Tag: InvestorDaily

CBA ignored ASIC to deny claims payout

CBA’s life insurance business CommInsure has admitted to not following recommendations from the corporate regulator to update its medical definition of a heart attack so it could deny the payout of a trauma claim to one of its customers, via InvestorDaily.

On Wednesday, the royal commission heard that ASIC had sent a letter to CommInsure flagging its concerns that its reliance on outdated medical definitions in assessing claims – while not in breach of the duty of utmost good faith in Section 13 of the Insurance Contracts Act – fell significantly short of consumer expectations.

The counsel assisting Rowena Orr cited a letter from 22 March 2017 from the ASIC deputy chair at the time, Peter Kell, who noted that in, 2012, the European Society of Cardiology, the American College of Cardiology, the American Heart Association and the World Health Federation published an expert consensus document about the definition of heart attacks.

Sitting in the witness box, CommInsure managing director Helen Troup was questioned by Ms Orr on whether she was aware that this had been reached at the time.“Yes,” Ms Troup said.

“And that report endorsed the use of troponin as a means of detecting heart attacks?” Ms Orr continued.

“Yes,” Ms Troup responded.

“And the report said that laboratories should use a cut-off value of the 99th percentile of a normal reference population to determine whether there had been a heart attack?” Ms Orr said.

Ms Troup replied in the affirmative.

Ms Orr then noted Mr Kell’s comments in the letter that CommInsure’s decision to select the 11 May 2014 as the effective date of the change had no robust rationale, given the joint report was published in 2012.

She then noted the letter said CommInsure’s conduct was unreasonably slow in responding to the changes in medical practice, that it was on notice that the standard was to be updated and had not done that even three years after the joint report was published, and that seven other insurers had updated their definition by 11 May 2014.

“While this is not contrary to the law, it is ASIC’s view that this has unfairly impacted on some consumers and better practice would be to select an earlier date,” Ms Orr said.

CFS ‘always’ invests members’ cash with CBA: Slaters

Slater and Gordon has taken aim at Australia’s biggest bank as it prepares to take on the retail super funds in a historic class action lawsuit, via InvestorDaily.

The national law firm this week announced the launch of its ‘Get Your Super Back’ campaign and said it will involve a series of class actions with Commonwealth Bank-owned Colonial First State and AMP super likely to be their first targets.

“The firm will allege the big bank-backed super funds failed to obtain for members competitive cash interest rates on cash option funds, and charged exorbitant fees, affecting millions of members who held part or all of their superannuation in bank owned funds,” they said in a statement.

Senior associate Nathan Rapoport from Slater and Gordon told Investor Daily that the firm chose AMP and Colonial to be first as they were good examples of wrongdoing by superannuation trustees.

“The evidence at the royal commission really highlighted how in our view the trustee companies are letting down members and not acting in accordance with quite elementary trust law in Australia,” he said.

Mr Rapoport said that their case against Colonial First State was to be focused on the way that trustees invested members cash.

“Colonial invests that cash with Commonwealth Bank always and it doesn’t shop around and get the best return for members and we believe that’s a very clear and simple case of the trustee not acting in the best interest of its member,” he said.

The case against the AMP is similar but is also focusing on the fees charged by the bank, said Mr Rapoport.

“The evidence we have looked at indicates that AMP funds are charging as much as half a percent per annum than other comparable funds and even though that may not sound like a lot, over a lifetime it really adds up to quite an enormous amount,” he said.

AMP refuted the claims and said any issues with their business had already been fixed.

“We’re committed to acting in the best interests of our superannuation members at all times and acting in accordance with our legal and regulatory obligations.”

AMP said that they were already working with customers to benefit any affected members and to improve member outcomes.

“We have reduced the administration fees on some of our cash investment options to address the issue of negative returns in the small number of funds impacted by this issue. We are also compensating affected customers for lost earnings,” they said.

Commonwealth Bank also released a statement confirming it was aware of the announcement but that they had “not been served with any legal proceedings”.

The case would not end at those two banks; Slater and Gordon are looking to see what other funds had not acted in the best interest of members, said Mr Rapoport.

“There seems to be a trend in the way they [retail funds] invest the cash with their parent banks so there is a good chance that we will be launching a case against many others as well,” he said.

If the class action is broadened, it has the potential to be the largest class action law suit ever undertaken in Australia.

“We estimate that there could be in the order around 5 million Australians that have at least one account with a retail super fund so if we do broaden the case and launch cases against most of the retail funds then that’s the kind of number we are looking at,” he said.

The allegations arise from evidence given to the royal commission into the banking industry and information released in the Productivity Commission report.

The Productivity Commission report released in May found that retail super funds only brought in members 4.9 per cent per annum in contrast to the 6.8 per cent per annum brought in by industry funds.

In fact, the Productivity Commission report found that retail funds frequently underperformed and charged more fees than industry funds.

Sportsbet is currently tipping Commonwealth Bank to pay back the largest compensation with odds of $1.65, followed by ANZ $4.00, Westpac $7.00 and NAB $8.00.

The Australian Prudential Regulation Authority and the FSC declined to comment and, at time of writing, Colonial First State had not responded to media requests.

CBA says breaking the law was an ‘honest mistake’

CBA has rejected claims it broke the law, pointing to an obscure loophole in the Criminal Code and stating that it was “genuinely of the belief” that it was doing the right thing.

Great legal minds are trying to find ways to explain the banks conduct and avoid the worst potential consequences! This from InvestorDaily:

Earlier this month, Colonial First State (CFS) executive general manager Linda Elkins faced the royal commission, where she was questioned about CBA’s handling of the MySuper transition.

From 1 January 2014, employers could only make default contributions to a registrable superannuation entity (RSE) offering a MySuper product.

Counsel assisting Michael Hodge established in his questions to Ms Elkins that CBA had breached the law 15,000 times by receiving default contributions into high-fee-paying accounts after 1 January 2014.

RSEs were also given a deadline of 1 July 2017 to transfer existing accrued default accounts (ADAs) to an approved MySuper product.

Mr Hodge noted that the contravention of s.29WA of the SIS Act is a strict liability offence, a point that was highlighted by CBA in its latest submission to the Hayne inquiry.

“However, it should be noted that in determining whether or not an offence has actually occurred, consideration would need to be given to the defence of mistake of fact available in section 6.1 of the Criminal Code in respect of strict liability offences,” the bank said.

“This is particularly the case here where CFSIL was genuinely of the belief that the members for whom the s.29WA breach occurred were in fact ‘choice’ members who fell outside the requirements of s.29WA and that it was only after engagement with APRA that it understood that the regulator was of a different view.”

In June 2014,  the board of CFS was told by management that APRA had requested it accelerate the transition for 60,000 ADA members, the royal commission heard.

Moving the 60,000 into lower-fee MySuper products would have the effect of turning off grandfathered commissions for advisers, the royal commission heard.

CFS, like other retail super providers, was eager to have ADA clients make an “investment decision” so that they would be considered a ‘choice’ member and therefore ineligible for transfer to a MySuper product.

In Mr Hodge’s submission to the commission following the fifth round of hearings, he stated that it is open to the commission to find that additional breaches occurred.

In response, CBA has stated that “there is no evidence before the commission to suggest that the failure to pay contributions of a subset of FirstChoice Personal members into a MySuper product was anything other than a genuine misunderstanding about the scope of s.29WA and its impact on particular cohorts of members, which CFSIL came to learn APRA did not agree with.”

“CFSIL believed that these members of FirstChoice Personal were choice members, to whom s.29WA did not apply.

“That honest mistake does not excuse CFSIL’s breach of the SIS Act provisions and s.912A(1)(c) of the Corporations Act as it has properly conceded, but it does tell against a finding of a failure to do all things necessary to provide services efficiently, honestly and fairly.”

APRA tells Hayne the ‘threat’ of litigation is sufficient

The prudential regulator has defended its powers after the royal commission questioned its preference for working “behind closed doors” and failure to take legal action against rogue funds,via InvestorDaily.

The fifth round of the royal commission saw APRA deputy chair Helen Rowell grilled by counsel assisting Michael Hodge QC. Ms Rowell disagreed with Hodge’s suggestion 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.

“The fact that no litigation was commenced does not mean that further remediation and proceedings are foreclosed,” APRA said in its submission. “APRA actively considered taking proceedings in the IOOF case.

“APRA accepts that there are legitimate questions as to whether a decision to litigate may achieve a result with wider deterrence effect as indicated in counsel assisting’s submissions. This issue will be the subject of further submissions by APRA on the policy and general questions posed by the commission following round 5.

“In APRA’s view, having the power to take litigation or other action is important to achieve the necessary changes and responses from entities without necessarily having to take that action in all cases. That is, the ‘threat’ of potential action facilitates the achievement of appropriate outcomes, which is APRA’s focus.”

APRA said the matter will be taken up further in its submissions on policy and general questions.

‘Fees for no service’

During her testimony on 17 August, Ms Rowell was 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.

In its submission, APRA agreed that charging fees for no service or charging fees to deceased members was “unacceptable”.

“However, what the most appropriate response is will depend on the context of the particular event,” APRA said.

“Where for example an RSE licensee itself identifies an instance of inappropriately charged fees, reports it promptly to APRA and engages with the relevant regulator (whether that be ASIC or APRA) in developing a remediation plan, APRA’s focus will properly be on whether the remediation plan is sufficient and whether the RSE licensee has systems in place designed to prevent future breaches.

“On the other hand, where RSE licensees do not promptly acknowledge and remedy issues, APRA can rely on the possible breaches of s 52 or s 62 to press the RSE licensee to take appropriate remedial and preventative action.”

APRA said the issue of ‘fees for no service’ impacts on the regulatory spheres of both ASIC and APRA.

“The ultimate causes of action for the misconduct identified may be different as between ASIC and APRA, but they will have the same factual substratum. APRA and ASIC share information and coordinate their activities in relation to the issue of fees for no service. APRA does not agree that it is incumbent on it to act earlier or separately from ASIC in such matters, when ASIC action may be achieving the common regulatory objective of appropriate remediation to affected members and/or where there may be other actions in train.”

IPOs must disclose royal commission exposure

ASIC has warned companies seeking to raise money through IPOs that they must tell investors how they are likely to be affected by the royal commission, via InvestorDaily.

 The corporate regulator released Report 589: ASIC regulation of corporate finance on Friday. The report covers ASIC’s regulation of fundraising activities, M&A and other corporate governance transactions throughout the first six months of 2018.

ASIC raised disclosure concerns with 19 per cent of the prospectuses filed in the period. The top concern was that the business model was not fully of adequately disclosed.

One of the ongoing concerns for ASIC this year when it comes to IPOs has been the disclosure of risks associated with the royal commission into misconduct in the banking, superannuation and financial services industry.

ASIC reveals in the report that during the first six months of 2018 it “closely examined and queried the adequacy of disclosure about the risks associated with a wealth management company’s vertical integration model”.

“If a financial services company raises funds through an IPO over the coming period, we consider that investors should be given candid information about how the business may be affected by the issues being raised in the royal commission,” said ASIC.

Depending on the business model, companies will be required to disclose relevant historical and current interactions with regulators – as well as specific regulatory risks the the business may encounter, said ASIC.

ASIC also warned against the practice of leaking information to the media about upcoming IPOs.

“We are concerned that references to investor education reports are made public through the media, often before the prospectus is lodged with ASIC,” said the regulator.

Statements about pre-commitment to an IPO by institutional investors or ‘cornerstone investors’ should also be “made with care”, warned ASIC.

“Retail investors may interpret a large pre-commitment by institutional investors as a sign the IPO is a good investment and decide to follow suit,” said the report.

Super assets reach $2.7 trillion

Total superannuation assets reached $2.7 trillion at the end of the June 2018, up 7.9 per cent for the preceding 12 months, according to APR, via InvestorDaily.

APRA has released its quarterly superannuation performance statistics for the June 2018 quarter, revealing the Australian super sector has grown to $2,709.3 billion.

Total assets in the super sector increased by 7.9 per cent throughout the 12 months to 20 June 2018.

The $2.7 trillion super pool consisted of $631.6 billion in industry funds, $451.9 billion in public sector funds, $622.3 billion in retail funds, $56.1 billion in corporate superannuation, and $749.9 billion in SMSFs.

The annual industry-wide rate of return for entities with more than four members (i.e. non-SMSF money, equating to $1.76 trillion) was 7.6 per cent. The five-year average rate of return to June 2018 was 7.9 per cent (see below).

Source: APRA

Total assets increased by 3.6 per cent of $65.9 billion over the June 2018 quarter. At the end of the quarter, 51.3 per cent of the $1.7 trillion in non-SMSF money was invested in equities; 31.5 per cent was invested in cash and fixed income; and property and infrastructure accounted for 13.5 per cent.

Asset allocation – June 2018

Source: APRA

 

Global economy ‘tinder dry’, warns JCB

Investors are not being compensated for the risks they are taking in the current late-cycle global economy, warns Jamieson Coote Bonds via InvestorDaily.

Record levels of corporate and household debt, combined with the prospect of rising interest rates, are putting the Australian and world economies on a knife’s edge.

That’s the view of Jamieson Coote Bonds director of investment, research and strategy Paul Chin, who is also concerned about the prospect of ‘contagion’ from the collapse of the Turkish lira last week.

“Our concern with markets right now is that investors are not compensated well enough for the risks that they’re taking. That’s evident in so many different ways,” Mr Chin said.

While he is not predicting the current crisis in Turkey will create a broader financial crisis along the lines of the 1998 Asian meltdown, Mr Chin said it is a sign of the dangers of autocratic leadership.

Turkish president Recep Tayyip Erdogan, who effectively controls monetary policy in the country, refuses to raise interest rates because he believes doing so would lead to inflation (an opinion that is at odds with almost every economist in the world).

The consensus among economists is that Turkey needs to raise official interest rates by about 1,000 basis points (10 per cent) in order to arrest the decline of the lira, which fell 40 per cent against the US dollar last week following the imposition of US trade sanctions.

Mr Chin said he had similar concerns about the autocratic manner in which US president Donald Trump has ignited a trade war with China.

“It’s a major risk and it really does derail world growth. It could precipitate the next crisis inadvertently as well,” Mr Chin said.

Trade wars, by definition, can only be win/lose or lose/lose, he said. In the latter scenario, he said, “everyone goes protectionist and isolationist”.

“It’s just tinder dry in terms of how late cycle we are. We have high debt levels and one little thing can push everything over the edge,” he said.

Jamieson Coote Bonds (JCB) is a ‘pure-play’ defensive fixed income manager that invests in high-grade Australian bonds as well as the sovereign debt of G7 countries.

Mr Chin says many of the financial advisers he talks to are “pulling their hair out” looking for growth options in their portfolio.

But if JCB is right, they might be looking for the wrong thing at the wrong time.

“Advisers are thinking to themselves: ‘Things are pretty richly valued right now. I’m concerned about the trade war, I’ve read stuff about Turkey. I’d better start reading about defensives,’” Mr Chin said

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.”

AMP super governance under scrutiny

AMP’s superannuation funds are permitted to underperform for five years before the investment committee is obliged to inform the relevant fund’s board, the royal commission has heard, via InvestorDaily.

The royal commission has been told that a consistently underperforming AMP fund could be underperforming for five years before the board of directors becomes notified.

The royal commission hearings into superannuation continued on Thursday, with AMP Superannuation Limited chairman Richard Allert in the witness box.

Mr Allert faced questioning by counsel assisting Michael Hodge about how AMP management and board addresses poorly performing investment funds.

The royal commission was told that ‘quarterly investment management reports’, which contain information about the performance of AMP’s funds in a given quarter, are put together by AMP’s Group Investment Committee.

However, the board of AMP Superannuation does not receive this report. Instead, it goes to AMP trustee services.

Mr Hodge confirmed with Mr Allert that the report would only be raised with the board if trustee services found an issue with the report, or if there was an “exception”.

“Unless an exception was triggered, then you wouldn’t expect this report to be provided to the board?” Mr Hodge asked.

“Correct,” Mr Allert said.

The royal commission heard that such an ‘exception’ would have three criteria: the first was the ‘identification’ criteria, which meant pinpointing “significant under-performance against peers/benchmarks over rolling 36 month period”.

The second criteria was a period of ‘further investigation’, and the third and final criteria was an exceptions report that was issued “if an investigation remains under investigation … for a period of eight or more quarters”.

“So it would seem as if it would be necessary for an investment to underperform for five years before it would be reported to the board,” Mr Hodge put to Mr Allert.

“No, I couldn’t accept that,” he responded.

After a protest from AMP legal counsel Robert Hollo, who called the question “a little unfair”, Royal Commissioner Kenneth Hayne AC QC interceded and Mr Hodge rearticulated his question.

“Is it possible for an exceptions report to come to the board about investment performance any earlier than where the underperformance has occurred over a five-year period?”

Mr Allert said it was possible. “If there was something that was really bothering the Group Investment Committee and relaying it to the Trustee Services or was bothering our trustee services representative on the GIC, they would alert the board to that fact.”

But this would occur outside of the exceptions framework, the royal commission was told.

One instance where Mr Allert could recall AMP trustee services raising an issue with the board this year was “in relation to products that had a cash element”.

IOOF warned for failing to produce documents

From Investor Daily.

Kenneth Hayne has delivered a sharp rebuke to IOOF for failing to produce documents ahead of the royal commission’s public hearings into superannuation, which commence next week.

In a ruling published by the royal commission yesterday, commissioner Kenneth Hayne laid out a timeline of correspondence with IOOF subsidiary Questor Financial Services.

Questor was issued with Notice to Produce NP-962 on Wednesday 11 July 2018, which required the company to produce documents prepared for Questor board meetings (‘board packs’) for each meeting of the board held since 1 July 2011.

The notice required the production of the documents by 4pm Tuesday 17 July.

At 3:30pm on Tuesday 17 July, IOOF solicitors King and Wood Mallesons produced documents in response to the notice, stating: “IOOF believes that the documents being produced constitute complete production in response to the Notice to Produce.”

On examining the documents, solicitors assisting the commission noted that while complete board packs had been produced for the years between 2011 and 2014, for subsequent years only agendas had been produced.

In response to an urgent request from solicitors assisting, Questor’s solicitors said the absence of the files was “inadvertent” and “a result of a technical error”.

Questor continued to fail to produce the documents until 9:48pm Sunday 22 July, with its solicitors noting that Questor “makes privilege claims in relation to parts of the documents produced”.

An affidavit in support of the claims for privilege was eventually supplied by Questor’s solicitors at 1:11am on Wednesday 25 July.

Commissioner Hayne has examined un-redacted versions of the documents, noting that “the claims for privilege appeared large”.

“I reject many of the claims that were made. Many of the documents in respect of which privilege is claimed are not documents that record or refer to communications made for the dominant purpose of IOOF or Questor obtaining legal advice; they do not record or refer to communications of that kind; and, they are not documents created for the dominant purpose of obtaining legal advice,” Mr Hayne said.

He noted that the claims made in respect of board packs dated after 2015 were in “sharp contrast” with the fact that no claims were made about the board packs for 2011–2014.

“Prompt and proper compliance with Notices to Produce is required by law and is essential to the proper execution of the commission’s work. Delays of the kind that have occurred in this case impede the proper work of the commission. Ill-based claims for privilege further impede its work,” Mr Hayne said.

Questor was the subject of parliamentary and senate committee scrutiny in mid-2015 after a number of allegations were aired in the Fairfax press against then IOOF head of research Peter Hilton.

IOOF will be one of the topics discussed at the royal commission public hearings into superannuation which commence on Monday 6 August.