Faulty advice has cost Australia’s largest financial institutions A$3.6 billion in a long-running compensation process due to end early next year.
The Australian Securities and Investments Commission (ASIC) has been chasing the six institutions – AMP, ANZ, Commonwealth Bank of Australia (CBA), Macquarie, National Australia Bank (NAB) and Westpac – since 2016 for a series of multiple financial advice breaches, mostly for charging fees-for-nothing.
ASIC first identified widespread fees-for-no-service (FFNS) problems in a 2016 report with a further investigation the following year. The 2018/19 Australian Royal Commission into financial services also aired the FFNS issues as well as multiple failings within institutional advice providers.
Of the total A$3.6 billion remediation costs paid, or promised, by the various institutions as at June 30 this year more than a third sheet home to NAB, which has coughed up about A$1.3 billion for FFNS offenses and a further A$104 million to cover ‘non compliant advice’.
The ill-fated foray into financial advice cost Westpac about A$1 billion followed by AMP (A$670 million) and CBA (A$300 million).
Most of the institutions will settle any outstanding compensation claims by the end of this year with NAB slated to rule a line under the process in February 2023.
But the banks and Australian financial institutions have faced a raft of other remediation and legal costs arising out of the Royal Commission.
Nonetheless, those firms caught in the ASIC sting will be glad to see the back of the FFNS scandal with most of the Australian bank now largely out of the financial advice business: AMP has seen its financial planning force shrink by almost two-thirds from close to 3,000 in 2018 to the current level of just over 1,000.
The various institutional advice misdemeanours affected more than 1.4 million underlying clients, the ASIC data shows.
Meanwhile, ASIC chair, Joe Longo, has laid out a four-pronged program for the regulator over the next four years covering cyber-risks, retirement planning, sustainable finance and, product design and distribution obligations (DDO) – the latter two, in particular, likely to affect the NZ market as well.
The DDO regime, which came into force last October, requires Australian firms to ensure financial products are built for and marketed to appropriate end clients. Australian fund managers, for example, now have to take greater care over distribution channels, probably even in NZ where hundreds of investment products are offered under trans-Tasman Mutual Recognition rules.
Under DDO, all captured firms must issue a ‘target market determination’ (TMD), describing what kind of investors each product would suit.
Longo said ASIC had embarked on “a surveillance of a sample of TMDs in the superannuation and managed funds sectors, and engaging with major supervised institutions on how they are implementing DDO”.
“Where our surveillance work identifies poor consumer outcomes, we will disrupt the sale of the products using stop orders or take court-based enforcement action,” he said.
Like other regulators including the Financial Markets Authority, ASIC is also pushing ahead with policing of sustainable investment claims as products labeled as such (or similar) swamp the market.
“Firms are expected to explain how they will ‘take sustainability into account’, using specific and clear language. We are actively monitoring the market, looking for dubious claims (also known as ‘greenwashing’),” Longo said.
“Serious breaches will fall foul of the misleading and deceptive disclosure provisions in the Corporations Act, and we will take enforcement action.”
However, ASIC has banded together with three other Australian financial regulators to appeal for the establishment of global sustainability definitions by the international standards body.
“ASIC strongly supports the development of globally comparable standards. We cannot go it alone, with our own language or our own standards,” Longo said.
“Our fellow regulators agree, and that’s why we lodged a joint submission to the International Sustainability Standards Board (ISSB) (PDF 220 KB) on its proposed standards.
We will continue to engage with peer regulators here and overseas to ensure we are aligned on this.”
He also flagged further moves by ASIC to police cryptocurrency sector ahead of new regulations about to hit the unruly sector in Australia.
“ASIC’s essential warning to consumers considering crypto-assets is this: They are highly volatile, inherently risky, and complex,” Longo said. “I’m concerned that investors do not fully understand that they’re investing in, or the very significant risks.”
The Australian government signaled upcoming regulations last week that will introduce licensing and custody obligations among other new standards for crypto assets.
According to an official government statement: “As the first step in a reform agenda, Treasury will prioritise ‘token mapping’ work in 2022, which will help identify how crypto assets and related services should be regulated. This hasn’t been done anywhere else in the world, so it will make Australia leaders in this work.”