ASIC Wants Adviser Misconduct Better Dealt With


The Australian Securities and Investments Commission (ASIC) has released its final report into how Australia’s big banks have dealt with sub-standard financial advisers.

The report was the culmination of a long-term investigation by ASIC, which examined the Big Four (ANZ, CBA, NAB, and Westpac) as well as AMP, on how they had dealt with poor advice or misconduct by their own financial advisers.

The report – titled Financial advice: Review of how large institutions oversee their advisers – found that the major banks had failed in several key areas.

The main areas of failure included:

  • Failing to notify ASIC about serious instances of non-compliance
  • Significant delays in reporting misconduct, when reporting did occur
  • Inadequate background checking and reference checking processes
  • Inadequate auditing processes to ensure quality and suitability of financial advice

The report also covered ASIC’s previous and ongoing actions against sub-standard advisers and the banks for which they worked.

By the end of 2016, the Commission had banned 26 advisers due to serious compliance breaches, and had ordered banks to pay compensation to more than 1,300 customers to the tune of around $30 million.

ASIC’s investigation looked at how the banks had dealt with poor advice and non-compliant behaviour from their advisers between 1 January 2009 and 30 June 2015. They assessed:

  • How firms had identified and dealt with the advisers themselves
  • Actions they had taken to remediate customers
  • Reviews they had conducted of what occurred
  • Processes they had implemented to monitor advisers and prevent malpractice in the future

ASIC Deputy Chairman Peter Kell said, “ASIC’s report sets out the significant work that has been done by the major financial advice institutions to implement large-scale review and remediation programs to identify and remediate customers impacted by poor advice given in the past.

“ASIC is working closely with these institutions as they deal with customers who have been affected by the past non-compliant advice.”


ASIC investigation welcomed by the major parties

Both the Turnbull Government and Labor welcomed the publication of the report, although the parties’ responses differed significantly in tone.

In a statement from Federal Finance Minister Kelly O’Dwyer, the Government stated that ASIC’s findings were evidence of improved regulation in the finance industry and of the Government’s own legislative reforms.

These included the Financial Adviser Register established in 2015, as well as the ASIC Enforcement Review Taskforce, which will make recommendations to the government on ASIC’s powers of investigation and enforcement.

“This review shows that ASIC is taking proactive steps to monitor the financial advice sector’s compliance with the law, and to work with the sector to improve practices, to prevent future harm to consumers,” Minister O’Dwyer said.

“The Turnbull Government is taking action now to address the past issues that have occurred in the financial services industry and will continue to implement the most ambitious financial system reform agenda in modern history.”

The Opposition’s reaction, by contrast, was a condemnation of the Government’s lack of action against the banking industry’s repeated transgressions towards consumers.

Labor cited ASIC’s findings as further evidence that a Royal Commission into the banking industry was necessary, saying that previous mea culpa statements from bank CEOs were at odds with the industry’s repeated transgressions.

Shadow Finance Minister Katy Gallagher said it is “staggering to learn” that big firms are still “dragging the chain” in reporting to ASIC or improving their own processes, despite previous scandals.

“Labor will continue to fight for a royal commission because we know it is the only way to shine a light on the misconduct and cultural issues in the banks that have led to thousands of Australians, including small businesses, being ripped off or treated unfairly by them,” said Minister Gallagher.


ASIC to implement further improvements

As stated in the report, ASIC will continue to ensure more rigorous reporting requirements going forward.

The Commission has developed checklists for advisers and compliance consultants to use regarding several key issues.

These issues include adviser background checks, advice audits, and developing Key Risk Indicators for advisers who may skirt close to malpractice.

“It is critical that customers are able to get financial advice they can trust,” continued Mr Kell.

“ASIC expects internal processes to support core values of putting the customer first, and where there are failings, for advice firms to act quickly to provide a response in the interests of their customers.

“This is a message for both large and small advice firms.”

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