ASIC has sent a message that non-financial compliance risk needs to be monitored just like financial risks. This can be seen in the media release here where ASIC bundles 6 civil penalty provisions against Westpac which alleged widespread compliance failures across multiple businesses, including Westpac’s banking, super, wealth management and insurance brands. See below for details of the six matters including each fine.
ASIC Deputy Chair Sarah Court said, ‘the breaches found by the Court in these six cases demonstrate a profound failure by Westpac over many years and across many areas of its business to implement appropriate systems and processes to ensure its customers were treated fairly. Westpac, like all licensees, has an obligation to be honest and fair in its provision of financial services. Despite this, Westpac failed to prioritise and fund the systems upgrades necessary to help fulfil this obligation.
‘Over the course of 13 years, more than 70,000 customers have been affected by these failures, either by being incorrectly charged or given the wrong information. The sheer scale of this impact suggests that, at the time, Westpac had a culture that did not prioritise compliance.’
The takeaway here is that systematic compliance failures aren’t acceptable and indicate cultural issues which can result in substantial fines for that approach. Therefore, it’s evident that Risk Committees should monitor compliance risks and non-financial risks more generally as a standing agenda item.
The six matters against Westpac concern:
Fees for no service – deceased customers:
Over a 10-year period, Westpac and related entities within the Westpac group, charged over $10.9 million in advice fees to over 11,800 deceased customers for financial advice services that were not provided due to their death.
Penalty handed down by the Court: $40 million
General insurance:
Westpac distributed duplicate insurance policies to over 7,000 customers for the same property at the same time, including 3,899 customers since 30 November 2015, causing customers to pay for two (or more) insurance policies where they had no need for the additional policies. Westpac also issued insurance policies to 329 customers who had not consented to entering into an insurance policy.
Penalty handed down by the Court: $15 million
Download: Orders (174 KB)
Inadequate fee disclosure
Westpac, Securitor and Magnitude (advice businesses) charged ongoing contribution fees for financial advice to retail customers without disclosing, or properly disclosing those fees. It is estimated that over eight years, at least 25,000 customer accounts were charged at least $10.6 million in fees that were not disclosed, or properly disclosed.
Penalty handed down by the Court: $6 million
Download: Orders (176 KB)
Deregistered company accounts:
Westpac allowed approximately 21,000 deregistered company accounts, holding approximately $120 million in funds, to remain open and continued to charge fees on those accounts. Westpac allowed funds to be withdrawn from these accounts that should have been remitted to ASIC or the Commonwealth. Justice Beach found that Westpac knew its systems were inadequate, did not fix those systems in a timely fashion and benefitted from its own conduct.
Penalty handed down by the Court: $20 million
Download: Orders (158 KB)
Debt onsale:
Westpac sold consumer credit card and flexi-loan debt to debt purchasers with incorrect interest rates. These interest rates were higher than Westpac was contractually allowed to charge on at least part of the debts, resulting in more than 16,000 customers, who were likely to be in financial distress, being overcharged interest.
Penalty handed down by the Court: $12 million
Download: Orders (163 KB)
Insurance in super:
Westpac subsidiary, BT Funds Management charged members insurance premiums that included commission payments, despite commissions having been banned under the Future of Financial Advice reforms.
Some members also paid commissions to financial advisers via their premiums even though they had elected to have the financial adviser component removed from their account. Over 9,900 BT Funds members were affected.
Penalty handed down by the Court: $20 million