“Was there any contemplation of a criminal proceeding? Ever?” Mr Hayne said.
Ms Smith said that was not contemplated, prompting Mr Hayne to ask: “Did you think yourself that taking money to which there was no entitlement raised a question for criminal law?”
— Ruth Williams & John Collett, “Experts agree bank conduct could be criminal”, Sydney Morning Herald, August 8, 2018
On 11 March 2019, ASIC published 19-05MR addressing the “unreasonably delayed” reviews of systemic failures within six institutional advice businesses.
The businesses – AMP, ANZ, CBA, Macquarie, NAB and Westpac – had implemented review programs to identify systemic FFNS issues but, in the wake of the Banking Royal Commission, ASIC were concerned that the institutions had failed to adequately prioritise the reviews.
ASIC’s position seems reasonable, given that the businesses were advised to start their process as early as 2015.
There are always credible reasons for delays – other than “I didn’t know” and “no one told me” – and, in this case, ASIC have summarised them as:
- poor record-keeping and inability to access files;
- a failure to adopt a fair, open and accessible approach; and
- a legalistic approach to their obligations.
To access the media release, and the detailed scorecards for each institutional business, click here.
To Institutions, and beyond
Beyond the general public policy considerations, and the need to alert you to ASIC’s increasing activity on the basis of increased powers, Licensees need to appreciate that FFNS issues are not the exclusive domain of institutional businesses.
FFNS failures can exist in any Licensee. It is incumbent on all Licensees to understand their exposure, consider their liabilities and plan their response.
- Identify any clients that appear to have paid fees for services they didn’t receive.
- Avoid a ‘legalistic approach’. Keep your obligation to act ‘efficiently, honestly and fairly’ front of mind when you make this determination.
- Confirm that you have all relevant records and unrestricted access to relevant files.
- Investigate to confirm whether they paid for services, received services or paid FFNS.
- Review the file. Check file notes. Consider any SoA or RoA produced.
- Think about what proof a ‘reasonable person’ would require before accepting that services were provided.
- Consider whether you’re comfortable arguing that “the mere offer of an annual review” is sufficient to justify the receipt of fees. Spoiler alert, it’s not.
- Think about how you’ll treat customers that declined (perhaps repeatedly) an annual review
- Assess whether you explained, and they understood, the importance of the annual review. Review your end-to-end advice process.
- Consider whether you adequately discharged your professional and contractual obligations to those customers.
- Determine whether the client’s arrangement, and your FFS arrangements in general, were appropriate.
- Articulate your approach to compensation
- Should the ongoing service fee be refunded completely or offset against services provided?
- What if fees were bundled?
- Should interest be paid to affected customers?
- How should refunds be calculated and confirmed?
- Review your internal measures, processes and procedures
- Your Monitoring and Supervision Policy should be amended to identify and escalate FFNS issues
- Your Incident and Breach Management Policy should provide parameters for materiality and significance based on your responses to 1-4.
- Your Remediation and Consequence Management Policy should articulate the consistent and transparent way you’ll handle identified issues.
- The calculation methodology stated in your Complaints Policy should be consistent with your approach to FFNS issues and RG256. It should also be verifiable
If you require assistance in determining whether “Fees-For-No-Service” is an issue for your business, we’re ready and able to assist you to assess your exposure. If we can help, please let us know.