rowell disagreed that APRA works behind closed doors but admitted the that no corporate trustee has been required to give an enforceable undertaking in relation to superannuation in the last 10 years.

In her statement, which was referenced by Mr Hodge during his questioning, the APRA deputy chair was asked a question by the Commission to explain any practical limitations or impediments on APRA seeking disqualification orders pursuant to section 126H of the SIS Act.

Ms Rowell’s statement included three impediments.

The first impediment is the resources and expense of gathering sufficient and admissible evidence in the form that would be required by a court. She noted that APRA does not have power to recoup costs of an investigation.

“The second point you make is the legal costs of the court process,” Mr Hodge read. “And then the third point is about the length of time involved with court processes.”

Mr Hodge asked Ms Rowell what the basis is for her judgment that court processes take a long time.

“Our previous experience in dealing with matters through relevant tribunals such as the AAT and observation of other court processes that occur in the wider financial sector,” she replied.

However, Mr Hodge highlighted that APRA hasn’t had any experience dealing with superannuation companies in the courts in the last 10 years.

APRA ‘waiting’ for ASIC

Later, Mr Hodge turned to the question of responsibility. The counsel assisting was eager to identify what action APRA was taking when breaches occur.

“Is there a limitation period on commencing a civil penalty proceeding for a breach of the sole purpose test?”

“I don’t know,” Ms Rowell replied.

Mr Hodge then asked whether APRA had received any suggestion from ASIC that ASIC will commence public enforcement action in relation to ‘fees for no service’.

“I don’t know the answer to that question,” Ms Rowell said.

Mr Hodge asked if it is satisfactory, from the perspective of APRA as a matter of general deterrence, that no proceeding has ever been commenced against a trustee on the basis of a contravention of the sole purpose test where the trustee is deducting money from members’ accounts and paying it to related party advisers who are not providing a service.

“I think it’s too early to form that conclusion because that work is ongoing and APRA has not made any final decisions about what action it may or may not take ultimately in relation to that matter,” Ms Rowell said, adding that APRA is allowing ASIC to complete its work and review.

“When you say APRA is waiting to see what ASIC will do,” Mr Hodge probed, “has there been any consideration at all within APRA in relation to this issue to date?”

Ms Rowell responded: “There has been discussions with individual entities and – on the matter and seeking to get a complete understanding of the issues as they pertain to the individual entities. There would be general discussions occurring at APRAs internal committees about, you know, what the issue was and what was being done to address it, and – and those sorts of things. As I said, I don’t believe that we have made any conclusions at this stage as to what further action, if any, we might wish to take.”

Update on financial advice institutions’ fees for no service refund programs

ASIC says AMP, ANZ, CBA, NAB and Westpac have now paid or offered customers $222.3 million in refunds and interest for failing to provide advice to customers while charging them ongoing advice fees. This represents a further $6.4m in payments and offers from these institutions since the last ASIC media release (17-438MR) on the fees for no service (FFNS) project, which provided compensation figures as at 31 October 2017.

In addition, ASIC is overseeing FFNS remediation programs by other Australian financial services (AFS) licensees that have identified potential FFNS failings, including Bendigo Financial Planning Ltd, Police Financial Services Ltd (trading as BankVic), State Super Financial Services Australia Limited (trading as StatePlus), and Yellow Brick Road Wealth Management Pty Ltd. The total amount now paid or offered to customers across both groups of licensees is $259.6m.

ASIC is also aware that five AFS licensees or institutions have provisioned for future remediation payments, with four of these to date providing to ASIC amounts for future remediation (see below in notes). If all of these provisions are paid in full, FFNS remediation may exceed $850m.

The table provides compensation payments and estimates reported to ASIC as at 30 June 2018. Some institutions’ total estimates have changed since ASIC’s previous media release as they have further investigated the compensation required and, in some cases, identified additional failures needing remediation.

Group Compensation paid or offered (1) Estimated future compensation (2) Total estimate
AMP $5,010,637 $370,000 (3) $5,380,637
ANZ $50,793,257 $8,443,300 (4) $59,236,557
CBA $118,040,178 $25,274,717 $143,314,895
NAB $5,690,797 $1,019,623 (5) $6,710,420
Westpac $6,896,237 Not yet available (6) $6,896,237
Bendigo $0 $2,500,000 $2,500,000
StatePlus $37,223,999 Not yet available (7) $37,223,999
Yellow Brick Road $0 $101,477 $101,477
Total (personal advice failures) $223,655,105 $37,709,117 $261,364,222
NULIS Nominees (Australia) Ltd $35,900,408 (8) 67,000,000 (9) $102,900,408
Total (personal and general advice failures) $259,555,513 $104,709,117 $364,264,630

Source: Data reported by the AFS licensees to ASIC as at 30 June 2018.

ASIC’s review of exchange traded products identifies areas for improvement

ASIC has completed a review of the exchange traded products (ETP) market in Australia, including exchange traded funds, aimed at ensuring the market is delivering on promises to investors.

Exchange traded products (ETPs) are open-ended investment products that are traded on a securities exchange market. ETPs trade and settle like shares and give investors exposure to underlying assets without owning those assets directly.

ETPs differ from listed funds because they are open-ended. Tthis means that the number of units on issue may increase or decrease daily depending on investor demand. ETPs, especially exchange traded funds (ETFs), are increasingly popular with retail investors and self-managed  superannuation funds (SMSFs).This is because of their accessibility, perceived low cost, transparency, intraday liquidity, diversification benefits and ability to provide exposure to new asset classes. There has been steady growth in both funds under management and the number of ETP products available on the market in Australia

ACIS’s review focused on two types of ETPs:  a) passively managed ETFs with an investment objective to track an index or benchmark; and b) funds that are actively managed to outperform a benchmark or to achieve an absolute return objective (referred to as ‘active ETFs’ and ‘managed funds’).

The review found that the market is generally performing well, and ETPs are meeting the relatively low cost and liquidity expectations of investors. However, the review identified a range of risks that require monitoring by issuers and oversight by market operators.

The large and growing investment in ETPs in Australia by retail and SMSF investors prompted ASIC to look at a number of the key premises and functions of the ETP market. The key concern identified was the potential for the bid/offer spread to temporarily widen, leading to investors paying a spread that would be considered too high, and undermining the relatively low cost proposition of some ETPs.

Further, ASIC considers that market operators and issuers should play a more proactive role in monitoring the performance of ETPs, including liquidity in the market, and where they observe spreads widening unreasonably, they should take appropriate action.

ASIC is also recommending that ETP issuers publish the indicative net asset value (iNAV) with a frequency that enables investors and financial advisers to make more informed decisions.

ASIC Commissioner John Price said, ‘We encourage issuers to continue to educate investors and their advisers about how the ETP market operates and to provide them the tools, like an iNAV, to help them make informed investment decisions’.

Another area of concern identified in the report was market maker concentration, as although there are an increasing number of new entrants in Australia that serve a growing market, most liquidity is still provided by only two entities. ASIC expects issuers and market operators to be aware of this risk and incorporate a means of managing it into their risk management framework.

While not many ETPs have closed in Australia to date, ASIC encourages issuers and market operators to develop policies for reviewing, and where necessary remove from quotation with an orderly wind down, ETPs that may not meet ongoing suitability for quotation, such as very small ETPs that may be uneconomical to operate.

ASIC approves the Banking Code of Practice

ASIC has approved the Australian Banking Association’s (ABA’s) new Banking Code of Practice (the Code).

ASIC’s approval of the Code follows extensive engagement with the ABA, following a comprehensive independent review and extensive stakeholder consultation. The ABA made additional significant changes to the Code in order to satisfy ASIC that it met our criteria for approval.

This is the first comprehensive broad-based industry code ASIC has approved under its relevant powers.

The Code will commence operation from 1 July 2019.

Significant new protections for small businesses

The new Code provides for improved protections for small business borrowers and expands the reach and impact of legal protections against unfair contract terms. For small businesses who borrow up to $3 million, the Code provides that lending contracts should not contain a range of potentially unfair and one-sided terms. Unfair contract terms protections in the law apply to businesses who borrow up to $1 million.

At its current setting of applying to small businesses who borrow up to $3 million, the Code will cover the considerable majority – between 92-97% – of businesses in Australia.

To ensure the settings in the Code provide a high level of coverage of the small business sector, ASIC’s approval is conditional on an independent review of the definition of small business within 18 months of the Code’s commencement. This targeted review will test the adequacy and application of the Code’s small business coverage in practice, and will occur well before the Code’s comprehensive review, due three years after its commencement.

At the same time, ASIC will collect quarterly data from banks and the Australian Financial Complaints Authority to monitor the extent of the Code’s coverage of small business. ASIC will ensure that this data is made public every six months. This will provide the public with ongoing transparency about the coverage of the Code.

Expanded protections for consumers

The Code has built on and enhanced the existing protections for consumers in the 2013 Code.

The new Code includes:

  • provisions for inclusive and accessible banking, including for vulnerable customers, customers on low incomes and Indigenous customers;
  • protections relating to the sale of consumer credit insurance (CCI) including a deferred sales period of four days for CCI for credit cards and personal loans sold in branches and over the phone;
  • protections for guarantors of loans, for instance, giving prospective guarantors generally three days to consider information about a guarantee and requiring banks to only enforce a guarantee once they have taken action against the borrower;
  • rules requiring credit card customers to receive reminders about balance transfer promotional periods ending, as well as more consistent treatment about how repayments are applied; and
  • enhanced processes for assisting customers in financial difficulty and processes for resolving complaints.

Monitoring and enforceability

All ABA member banks will be required to subscribe to the Code as a condition of their ABA membership and the relevant protections in the Code will form part of the banks’ contractual relationships with their banking customers.

The Code will be administered and enforced by an independent monitoring body, the Banking Code Compliance Committee (BCCC). Any person will be able to report a breach of the Code to the BCCC, and consumers and small businesses with disputes about the Code protections will be able to have those disputes heard by the new Australian Financial Complaints Authority.

ASIC notes the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry may make findings relevant to the Code. ASIC may review its approval of the Code in light of the Royal Commission findings.

Background

ASIC has provided guidance on its approach to approving codes, including how to obtain and retain approval in Regulatory Guide 183 Approval of financial services sector codes of conduct (RG 183).

In approving the Code, ASIC considered that:

  • the rules in the Code are binding on the ABA’s members and form part of the contracts between banks and their customers;
  • the Code was developed and reviewed in a transparent way, which involved significant consultation with relevant stakeholders including consumer and small business groups; and
  • the Code is supported by effective administration and compliance mechanisms. The BCCC will have oversight on banks’ Code compliance, tools to require banks’ cooperation with their monitoring and investigations, and a range of sanctions for non-compliance with Code provisions.

Broker Review May Be Delayed Further – FBAA

From The Adviser.

The head of the FBAA has suggested that the government response to ASIC’s 2017 review of broker remuneration could be delayed until the second half of 2019 if formal conclusions aren’t made before the end of the year.

Speaking at the 2018 Industry Commercial Masterclass in Sydney on Thursday (26 July), the executive director of the Finance Brokers Association of Australia (FBAA) told delegates that he had been meeting with the Minister for Revenue and Financial Services, Kelly O’Dwyer, members of the Productivity Commission (PC) and other government officials to discuss the value of the broking industry.

Peter White revealed that he had asked Minister O’Dwyer when a government response was due on ASIC’s comprehensive report on broker remuneration, given that the consultation on the report had closed more than a year ago.

According to Mr White, the government has decided to wait until it has considered both the PC’s final report into competition in the Australian financial system and the first report from the financial services royal commission.

Noting that the PC’s final report had now been handed to the government, Mr White highlighted that the government had to table the report within 25 sitting days of receipt. Given that Parliament is not back until 13 August, he said that this could mean that the report may not be tabled until October.

He also reiterated that the interim royal commission report is not due until 30 September and that the final report is expected by 1 February 2019.

The head of the FBAA suggested that a government response may therefore not come “until the end of this year”, if not longer, given the country is expecting a federal election next year.

Recalling a situation in 2012 when Treasury was consulting on the second phase of the National Consumer Credit Protection Act (NCCP II) and delayed its response until after a federal election had taken place, Mr White warned that such a scenario could impact the industry once again, given that a federal election will be held next year.

Mr White said: “We may, or may not, get a decision on all this [review of broker remuneration] this year.

“[Minister O’Dwyer] said that, at the end of the day, there will be no determinations made on the ASIC remuneration paper until such time as the royal commission is finished, and those reports are out and the discussion has been had.”

Mr White added: “Bear in mind where we are heading this year, if we do not get decisions on these things before the end of this year, it won’t happen until the second half of the year after the federal election. That is the bottom line, and we’d just have to deal with that and roll with it as we go.”

ASIC permanently bans former Westpac banker from engaging in credit activities

ASIC says it has permanently banned former Westpac banker, Marten Pudun of Glenwood, NSW from engaging in credit activities.

An ASIC investigation found that, while employed as a relationship manager in Westpac’s premium banking section, Mr Pudun knowingly or recklessly gave false documents and information to Westpac to help his clients obtain home loans. In relation to 24 loan applications Mr Pudun:

  • helped create false supporting documents including payslips, employment letters and rental estimate letters; or
  • accepted documents he knew were false; or
  • was reckless in not investigating whether they were false.

In one instance, Mr Pudun requested that the employment positions on customers’ employment letters and payslips be changed from Director to Marketing Manager and IT programmer. Mr Pudun said in an email that he did not want the “deal to stuff up” and if the customers were referred to as directors, Westpac may ask for tax returns.

Mr Pudun also asked third parties to create false letters in support of loan applications, which contained weekly rental estimates for various properties. In other instances, Mr Pudun provided example documents to customers so that they could create false documents to support their loan applications.

Mr Pudun also breached Westpac policy in sharing personal client information including internet and telephone banking passwords, customer account opening forms, transaction histories and identification documents with external third parties.

ASIC found that Mr Pudun was repeatedly dishonest in his dealings with his customers, Westpac and external third parties. Therefore, he is not a fit and proper person to engage in credit activities.

ASIC’s investigation is continuing.

Mr Pudun has the right to lodge an application for review of ASIC’s decision with the Administrative Appeals Tribunal.

Background

Mr Pudun’s permanent banning is effective from 24 July 2018.

ASIC commenced its investigation following a notification of misconduct by Westpac.

Westpac has undertaken the following action with respect to those customers whose personal information had been shared:

  • contacted 161 affected customers and had their banking passwords reset; and
  • reviewed the customers’ files and accounts to determine if there had been any instances of fraud. The review did not show any evidence of identity takeover or unauthorised transactions linked to Mr Pudun’s conduct.

Westpac has also reviewed its policies and controls and implemented new systems, processes and employee training to minimise the misuse of customer information.

Restructuring alone won’t clean up the banks’ act

From The Conversation.

Many entrenched motivations for misconduct in the banking sector have been uncovered by the ongoing royal commission. Not least are the conflicts of interest inherent in the major Australian banks providing financial, insurance and mortgage advice and selling related products.

The banks, most recently the Commonwealth Bank (following the lead of ANZ and NAB), are already separating their wealth-management arms – services such as mortgage broking, insurance and financial planning and advice – in a bid to resolve these conflicts of interest.

These restructures are a step in the right direction. But they are not enough to overcome the fundamental problem: the banks’ sales-driven culture. This goes much deeper and seemingly pervades all of their operations, as the royal commission has highlighted.

The nature of this problem lends weight to an Australian Securities and Investments Commission (ASIC) proposal to embed regulatory staff in the major banks to help change the culture.

Bankers’ priorities laid bare

The evidence made public by the forensic analysis of Rowena Orr QC, counsel assisting the commission, has revealed many instances of the banks’ “toxic” culture. It’s one that puts profits and growth – in particular their associated incentive systems – above customers’ interests.

This has been evident from the outset. The first round of hearings in March 2018 revealed allegations of significant cash bribes, forged signatures and manipulation of incentives within NAB’s “Introducer Program”. This generated billions of dollars in home loans for the bank, with introducers paid 0.4-0.6% of home loan totals.

We have had belated “apologies” to customers who were treated unfairly or, worse, fell victim to unscrupulous or wrongful behaviour; admissions that the banks breached their own codes of conduct; and assurances that changes in governance systems aimed at improving culture have been made or will be. Yet the banks are still in denial that systemic cultural issues have been at play or persist in their organisations.

A stark example is provided in the evidence of Rabobank executive Bradley James at the most recent hearings that dealt with issues of farming finance. Orr questioned James about a A$3 million loan made on the advice of a manager of this rural lender to a Queensland grazing family, the Brauers. They had no ability to repay it. The motivation for the manager was to meet his lending KPIs to earn a bonus.

Asked whether he saw any difficulty with that from a customer perspective, James’s response was: “Absolutely not!” This shows a complete failure to understand the bank’s incentive structure – linking staff bonuses to the number of loans brought in – and the culture that goes with it as a potential source of misconduct.

James defended the bank’s system, saying it enabled the business to grow. This demonstrates that, in putting profits and growth ahead of customers’ needs, banking culture is out of touch with community expectations and societal values.

Regulators must step in

Little wonder, then, that trust in the financial sector is at an all-time low. ASIC chair James Shipton speaks of a “trust deficit”.

Shipton is seeking government funding to embed specialist ASIC supervisors in the major banks to help drive cultural change and rebuild trust. This should be done, signalling as it does a new, more intrusive regulatory style.

However, ASIC should do more. It needs to take enforcement action. Most notably this would include prosecution in cases of criminal wrongdoing by the banks and their top executives. The latter have been conspicuously absent at the royal commission, raising important questions about bank accountability.

Another corporate regulator, the Australian Competition and Consumer Commission (ACCC), last month brought criminal proceedings against ANZ and several other companies and individuals over an alleged cartel arrangement. Commentator Nathan Lynch observed that, irrespective of the outcome, one message reverberates: senior management accountability:

Governments and regulators have had enough of financial services firms that are still talking about improving culture and conduct. A decade on from the financial crisis … they now want to see a healthy dose of fear and respect in the market.

Lynch quotes strategic consultant Ben Quinlan:

Regulators are now at the point where they’re saying, ‘It’s impossible for things of this magnitude to happen without the people right at the top knowing what was going on.’

If ASIC also took such action, it would go a long way to overcoming concerns about an accountability deficit for the scandals and wrongdoing. This could be a catalyst for real cultural change in the industry to reduce misconduct in the future.

 

Why isn’t restructuring enough?

As for the current bank restructures, certain aspects are problematic.

In the first place, not all will result in a full separation of their businesses. The CBA will split off its wealth management, mortgage broking and insurance businesses, but retain its financial advice business. ANZ has sold its wealth management business to IOOF, but will not sell its life insurance business.

In addition, the banks remain keen to distribute products to retail customers. For example, ANZ’s sale to IOOF includes a 20-year deal to make IOOF super and investment products available to its retail customers.

These moves raise concerns that, despite these demergers, conflicts of interest and the banks’ failure to act in customers’ interests will continue.

At a minimum, Shipton’s plan to put ASIC agents in banks is more important than ever when the indications are that the banks cannot be left to self-regulate.

Author: Vicky Comino Lecturer in Corporations Law and Regulation of Corporate Misconduct, The University of Queensland

ASIC bans former NAB branch manager for loan fraud

ASIC has banned former National Australia Bank branch manager, Rabih Awad, from engaging in credit activities and providing financial services for seven years.

The ban is the result of an on-going ASIC investigation, following a breach report lodged by NAB alleging that bank employees in the greater western Sydney area were accepting false documents in support of loan applications and falsely attributing loans as having been referred by NAB introducers in order to obtain undue commissions.

ASIC found that Mr Awad recklessly gave NAB information and documentation in loan applications that was false or misleading.  Mr Awad was found to have given NAB false payslips, letters of employment, and entered false referee contact details in NAB’s lending systems in multiple home loan applications.

A majority of the false documentation submitted to NAB by Mr Awad was provided to him by a real estate agent who was previously registered as a NAB Introducer.

ASIC also found that:

  • Mr Awad received the false documents directly from the NAB Introducer rather than the customer, in violation of NAB’s Introducer Program; and
  • on occasion, Mr Awad received false documents from the NAB Introducer via email to his personal email account, before forwarding the documents to his NAB email account and subsequently attaching them to various customers loan applications.

Mr Awad has the right to lodge an application for review of ASIC’s decision with the Administrative Appeals Tribunal.

Background

On 16 November 2017, NAB announced a remediation program for home loan customers after an internal review, prompted by whistleblower reports it had received, found that some home loans may not have been established in accordance with NAB’s policies.

NAB identified that around 2,300 home loans since 2013 may have been submitted with inaccurate customer information and/or documentation, or incorrect information in relation to NAB’s Introducer Program.

Mr Awad’s banning follows the permanent bans of former NAB employees, Danny Merheb and Samar Merjan (also known as Samar Awad) from engaging in credit activities and providing financial services (refer: 18-205MR).

ASIC accepts court enforceable undertaking from CBA

ASIC says Commonwealth Bank of Australia (CBA) has entered into a court enforceable undertaking with ASIC in relation to their bank bill trading business and their participation in the setting of the Bank Bill Swap Rate (BBSW), a key benchmark and reference interest rate in the Australian financial system.

As part of the undertaking, CBA will pay $15 million to be applied to the benefit of the community and $5 million towards ASIC’s investigation and legal costs.

CBA will also engage an independent expert to assess changes CBA has made (and will make) to its policies, procedures, systems, controls, training, guidance and framework for the monitoring and supervision of employees and trading in Prime Bank Bills.

On 21 June 2018, the Federal Court in Melbourne imposed pecuniary penalties totalling $5 million on CBA for attempting to engage in unconscionable conduct in relation to BBSW. CBA admitted to attempting to seek to affect where BBSW set on five occasions in the period 31 January 2012 to 15 June 2012.

CBA also admitted that it failed to do all things necessary to ensure that they provided financial services honestly and fairly and that its traders were adequately trained.

Justice Beach of the Federal Court noted the terms of the court enforceable undertaking and, in imposing the pecuniary penalty of $5 million, stated ‘…that sum together with the other payments all totalling $25 million should be an adequate denouncement of and deterrence against the unacceptable trading behaviour of individuals within CBA that ought to have known better and a bank that ought to have better supervised its personnel.’

Background

ASIC commenced legal proceedings in the Federal Court against CBA on 30 January 2018 (refer:18-024MR), alleging that on three specific occasions between 31 January 2012 and October 2012, CBA traded in a manner that was unconscionable and created an artificial price and a false appearance with respect to the market for certain financial products that were priced or valued off BBSW.

This followed proceedings in the Federal Court against the Australia and New Zealand Banking Group (ANZ) on 4 March 2016 (refer: 16-060MR), against the Westpac Banking Corporation (Westpac) on 5 April 2016 (refer: 16-110MR) and against National Australia Bank (NAB) on 7 June 2016 (refer: 16-183MR).

On 10 November 2017, the Federal Court made declarations that each of ANZ and NAB had attempted to engage in unconscionable conduct in attempting to seek to change where the BBSW set on certain dates and that each bank failed to do all things necessary to ensure that they provided financial services honestly and fairly. The Federal Court imposed pecuniary penalties of $10 million on each bank.

On 20 November 2017, ASIC accepted enforceable undertakings from ANZ and NAB which provides for both banks to take certain steps and to pay $20 million to be applied to the benefit of the community, and that each will pay $20 million towards ASIC’s investigation and other costs (refer: 17-393MR).

On 24 May 2018,  the Federal Court found that Westpac engaged in unconscionable conduct under s12CC of the Australian Securities and Investments Commission Act 2001 (Cth) by its involvement in setting BBSW on four occasions (refer: 18-151MR). A further hearing of this proceeding on penalty and relief will be held on 12 October 2018.

In July 2015, ASIC published Report 440, which addresses the potential manipulation of financial benchmarks and related conduct issues.

The Government has recently introduced legislation to implement financial benchmark regulatory reform and ASIC has consulted on proposed financial benchmark rules.

On 21 May 2018, the new BBSW methodology commenced (refer: 18-144MR). The new BBSW methodology calculates the benchmark directly from market transactions during a longer rate-set window and involves a larger number of participants. This means that the benchmark is anchored to real transactions at traded prices.

If there is a breach of the undertaking entered into by CBA, then under the ASIC Act, ASIC can apply for orders from the court to enforce compliance.

ASIC accepts court enforceable undertakings from CBA and ANZ over superannuation product distribution

ASIC has accepted court enforceable undertakings from the Commonwealth Bank of Australia and Australia and New Zealand Banking Group under which the banks have agreed to change the way they distribute superannuation products to their customers.

ASIC investigated CBA’s distribution of its Essential Super product and ANZ’s distribution of its Smart Choice Super and Pension product (Smart Choice Super) through bank branches. ASIC found a common practice of offering those products to customers at the conclusion of a fact-finding process about customers’ overall banking arrangements.

CBA’s fact-finding process was called a ‘Financial Health Check’. CBA staff also sometimes helped customers roll over their other superannuation into the Essential Super account at the time of distribution.

ANZ’s fact-finding process was called an ‘A-Z Review’.

ASIC was concerned that the proximity between the fact-finding process and the discussion about Essential Super or Smart Choice Super was leading CBA staff and ANZ staff to provide personal advice to customers about their superannuation.  Branch staff for both CBA and ANZ were only authorised to provide general advice.

Stricter consumer protection laws apply to financial services licensees when their representatives give personal advice about complex financial products such as superannuation than when they provide general advice about those products. This includes the requirement, with personal advice, to give a customer a Statement of Advice and to act in the customer’s best interests. People who give personal advice about complex products are also required to meet higher training standards.

ASIC was concerned that customers may have thought, due to the proximity of the fact-finding process to the offer of Essential Super or Smart Choice Super, that the CBA branch staff or the ANZ branch staff were considering risks specific to the customer when this was not the case.

These court enforceable undertakings prevent CBA from distributing Essential Super in conjunction with a Financial Health Check and ANZ from distributing Smart Choice Super in conjunction with an A-Z Review. They also require CBA and ANZ to each make a $1.25 million community benefit payment. If there is a breach of the undertaking ASIC can, under the ASIC Act, apply for orders from the court to enforce compliance.

CBA chose to suspend the distribution of Essential Super in CBA branches in October 2017.

‘ASIC will continue to proactively monitor how complex financial products such as superannuation are sold,’ ASIC Deputy Chair Peter Kell said.

ASIC’s actions underline the importance for financial services licensees to ensure that customers understand the nature of advice they are receiving about their superannuation.

View the enforceable undertaking

Background

ASIC’s investigation arose following a surveillance conducted in relation to CBA’s distribution of its retail superannuation product, Essential Super and ANZ’s distribution of its retail superannuation product, Smart Choice Super.

These actions are part of ASIC’s Wealth Management Project. The Wealth Management Project was established in October 2014 to lift the standards of major financial advice providers. The Wealth Management Project focuses on the conduct of the largest financial advice firms (NAB, Westpac, CBA, ANZ, Macquarie and AMP).