More Related Content Similar to The Litigation Landscape in the Royal Commission Aftermath - A Deep Dive (20) 2. © Holding Redlich 2020
Outline
Financial Services Royal Commission “From the Trenches”
Final Report of Commissioner Hayne – Deep Dive
› Implications for the wider business world?
› Observations from the evidence provided to the Financial Services Royal Commission
› Commissioner Hayne’s criticism of ASIC
› ASIC’s response – “Why not litigate?” approach
ASIC’s recent enforcement work (to February 2020)
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FSRC “From the trenches”
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
The Commissioner – The Honourable Kenneth Hayne AC QC (former High Court Justice: 1997–2015)
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The central task of the Commission was to inquire into, and report on, whether
any conduct of financial services entities might have amounted to misconduct and
whether any conduct, practices, behaviour or business activities by those entities
fell below community standards and expectations.
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FSRC “From the trenches”
Seven rounds of Commission hearings, concerning:
1. Consumer lending
2. Financial advice
3. Loans to small and medium enterprises
4. Experiences with financial services entities in regional and remote communities
5. Superannuation
6. Insurance
7. Policy questions
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FSRC “From the trenches”
Commonwealth Bank heart attack silliness
comes back to bite in royal commission
(AFR columnist, James Thomson)
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FSRC Final Report – Deep Dive
Implications for the wider business world?
› Governance
› Organisational culture
› Remuneration practices
› Risk management practices
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“Therecanbenodoubtthattheprimaryresponsibilityformisconductinthe
financialservicesindustrylieswiththeentitiesconcernedandthosewho
managedandcontrolledthoseentities:theirboardsandseniormanagement.”
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FSRC Final Report – Deep Dive
Organisational culture – adherence to six basic norms:
1. Obey the law
2. Do not mislead or deceive
3. Act fairly
4. Provide services that are fit for purpose
5. Deliver services with reasonable care and skill
6. When acting for another, act in the best interest of that other
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FSRC Final Report – Deep Dive
Evidence provided to the Financial Services Royal Commission – Four Observations
1. Connection between conduct and reward
2. Asymmetry of power and information between financial services entities and their customers
3. Effect of conflicts between duty and interest
4. Holding entities to account
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FSRC Final Report – Deep Dive
Commissioner Hayne’s criticism of ASIC
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“Improving compliance with financial services laws cannot be achieved by
focusing only on negotiation and persuasion. Negotiation and persuasion, without
enforcement, all too readily leads to the perception that compliance is voluntary.
It is not. All financial services entities must obey the law, not just those who are
willing to do so. And all financial services entities must comply with all the laws
that apply to them, not just with those bits of the law that they find to be
commercially acceptable.”
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FSRC Final Report – Deep Dive
Commissioner Hayne – ASIC to implement change:
› Negotiated outcomes
› Remediation
› Size of remedies relative to profits
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FSRC Final Report – Deep Dive
“serious breaches of law by large entities call for the highest level of regulatory
response. And that is what has been missing. Too often serious breaches of law by
large entities have yielded nothing more than a few infringement notices, an
enforceable undertaking not to offend again (with or without an immaterial
‘public benefit payment’) or some agreed form of media release”.
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FSRC Final Report – Deep Dive
› Infringement Notices (or Penalty Notices)
- Notices authorised by statute that set out the particulars of an alleged contravention and a penalty for
that contravention
- Useful way to deal with lax administrative conduct, such as failure to file a return on time
› Enforceable Undertakings (EUs)
- Form of administrative settlement that ASIC may accept as an alternative to civil court action, or certain
other administrative actions
- Can be used only if the entity agrees to give the undertaking
- ASIC Regulatory Guide 100 – Enforceable Undertakings
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FSRC Final Report – Deep Dive
“Fees for no service” Chronology
› ASIC announced, in April 2015, that it was investigating ‘multiple instances’ of fees being charged for ongoing advice that
had not been provided.
› ASIC published its report on the matter in October 2016.
› In April 2018, a few days before the Royal Commission was first to take evidence about these issues, ASIC accepted
Enforceable Undertakings from ANZ and CBA (in respect of two of CBA’s advice licensees).
› In August 2018, the Royal Commission took further evidence on the issues in connection with superannuation.
› In September 2018, ASIC began civil penalty proceedings against MLC Nominees Pty Ltd and NULIS Nominees (Australia) Ltd
alleging contraventions of several statutory provisions in connection with the charging of certain advice fees.
› As at 31 December 2019, CBA paid or offered compensation in respect of its fee for no service conduct in the amount of
$164,846,374, which remediated 50,576 CBA customers.
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FSRC Final Report – Deep Dive
Institution Non-compliant advice [iii] FFNS misconduct
Compensation paid No. of customers paid
compensation
Compensation paid or
offered
No. of customers paid
or offered
compensation
AMP $26,654,023 1,987 $140,459,870 193,167
ANZ $36,205,259 1,777 $59,415,383 21,184
CBA $9,386,454 628 $164,846,374 50,576
Macquarie Not applicable Not applicable $2,583,645 734
NAB $39,944,208 1,294 $163,862,768 586,961
Westpac $29,680,142 1,365 $76,686,356 19,441
Total $141,870,086 7,051 $607,854,395 872,063
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ASIC’s recent enforcement work
› 316 investigations on foot covering a range of misconduct across ASIC’s full breadth of jurisdiction (as at 1
January 2020)
› From January 2019 to January 2020, there has been:
- 10% increase in the number of ASIC enforcement investigations
- 52% increase in enforcement investigations involving CBA, NAB, Westpac, ANZ and AMP (or their
officers or subsidiary companies)
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ASIC’s recent enforcement work
› In addition to Royal Commission referrals and case studies, ASIC’s Office of Enforcement is currently
prioritising:
- Misconduct related to superannuation and insurance
- Cases that engage ASIC’s new powers or provisions that now carry penalties or higher penalties
- Illegal phoenix activity
- Auditor misconduct
- New or emerging types of misconduct, including misconduct carried out online or with the use of
emerging technologies
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19. Thank you
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