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ASIC "disappointed" as it issues six sets of proceedings against Westpac.

BIScom Subsection: 
Author: 
Nigel Morris-Cotterill

The Australian Securities and Investment Commission has issued six sets of civil proceedings against Aussie banking giant Westpac, each set in respect of different investigations. If ASIC proves its cases, Westpac will be liable for civil penalties.

The conduct is historical but the rhetoric spilling from ASIC implies that the Commssion is dealing with a current issue. The language used is more akin to those of American regulatory or prosecution press releases. The desire to cause reputational harm is palpable as the release takes naming and shaming beyond that which has been usual in Australia.

The reality is this: Westpac has admitted widespread failings across its banking and other operations over a period of years, many of which were without doubt reason for serious criticism. When ASIC says that it has issued proceedings, that is true but the proceedings are not contested and the proceedings are for the primary purpose of obtaining court approval for an agreed settlement.

It is indicative of the lack of measure in ASIC's media release that its Deputy Chairman, Sarah Court, said "‘ASIC is disappointed to have to yet again commence legal proceedings, on this occasion no fewer than six times, against a major bank. "

Frankly, the reason ASIC has to bring the proceedings, "no fewer than six times" is not because Westpac is making them but because the Australian legal system requires it in order to obtain approval of the settlement. The implication that the proceedings are the fault of Westpac is misleading and disingenuous.

Miss Court went on: "‘It is unprecedented for ASIC to file multiple proceedings against the same respondent at the same time. However, these were exceptional circumstances. ASIC had numerous Westpac-related matters under investigation through the course of 2021 and we decided to expedite those matters for consideration by the Court at the earliest opportunity.’

Translation: "Hooray for us. We've been efficient. Pats on the back all round."

After all the words, comes the important part:

Westpac will compensate (ASIC says "remediate") qualifying customers in an amount of about AUD80 million. The compromise agreements provide for a combined amount of approximately AUD100 million.

The actual allegations set out by ASIC in its media release are:

Fees for no service – deceased customers: ASIC alleges that over a 10-year period, Westpac and related entities within the Westpac group, charged over $10 million in advice fees to over 11,000 deceased customers for financial advice services that were not provided due to their death.

General insurance: ASIC alleges that Westpac distributed duplicate insurance policies to over 7,000 customers for the same property at the same time, causing customers to pay for two (or more) insurance policies where they had no need for the additional policies. ASIC also alleges that Westpac issued insurance policies to, and sought payment of premiums from, 329 customers who had not consented to entering into an insurance policy.

Insurance in super: ASIC alleges that 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. BT Funds Management represented that the insurance fees had been properly deducted from members accounts when in fact the insurance fees that were deducted included commissions that were not permitted. 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. BT Funds is remediating over $12 million to over 8,000 affected members who were incorrectly charged.

The Australian Prudential Regulation Authority (APRA) has also been reviewing these matters and ASIC and APRA have taken a coordinated approach to their respective inquiries.

Inadequate fee disclosure: ASIC alleges that Westpac licensees BT Financial Advice, Securitor and Magnitude (all no longer operating) charged ongoing contribution fees for financial advice to customers without proper disclosure. Some fees were not disclosed to the customer at all, at other times the amount disclosed was less than the amount charged. It is estimated that at least 25,000 customers were charged over $7 millon in fees that had not been disclosed, or adequately disclosed.

Deregistered company accounts: ASIC alleges that Westpac did not have appropriate processes to manage accounts held in the names of deregistered companies. As a result, Westpac allowed approximately 21,000 deregistered company accounts to remain open. Westpac continued to charge fees on those accounts and allowed funds to be withdrawn from these accounts that should have been remitted to ASIC or the Commonwealth.

Debt onsale: ASIC alleges that 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. Westpac and/or the debt purchasers have refunded over $17 million to affected customers.

ASIC further alleges that in all matters, excluding Debt onsale and Insurance in super, Westpac failed to ensure that its financial services were provided efficiently, honestly and fairly.

The proceedings are against multiple Westpac group companies. These, ASIC says, are

Westpac Banking Corporation
Advance Asset Management Limited
Asgard Capital Management Limited
BT Funds Management Limited
BT Funds Management No. 2 Limited
BT Portfolio Services Limited
Securitor Financial Group Pty Limited
Magnitude Group Pty Ltd

The court papers are available at these locations:

Fees for no service - deceased customers: Originating Process https://download.asic.gov.au/m... (PDF 855 KB) and Statement of Agreed Facts https://download.asic.gov.au/m... (PDF 4 MB)

General insurance: Originating Process https://download.asic.gov.au/m... (PDF 498 KB) and Statement of Agreed Facts https://download.asic.gov.au/m... (PDF 1 MB)

Insurance in super: Originating Process https://download.asic.gov.au/m... (PDF 580 KB) and Statement of Agreed Facts https://download.asic.gov.au/m... (PDF 11 MB)

Inadequate disclosure of fees: Originating Process https://download.asic.gov.au/m... (PDF 833 KB) and Statement of Agreed Facts https://download.asic.gov.au/m... (PDF 3 MB)

Deregistered company accounts: Originating Process https://download.asic.gov.au/m... (PDF 529 KB) and Statement of Agreed Facts https://download.asic.gov.au/m... (PDF 10 MB)

Debt onsale: Originating Process https://download.asic.gov.au/m... (PDF 636 KB) and Statement of Agreed Facts https://download.asic.gov.au/m... (PDF 3 MB)

To be clear: the conduct alleged and admitted to is reprehensible and prima facie often fraudulent. Westpac deserve to be in trouble for it. But these cases have been known about for a number of years. The allegations are not current.

ASIC's statement includes the following: "The conduct and breaches alleged in these proceedings caused widespread consumer harm and ranged across Westpac’s everyday banking, financial advice, superannuation and insurance businesses. A common aspect across these matters has been poor systems, poor processes and poor governance, which is suggestive of an overall poor compliance culture within Westpac at the relevant time (our emphasis). Customers are entitled to have trust and confidence in Westpac being able to deliver what it promises, without suffering financial harm. "

There is nothing in this that has not been said many times before, including by officers of Westpac. But then ASIC goes on "Westpac must urgently improve its systems and culture to ensure these systemic failures do not continue." The truth is that Westpac, along with all Australia's major financial institutions has been working hard to do exactly that and to identify and report to ASIC failures and to remedy them. For ASIC to imply, as that statement does, that Westpac has failed to take any active steps is, quite simply, false and causes damage to current reputation of the bank. That seems to be, simply, unjustified and vindictive.

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