Tag: Fee For No Service

ASIC provides update on further reviews into fees-for-no-service failures

ASIC today released an update on the fees for no service (FFNS) further review programs undertaken by six of Australia’s major banking and financial services institutions.

ASIC’s ongoing supervision of the review programs undertaken by AMP, ANZ, CBA, Macquarie, NAB and Westpac (the institutions) has shown that most of the institutions are yet to complete further reviews – i.e. reviews to identify systemic FFNS failures beyond those already identified and reported to ASIC since 2013.

ASIC Commissioner Danielle Press said the institutions had taken too long to conduct these reviews, and welcomed the Government’s commitment to give ASIC new directions powers that could speed up remediation programs in the future.

‘These reviews have been unreasonably delayed. 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.

‘We are pleased the Government has agreed to adopt recommendations from the 2017 ASIC Enforcement Review Taskforce Report, which includes a directions power. This would allow ASIC to direct AFS licensees to establish suitable customer review and compensation programs,’ she said.

The main reasons for delays by the institutions are:

  • poor record-keeping and systems within the institutions, which mean that in many cases they have been unable to access customer files for review;
  • failure by some institutions to propose reasonable customer-centric methodologies to identify and compensate customers despite ASIC’s clear articulation of expectations. (For example, ASIC rejected a few of the methodologies such as a requirement for customers to ‘opt-in’ to the review and remediation program, and a proposal to assess if there had been a ‘fair exchange of value’ with customers instead of assessing whether customers received the specific services they paid for); and
  • some institutions have taken a legalistic approach to determination of the services they were required to provide. (For example, ASIC’s view is that if the agreement requires an annual review, the mere offer of an annual review is not sufficient.)

Overview of ASIC’s FFNS work

ASIC’s large-scale FFNS supervisory work includes overseeing:

  • the institutions’ programs to compensate customers impacted by the reported failures to provide advice services paid for by customers (compensation programs); and
  • the institutions’ reviews to determine whether there were further systemic FFNS failures beyond those already identified and reported to ASIC (further reviews).

Under the compensation programs, AMP, ANZ, CBA, NAB and Westpac have collectively paid or offered approximately $350 million in compensation to customers who were charged financial advice fees for no service at the end of January 2019. Additionally, the institutions have provisioned more than $800 million towards potential compensation for further systemic FFNS failures. However, these reviews are incomplete.

Along with supervision of the compensation programs and further reviews undertaken by the institutions, ASIC is also conducting a number of FFNS investigations and plans to take enforcement action against licensees that have engaged in misconduct.

Report card on further reviews undertaken by the institutions

Update on Commonwealth Bank Fees for No Service Court-enforceable undertaking

ASIC says that on 13 April 2018, ASIC announced that it had accepted a Court-enforceable undertaking (EU) from Commonwealth Financial Planning Limited (CFPL) arising from its  Fees For No Service conduct (18-102MR).

One undertaking required of CFPL was to appoint Ernst & Young (EY) to prepare an independent expert report that considered:

  1. whether CFPL had taken reasonable steps to ensure customers who should have received remediation in the 31-month period from 1 July 2015 to 31 January 2018 did receive that remediation. ASIC’s previous oversight of CFPL’s remediation had considered the period to 30 June 2015; and
  2. whether CFPL had put in place systems, processes and controls to meet its contractual obligations to customers who are paying ongoing service fees.

As set out in ASIC’s Regulatory Guide 100: Enforceable Undertakings, ASIC will make available a summary of an independent expert’s report in these circumstances to promote the integrity of, and public confidence in, the financial markets and corporate governance. A copy of the executive summary of EY’s report can be accessed via the Enforceable undertakings register.

EY’s findings on remediation

In relation to the remediation of CFPL customers, EY found that:

  1. for the periods 1 July 2015 to 31 May 2016 and 5 June 2017 to 31 January 2018, there was no evidence to suggest that CFPL had not taken reasonable steps to ensure that customers who should have received remediation did receive that remediation; and
  2. for the period 1 June 2016 to 4 June 2017 (Period 2), there had been a lower level of customer testing during this period and further work by CFPL was required. EY found that CFPL is in the process of taking reasonable steps to identify and remediate those customers who should have received remediation.

EY will re-assess and report on Period 2 in January 2019 once CFPL has undertaken additional remediation work for that period.

EY’s findings on CFPL’s controls environment

EY assessed whether CFPL had put in place adequate systems, processes and controls to meet its contractual obligations to customers who are paying ongoing service fees.  EY found that there was nothing to suggest that those systems, processes and controls are not reasonably adequate to ensure that CFPL is able to discharge its obligations to its customers. However, EY noted that CFPL could make further improvements to address:

  • a low level of control awareness within the business;
  • a high prevalence of manual processes and controls;
  • limitations on CFPL’s ability to analyse and report information for tracking and reporting of compliance centrally; and
  • the sustainability of its manually intensive processes.

EY will assess and report on whether CFPL has addressed EY’s findings, through the implementation of systems and process improvements, in January 2019.

CFPL has requested an extension of time for EY to produce its final report and for CFPL to provide its senior executive attestation as required under the EU, to 31 January 2019.This extension of time will allow CFPL to undertake the additional work required in relation to Period 2 and to implement the recommendations made by EY to further improve CFPL’s systems, processes and controls.

CFPL is required by ASIC to submit a detailed plan setting out the specific actions that it will undertake to ensure that it addresses EY’s findings and recommendations. The EU will be amended to reflect this additional plan, the timing of the final report and senior executive attestation.

Fees for no service: ASIC commences Federal Court action against NAB companies

ASIC has today commenced proceedings in the Federal Court of Australia against two entities in NAB’s wealth management division, NULIS Nominees (Australia) Limited (NULIS) and MLC Nominees Pty Ltd (MLC Nominees). The court proceedings relate to fees charged by both entities to a significant number of their superannuation members for services not provided.

ASIC alleges that NULIS and MLC Nominees (as the current and former superannuation trustee of NAB) misled members of MLC MasterKey Super products.

ASIC also alleges NULIS and MLC Nominees deducted approximately $33m Plan Service Fees from 220,000 members of MLC MasterKey Business and MLC MasterKey Personal Super who did not have Plan Adviser (No-Adviser Members).  NAB also deducted approximately $67m Plan Service Fees from 300,000 members of MLC MasterKey Personal Super where Plan Advisers were not required to provide services and members did not receive services (or any services they could not otherwise obtain for free).

ASIC seeks from the Federal Court declarations of contravention and a civil penalty.

The commencement of this civil penalty action is part of ASIC’s broad-ranging and significant investigations currently underway into fee for no service failures in the financial services industry. Alongside these investigations ASIC is obtaining considerable remediation for impacted customers, currently estimated to exceed $850m.

ASIC alleges that MLC Nominees and NULIS:

  • contravened s912A(1)(a) of the Corporations Act 2001 (Corporations Act) by failing to ensure that its financial services were provided efficiently, honestly and fairly when it deducted approximately $33m Plan Service Fees from 220,000 No-Adviser Members;
  • made false or misleading representations to No-Adviser Members in contravention of ss 12DB, 12DA of the Australian Securities and Investments Commission Act 2001 (ASIC Act) and s1041H of the Corporations Act by representing that it was entitled to deduct the Plan Service Fee and the No-Adviser Member was obliged to pay it when there was no such obligation;
  • contravened s912A(1)(a) of the Corporations Act when deducting approximately $67.1m Plan Service Fees from 300,000 members of MLC MasterKey Personal Super (Linked Members) in circumstances where it did not oblige Plan Advisers to provide services and members did not receive services;
  • made false or misleading representations in contravention of s12DB and s12DA of the ASIC Act by not disclosing that Linked Members in MLC Masterkey Personal Super had the right to turn off the Plan Service Fee; and
  • contravened s912A(1)(c) of the Corporations Act by failing to comply with financial services laws, including issuing defective disclosure documents within the meaning of s1022A of the Corporations Act and failing to exercise the degree of skill, care and diligence as a prudent trustee would exercise and failing to act in the best interests of members in breach of its general law duties and the Superannuation Industry (Supervision) Act 1993 when making the fee deductions and alleged misrepresentations to members.

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Background

Between October 2016 and June 2017, NULIS remediated No-Adviser Members approximately $35.9m (including interest and less fund tax of $6m).

NULIS also announced on 26 July 2018 that it would refund Linked Members with the total remediation expected to be approximately $87.1m (including interest and less fund tax of $15m).

ASIC also imposed, by consent, additional licence obligations on NULIS in January 2017 following its inquires in relation to several breach reports, including the Plan Services Fee.

ASIC has ongoing investigation in relation to Adviser Service Fees charged by NAB entities in relation to personal advice services.