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What is ASIC?
The Australian Securities and Investments Commission (ASIC) is an independent Government body that enforces consumer protection and company law in relation to superannuation, insurance, investments, and banking (except for lending) all over Australia.
ASIC’s purpose is to minimise unfair practices by financial markets and products and to also minimise fraud.
ASIC’s Fees-For-No-Service Project
‘Fee-for-no-service’ is the failure of a financial institution in providing ongoing advice services to financial advice clients while those clients continue to be charged financial advice fees.
In 2015, ASIC commenced a project into reviewing the practice of financial institutions in Australia charging customers ongoing financial advice service fees without actually providing financial advice to customers.
The Australian Financial Service licensees subject to the review included AMP, ANZ, Commonwealth Bank, Macquarie Group Limited, NAB, Westpac.
Dishonesty of Sector’s Profit-Driven Culture
The big banks have been slammed for a cultural practice of charging their customers fees for financial advice and other services that were never actually provided. This included, in some cases the failure to appoint an advisor to customers, and in other cases, the failure to provide the promised service of financial advice by an appointed advisor.
The banking royal commission was informed of various instances of CBA billing customers for ongoing service fees after the death of their customers. It’s reported that those customers continued to be billed even after knowledge by CBA financial advisers that those customers had died.
For example, a Count Financial Compliance and Risk Report in 2015 uncovered that an adviser was aware that a customer had died in two thousand and seven yet continued billing that person’s account.
Customers of CBA were routinely billed ongoing charges for financial advice without any such advice being provided between July 2007 and June 2015 involving around 315,000 customers, the commission was told.
The Commonwealth Bank has now been required to pay $119 million in compensation for charging ‘fee for no services’ to customers.
The bank is reportedly refunding around sixty-seven million dollars to superannuation customers after incorrectly charging fees since two thousand and twelve. The bank’s MLC wealth management sector charged over 300,000 of its customers for an opportunity to access a financial advisor regardless of whether the service was used or not.
The Parliamentary Committee in Canberra was informed that two-hundred and forty-five thousand customers of National Australian Bank (NAB) were overcharged fees.
By the end of this year, NAB will have paid one-hundred-and-thirty million dollars with a further three hundred million dollars.
NAB’s final chief executive, Andrew Thorburn reported said, “the royal commission has exposed issues in our bank and the industry that have been confronting and upsetting… I feel this deeply, having worked in our profession for more than three decades. In so many cases, we have not had the care and respect for our customers that we should have. And for that, I am sorry.”
Mr. Thorburn also acknowledged that, unfortunately a greater emphasis has been on profits, bonuses and sales over people.
NAB has thirty-three thousand staff throughout Australia. As a result of not following the banks’ code of conduct, around 300 NAB bankers have now been dismissed from their roles. Seven hundred NAB staff are looking at a reduction in salary.
AMP provided a statement of being “deeply disappointed” from the practice of charging customers fees where services were not provided, and for misleading the regulator.
AMP stated, “we apologise unreservedly to our customers, our regulator and the community more broadly. This is not behaviour we expect in our company”.
The evidence presented revealed that AMP actually made around twenty incorrect statements to ASIC while senior staff in AMP continued the argument in favour of billing customers for no services notwithstanding the fact that they had received legal advice advising them to stop doing this.
While AMP have stated that it will remedy the situation by paying out around $4.7 million to affected customers, the financial institution may also be facing criminal charges for making false and misleading statements to ASIC.
It’s alleged that AMP gave ASIC “a supposedly independent report with changes apparently designed to limit any findings of the knowledge and involvement of the company’s most senior executives.”
The banking royal commission’s lawyers, particularly Senior Counsel Michael Hodge QC has recommended that CAB and NAB face criminal charges.
He said that the Commonwealth Bank had admitted to more than thirteen thousand criminal offences of the superannuation law.
Mr. Hodge also recommends that NAB face criminal charges for misleading and deceptive conduct because it wrongly billed superannuation customers.
He says that it did this by allegedly failing to tell its customers that they didn’t need to pay a plan service fee, and that NAB breached the law eighty-four times by failing to inform ASIC about its fee-for-no-service scandal within the legal deadline.
The Government at the federal level has considered plans to increase the criminal penalties to up to ten years imprisonment and/or heavy fines for the kinds of breaches of the Corporations Act that appear to have come to light from evidence before the banking royal commission.
The Law and Penalties for Dishonest Conduct under the Corporations Act 2001 (Cth)
In the case of an individual facing a criminal charge of Dishonest Conduct, such a person if guilty can face a penalty of up to 10 years imprisonment and/or a fine.
The fine can be any one of the following, whichever one is the greatest amount:
- $945,000 fine; or
- 3 times the value of the total benefit obtained from the offence (only if it can be determined)
In the case of a body corporate, whichever one is the greatest amount:
- $9,450,000 fine; or
- 3 times the value of the benefit obtained from the offence (only if it can be determined); or
- If the total value of the benefit from the offence cannot be obtained, then 10% of the body corporate’s annual turnover during the 12-month period ending at the end of the month in which it committed (or commenced committing) the offence.
An individual or body corporate can be guilty of dishonest conduct under section 1041G of the Corporations Act 2001 (Cth) if the prosecuting body (whether it is the DPP or ASIC) can prove each of the following elements of the crime beyond reasonable doubt in court:
- A person engages in ‘dishonest’ conduct; and
- That conduct was in relation to a ‘financial service or product’; and
- That conduct was engaged in the course of carrying on a ‘financial services business’
What does ‘dishonest’ conduct mean? Dishonest means “dishonest according to the standards of ordinary people and known by the person to be dishonest according to the standards of ordinary people.”
What is a ‘financial services business’? This means a business of providing financial services.
What does ‘financial service or product’ mean? This includes a person providing a financial service expressed in section 766A of the Corporations Act 2001 (Cth).
Other Offences of Dishonesty
There are many other types of offences of dishonesty which carry heavy penalties including imprisonment under the law.
Dishonestly Obtaining Financial Advantage or Property by Deception Charges
Section 192E of the Crimes Act (NSW) under the state law prohibits a person from receiving property or causing a financial disadvantage or receiving a financial advantage as a result of a person’s deceptive and dishonest conduct.
A person guilty of dishonestly obtaining financial advantage or property by deception under s192E will face a penalty of up to 10 years imprisonment.
False or Misleading Document Charges
Section 137.2 of the Commonwealth Criminal Code 1995 (Cth) prohibits a person from producing a document to another person in circumstances where that document was false or misleading in a ‘material particular’ and the person knew that it was false or misleading.
A person guilty of this offence can face a penalty of up to 12 months imprisonment.
Intention to Defraud by False or Misleading Statement
Section 192G of the Crimes Act 1900 (NSW) prohibits a person from dishonestly making or publishing a statement (or agreeing to do the same) in circumstances that the statement is false or misleading, and where you did this with the intention of obtaining property belonging to someone else or you did this with the intention of obtaining a financial advantage (or to cause a financial disadvantage).
A person guilty of this offence can face a penalty of up to 5 years imprisonment.
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