Australia's Great Regulatory Crackdown As Financial Misbehaviour Exposed - Update

Tom Burroughes Group Editor 1 October 2018


With almost daily headlines about punishments, resignations and revelations of wrongdoing, Australia's banking and financial services sector is in the spotlight. Here is an overview of what is being done. This is updated to track latest developments.

When the Australian government led by Prime Minister Malcolm Turnbull set up a Royal Commission late last November to probe problems in the country’s financial services industry, this publication wasn’t surprised. (See an article as far back as early 2016 here.) For several years, a search on the acronym “ASIC” on this website, for example, will bring up dozens of stories of crooked or incompetent wealth advisors getting banned, fined and jailed. But more recent times have seen an acceleration in the volume of stories about wrongdoing at organisations such as Commonwealth Bank of Australia, Australia and New Zealand Banking Group and AMP. Macquarie, so recent reports say, faces legal action over employment practices in its wealth arm. The list goes on.

The country’s problems resonate further afield because Australia has at times been seen as a model, by nations such as the UK, to follow. For example, in the early Noughties, there was a widespread debate in the UK about the case for following Australia’s example of compulsory saving for retirement, and to some extent that has been taken up through the auto-enrolment reforms of a few years ago. Australia’s image as a young, entrepreneurial country, buoyed by China’s commodities hunger and an influx of young professionals from overseas, is very alluring. So it comes as a shock to see multiple cases of misconduct, much as the sporting world was roiled by a recent case of cheating by the Australian national cricket team. Australia’s self-image is of a nation that plays hard but fair, so such behaviour is a jolt. 

In banking and wealth management, there is plainly much to do, with lessons not just for Australia, but for the wealth management industry globally. 

Here is a summary of the main cases and initiatives so far. (These details may be subsequently revised.)

Royal Commission
On 28 September, the Royal Commission issued its preliminary report, arguing that a sales-driven culture had driven lax practices, and it also targeted regulators, including ASIC, for being insufficiently tough on wrongdoers. A final report is due in coming weeks.

Australian Securities and Investments Commission 
In October 2014 ASIC launched its Wealth Management Project, designed to raise standards by major financial advice providers. It focuses on the largest financial advice firms: NAB, Westpac, CBA, ANZ, AMP and Macquarie. Almost 50 individuals, as at the time of writing, have been punished in various ways. The programme continues.

Commonwealth Bank of Australia
CBA in early June agreed to pay a civil penalty of A$700 million ($535.2 million) to authorities for failing to immediately report more than 53,500 suspicious transactions, one of the worst financial scandals in the country’s history. The lender said it had entered into an agreement with Austrac, the Australian Government’s financial intelligence agency, to resolve the civil proceedings commenced by the watchdog in the Federal Court of Australia on 3 August last year. The agreement, which still has to be cleared by a court, will involve the largest such fine of its kind in Australian history. 

At the heart of the affair are late filings of 53,506 Threshold Transaction Reports for cash deposits through Intelligent Deposit Machines (IDMs). The bank also inadequately followed risk assessment requirements on IDMs on 14 occasions. Transaction monitoring did not operate as intended on a number of accounts from October 2012 and October 2015. Some 149 Suspicious Matter Reports were filed late or were not filed as required. Due diligence tests on clients were broken in the case of 80 customers. Senior executives have left the bank, including its chief executive, Ian Narev, who brought forward his retirement, and was replaced by Matt Comyn.

Australia and New Zealand Banking Group 
In April, ANZ was ordered to pay A$3 million and submit regular reviews of its systems and processes after billing thousands of wealth management clients for services they didn’t receive. The order, imposed by ASIC, also requires ANZ to provide an audited attestation from senior management to show “reasonable assurance” that the lender has, since 2014, provided clients with documented annual reviews. In addition, the bank must demonstrate that it has improved its compliance functions.

National Australia Bank
It was revealed that NABhad taken more than A$220 million from clients for services they never intended to provide.

Employees’ testimonies to the Royal Commission revealed that AMP had charged clients for advice they never received and then lied to the Australian Securities and Investment Commission (ASIC) about the practice for nearly 10 years. The chief executive of AMP, Craig Meller resigned in April after a probe revealed his firm had engaged in widespread misconduct. Meller held the role since 2014. Shares in AMP have slid since the main revelations emerged. The firm has been hit with multiple class-action lawsuits by irate shareholders.

Dover Financial Advisers
The 400 advisor-strong group, with about $2.3 billion in assets under management, is closing down. It had been under investigation by the ASIC since last year, with the heat intensifying under the Royal Commission’s own scrutiny. Dover and owner Terry McMaster have ceased operations after receiving notice of a hearing into suspending or cancelling its licence.

The bank must defend how it structures its private wealth unit’s employment contracts after a group of 15 former advisors sued it. A statement of claim, lodged with the Federal Circuit Court of Australia in June 2018, alleges a string of breaches of the Fair Work Act by Macquarie's banking division (source: Australian Financial Review). This publication has sought further comment. AFR said potential breaches relate to claims of underpaying advisors' entitlements spanning their annual leave, public holidays, leave loading and compassionate and carer's leave. The group of former private client advisors claims Macquarie failed to comply with National Employment Standards and the modern award covering the banking, finance and insurance industry. The John Wardman-led group is seeking to be reimbursed for total underpayments of A$2.6 million plus interest, penalties and legal costs and also wants Macquarie to be issued with pecuniary fines.

The bank in January 2020 named a new chairman to take over from Lindsay Maxsted. The lender changed its executive leadership after regulatory claims of major anti-money laundering and anti-terrorism financing failures. McFarlane, who has also been named as a non-executive director, was alted to take over as chairman on 2 April this year, and start his NED role in February. Prior to this, McFarlane was chairman at Barclays in London and also chairman of TheCityUK, an industry body involved in pushing ideas about the UK’s financial services sector, currently contemplating life outside the European Union after 31 January. McFarlane has been a board director at five major financial institutions over the past 27 years. His career includes top-level roles at ANZ, Standard Chartered and Citicorp.

In November 2019 Brian Hartzer, Westpac chief executive,  resigned following regulatory claims of major anti-money laundering and anti-terrorism financing failures. Hartzer’s departure added to those of other CEOs around the world brought down by lapses in handling potentially dirty money in recent years. Peter King, chief financial officer, is acting CEO. As chairman-elect, McFarlane will be responsible for naming a permanent CEO.


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