ASIC provides update on further reviews into fees-for-no-service failures

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ASIC yesterday released an update on the fees for no service (FFNS) further review programs undertaken by six of Australia’s major banking and financial services institutions.

ASIC’s ongoing supervision of the review programs undertaken by AMP, ANZ, CBA, Macquarie, NAB and Westpac (the institutions) has shown that most of the institutions are yet to complete further reviews – i.e. reviews to identify systemic FFNS failures beyond those already identified and reported to ASIC since 2013.

ASIC Commissioner Danielle Press said the institutions had taken too long to conduct these reviews, and welcomed the Government’s commitment to give ASIC new directions powers that could speed up remediation programs in the future.

‘These reviews have been unreasonably delayed. ASIC acknowledges that they are large scale reviews – they relate to systemic failures over long periods with reviews going back six to 10 years and cover 36 licensees from the six institutions that currently authorise more than 7,000 advisers [1]. However, we believe the institutions have failed to sufficiently prioritise and resource their reviews, particularly as ASIC advised them to commence the reviews in mid-2015 or early 2016.

‘We are pleased the Government has agreed to adopt recommendations from the 2017 ASIC Enforcement Review Taskforce Report, which includes a directions power. This would allow ASIC to direct AFS licensees to establish suitable customer review and compensation programs,’ she said.

The main reasons for delays by the institutions are:

  • poor record-keeping and systems within the institutions, which mean that in many cases they have been unable to access customer files for review;
  • failure by some institutions to propose reasonable customer-centric methodologies to identify and compensate customers despite ASIC’s clear articulation of expectations. (For example, ASIC rejected a few of the methodologies such as a requirement for customers to ‘opt-in’ to the review and remediation program, and a proposal to assess if there had been a ‘fair exchange of value’ with customers instead of assessing whether customers received the specific services they paid for); and
  • some institutions have taken a legalistic approach to determination of the services they were required to provide. (For example, ASIC’s view is that if the agreement requires an annual review, the mere offer of an annual review is not sufficient.)

Overview of ASIC’s FFNS work

ASIC’s large-scale FFNS supervisory work includes overseeing:

  • the institutions’ programs to compensate customers impacted by the reported failures to provide advice services paid for by customers (compensation programs); and
  • the institutions’ reviews to determine whether there were further systemic FFNS failures beyond those already identified and reported to ASIC (further reviews).

Under the compensation programs, AMP, ANZ, CBA, NAB and Westpac have collectively paid or offered approximately $350 million in compensation to customers who were charged financial advice fees for no service at the end of January 2019. Additionally, the institutions have provisioned more than $800 million towards potential compensation for further systemic FFNS failures. However, these reviews are incomplete.

Along with supervision of the compensation programs and further reviews undertaken by the institutionsASIC is also conducting a number of FFNS investigations and plans to take enforcement action against licensees that have engaged in misconduct.

Report card on further reviews undertaken by the institutions

The table below summarises ASIC’s view of a customer-focused approach to these further reviews, and the approach taken by each institution.

ASIC will continue to supervise and report on the institutions’ further reviews into FFNS failures.

 

 

Note (a): The information in the report cards is based on information provided by the institutions to ASIC by 28 February 2019.

Note (b): ANZ sold the three licensees covered in their further review, Financial Services Partners, Millennium3 Financial Services and RI Advice, to IOOF on 1 October 2018. ANZ is completing the further review on behalf of IOOF. The information in the table relates to the methodology developed by ANZ for this review.

Background

Fees for no service compensation

Since 2014, ASIC has supervised the FFNS compensation programs of 32 Australian financial services (AFS) licensees, including some not affiliated to major institutions. As at 31 January 2019, the licensees have paid or offered approximately $316 million in FFNS compensation to over 120,000 customers who were charged fees for personal advice. Of this, approximately $235 million has come from licensees owned by the institutions. Separately, NAB’s superannuation trustee, NULIS Nominees (Australia) Ltd, has paid or offered over $116 million in relation to ‘plan service fees’ for general advice. For further information on the FFNS compensation program refer 18-229MR.

Appendix: Report card on further reviews by institutions

The report cards below are based on information provided by the institutions to ASIC by 28 February 2019.

 



[1] This figure is based on the number of individual unique advisers at the 36 licensees as at 27 November 2018.

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