ASIC Seeks to Augment Business Practises Relating to Personal Advice

With regulatory repercussions cascading down on several banks and financial services firms around the globe, the Australian Securities and Investments


In its submission to the Financial System Inquiry (FSI), headed by former Commonwealth Bank, Chief Executive David Murray, ASIC has asked for the power to ban investment products and to intervene more heavily in the market. The regulator is also calling for financial advisers to “hold a university degree”, telling the FSI it supports the move because investment products are “complex and not well understood by consumers and investors.”

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The inquiry, published earlier this month, is a timely reminder of the continued scrutiny Australian banks are facing in parallel with their US and European counterparts. Australia’s Financial Ombudsman Service is preparing for a potential wave of complaints from aggrieved financial planning customers of Commonwealth Bank (CBA) and Macquarie Private Wealth (MPW).

Same Themes, Different Perspectives

After several confirmed cases of “severe misconduct” by planners and widespread allegations of further wrongdoing, both CBA and MPW have been forced by ASIC to open compensation schemes for aggrieved customers. In the same vein that large banks around the globe set aside billions of dollars of capital in 2008 in preparation for future write-downs, today banks are setting aside billions of dollars in preparation for compensation claims and litigation. Times change, principles don’t.

One key recommendation that may change Australia’s financial services industry, or at least how it appears in marketing materials, is by renaming ‘general advice’ as ‘general information’. In its submission to the FSI, ASIC is quoted as saying: “Renaming general advice that is primarily directed at generating sales would better reflect that nature of the activity, and would assist in clarifying its purpose for consumers.”

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 More Powers

ASIC is also pushing for greater powers to intervene in Australia’s financial services industry in case of violations or malpractice by “targeting bank staff to change cultures to better protect customers.” Creating an “enhanced register of individual advisers” is expected to help address conflict of interest issues widely encountered by retail customers.

The report states: “The inherent conflict of interest created by vertical integration may not be readily apparent to clients, particularly if the product manufacturer and advice parts of the business operate under separate licenses and business names.”

The Financial Ombudsman Service (FOS) has designated the CBA and MPW revelations as “significant events which can potentially result in significant numbers of related disputes coming to the Financial Ombudsman Service.” This ‘escalated category’ is expected to streamline and expedite complaints lodged with FOS by aggrieved CBA and MPW customers. Previous cases that were deemed “significant events” by FOS include the collapse of ‘Banksia Securities’ in 2013, and various natural disasters which often result in extensive disputes between claimants and insurance companies.

Commonwealth Bank, Australia’s largest bank by market capitalization, has opened a review process for any customer of ‘Commonwealth Financial Planning’ or ‘Financial Wisdom’ who feels they received poor advice between 2003 and mid-2012.

Meanwhile, Macquarie Group has written to over 160,000 customers of Macquarie Private Wealth, inviting them to raise concerns about the advice they received.

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